Reduce Indigo Paints; target of Rs 1500: ICICI Securities

ICICI Securities research report on Indigo Paints

Indigo has been investing in strategy 2.0 (focus on 750 non-metro towns and higher investments in distribution and influencers) since Q1FY23. Benefits are visible now with >3x industry growth in Q1FY24 and likely market share gains across segments. We continue to model benefits of strategy 2.0 in FY23-25 and also believe (1) integration of Apple Chemie with Indigo’s supply chain and synergies in sourcing and distribution and (2) correction in commodity prices provide margin tailwinds. It continues to strengthen distribution with addition of 2 depots, 197 dealers and 384 tinting machines in Q1FY24. While we are enthused by strong performance of Indigo, we believe likely increase in competitive intensity post Grasim’s entry to impact industry profit pool. Maintain REDUCE.

Outlook

We model sales and earnings CAGR of 18.5% and 27.3% respectively, over FY23- FY25E. Maintain REDUCE with a revised DCF-based TP of Rs1,500. Key business risk is potentially higher competitive intensity in Kerala and key stock risk is potentially lower trading multiples due to increasing competitive activity and intensity in paints industry.

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