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In Line Result; Monsoon Dampens Demand

Indigo Paints Q1 Result was in-line with our estimates. The company’s growth was largely in-line with industry growth rate vs ambition of growing at 2-3x of industry rates. With early monsoon impacting (i) Kerala – where company is over-indexed (~30% of revenue) and (ii) Apple chemie (road and metro construction dependent); the growth was impacted in Q1. However management is optimistic on demand revival on account of (i) notable recovery in July, (ii) lead indication from FMCG which has seen improved growth and (iii) early diwali leads to healthy demand across the quarter vs late diwali wherein subsequent months see a lull. The management highlighted higher discounts and schemes offered by new competition has been tapering down. The margins are likely to remain stable going ahead.

Growth In Line With Industry

Indigo Paints standalone business grew 0.3%YoY; ahead of APNT (-1.2%YoY) while behind KNPL (+1.4%YoY) and BRGR (+3.6%YoY). Consol revenue declined by 0.7%YoY largely due to weak performance in Apple Chemie (-17.6%YoY). The performance of Apple chemie was impacted due to early monsoon impacting road and metro construction. In terms of category, the volume & value growth for putty+cement/ emulsions/ enamels & wood coating/ primers + distemper+ others stood at -4% & 1.5% / -5.4% & -0.9% / 6.8% & 11.5%/ 1.8% & 6.3% respectively. The management highlighted signs of demand revival in early part of the quarter which was impacted by early monsoon. July has seen notable recovery and management expects sustained performance in 2Q. The company has largely grown in line with industry growth rates vs its ambition of growing 2-3x of industry rates.

Margins To Remain Stable

Gross margins contracted for fifth consecutive quarter by 70bps YoY to 45.9%. Higher employee expenses (+33bps YoY as % of sales) resulted in EBITDA Margin contraction to be higher than gross margin contraction. EBITDA Margins contracted by 89bps YoY to 14.3%. EBITDA declined by 6.5%YoY while PBT declined by 2.6% due to higher other income (+41.6%YoY). The management sees raw material basket marginally softening and expects margins to remain stable going ahead.

Improved Performance Key For Re-rating

Over the last one year, the stock has corrected by ~17% vs NIFTY which rose by 1%. The company had targeted to grow at 2-3x of industry growth rate; however last few quarters the company growth came in line with industry growth rates. Given high competitive activity in the sector, we await better execution in terms of growth. We estimate revenue/PAT CAGR of 6.8%/9.6% over FY25-28E. We assign REDUCE rating on the stock. We value the stock on Sept’27 EPS of Rs37.5 at target PE multiple of 30x leading to target price of Rs1,130.

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