Just adding on some pointers on the discussion:-
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All paint companies took massive price hikes in Q3, which will be visible in sales numbers fully from this quarter. The margins under pressure point might actually end up surprising markets - considering inventory will be selling from Q3 and prices will be higher - OPMs might not be as bad as people expect
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In Indigo’s latest conference call - Mr Jalan clearly points out that Q4 is an exceptionally strong quarter for them seasonally. If this does happen the reaction will be interesting - we still have not seen a single Q4 from Indigo so markets are still evaluating/gauging a high growth story
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Indigo has seen healthy growth last couple of years inspite of COVID - faster than industry leaders. Laggards have been Akzonobel and Nerolac.
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Paint market is quite price inelastic and still growing decently in terms of top line. That historically makes ‘margin erosion’ periods usually decent times to invest - as these companies even otherwise are prohibitively expensive. That said, current valuations are no where near cheap despite corrections
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Indigo follows a very different rural first strategy. They also recruit new dealers from clearly differentiated products and then extend range. Competitive intensity is definitely there - but it would be interesting to see if these competition brands go for the massive markets of the leaders or the relatively smaller pie of Indigo
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Profit pools will definitely be shared more. But considering industry growth rate - profit pools will also continue to compound for a long period of time and won’t be stagnant at the current number. So we should not be looking at the profit pool now but over a long term period.
That said, I completely agree on the point that
there is absolutely no stock which is ‘zero risk’
Discl : Invested, biased. Not a registered advisor.