Buy Indigo Paints; target of Rs 1850: Sharekhan

Sharekhan's research report on Indigo Paints

Indigo paints Limited (IPL) posted good performance in Q1FY2024, with revenue and PAT growth at 23.7% and 58.2% y-o-y to Rs. 277 crore and Rs. 31.5 crore, respectively; OPM improved by 155 bps y-o-y. The company is targeting Rs. 200 crore revenue from the newly acquired Apple Chemie in three years; contribution from tier-1/2 cities is expected to rise to ~38% by FY2024-end from 33% in FY2023. Margin expansion would be led by softening of input costs and reduction in ad-spends as a percentage of sales. We expect the company’s revenue and PAT to report a 22% and 23% CAGR over FY2023-FY2025E, respectively, led by double-digit volume growth, driven by distribution expansion, focus on brand building, capacity addition, and scale-up in the B2B business.

Outlook

The stock trades at 44.6x/37.7x its FY2024E/FY2025E earnings. We maintain our Buy rating with a revised PT of Rs. 1,850.