Buy Indigo Paints; target of Rs 2270: Motilal Oswal

Motilal Oswal's research report on Indigo Paints

Established in the year 2000, Indigo Paints (INDIGOPN) is the fifth largest company operating in the INR542b (USD7.2b) Paints industry in India. Its product portfolio includes emulsions, enamels, wood coatings, distempers, primers, putties, and cement paint. Despite being a late entrant to this industry with high entry barriers, INDIGOPN has been able to create its presence in the market through its multi-pronged strategy of introducing differentiated products, high ad spends (as a percentage of sales), focusing on the rural markets, and increasing the penetration of tinting machines. The company has a presence in 27 States and 7 Union Territories with its distribution network of more than 14,700 dealers.

Outlook

We expect INDIGOPN to continue with its robust strategy and thereby deliver a sales/EBITDA/PAT CAGR of ~28%/35%/41% over FY21–24E. The recent sharp price hikes across the industry would further support sales growth and margin recovery in 2HFY22/FY23E. We initiate coverage with a Buy rating, with TP of INR2,270 (55x FY24E EPS).