Buy Indigo Paints; target of Rs 1600: Motilal Oswal

Motilal Oswal's research report on Indigo Paints

Indigo Paints (INDIGOPN) delivered consolidated sales growth of 18% YoY to INR3.8b (est. INR3.9b). Standalone sales growth decelerated to 12.5% YoY in 4QFY24 vs. 19% in 9MFY24. Apple Chemie clocked 24% YoY growth in FY24 to INR517mn (since acquisition in 1QFY24) and supported consolidated growth. In FY24, INDIGOPN sustained growth outperformance, with 17% YoY growth in standalone revenue (leading to share gains). Emulsion value/volume growth stood at 9%/14% YoY and Primer + Distemper value/volume growth was 28%/22% YoY. Consolidated revenue grew 22% YoY in FY24. GM expanded 210bp YoY/70bp QoQ, aided by favorable RM prices. Higher other expenses at 30% YoY (180bp) were attributed to reinvestment in marketing and distribution. Hence, EBITDA margin was flat YoY at 22%.

Outlook

Given the relatively small scale of INDIGOPN (INR13b revenue in FY24) in the large paints industry, the company has been able to grow much faster than the industry. Consumers’ rising acceptance of the brand and the expansion of distribution have been driving the outperformance. However, changing the competitive landscape will be a key monitorable. We reiterate our BUY rating with a revised TP of INR1,600 (40x FY26E EPS).