Expstrong textanding presence. Indigo Paints to foray into waterproofing strong text , construction chemicals; expand reach
Posted good set of overall numbers.
Some highlights:
- Gross margin in Q4 FY23 came in at 46.82%, best in the industry if I am not wrong.
- EBIDTA margin also expanded to 22% this quarter.
- Crossed the 1000 Crores mark in revenues for the full year for the first time
- Revenue, PAT and EBIDTA all grew considerably this year. However, interesting thing to note is that while revenue grew at 18.47%, EBIDTA grew at 33.5% and PAT at 56.98%, which in my mind is a big positive as bottom line is growing more exponentially than sales.
All good signs so far. If someone else whoโs also been following this business can analyze the results and point out any negatives, that would be great.
Disc: Invested and biased. Not a buy/sell recommendation.
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Positives:
- Margin expansion even though some of the benefits are passed to retailers due to a better product mix.
- Good growth in enamels and wood coatings.
- Acquisition in construction range and also entered into waterproofing products.
- Slight market share gain over peers(Maybe in the range of 0. something for the quarter)
- Growth in Tier 1 & 2 towns is double of Tier 3 & 4 towns.
Negatives: - Decrease in Active Dealers.
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KEY insight From Concall of Q1 FY24
- One of the best Concall that I have read this year
- Management is very bullish on there business
- High volume growth in all categories
- Jodhpur plant 90000 KLPA operational by end FY25
- Three month back they acquired satke in Apple chemie a fast growing company in construction chemical and water proofing space
- Apple chemical expected to become a pan Indian player in couple of years (currently only maharashtra)
- The only risk i found is that there 28% revenues come from only kerala state,
But this share gradually decreasing.
Disc : Invested and biased. Not a buy/sell recommendation.
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Hi, I came across the company recently, went through the concalls/PPTs and below are my observations.
The super high valuations of the company at the time of the IPO has not held up, and the current price has gone below IPO price and profits have increased, thus making the company relatively cheaper, hence attracted my interest.
The co. is growing ahead of the industry, margins have improved and now there is little headroom for margins to improve from here, based on A&P spends. If they continue to grow ahead of the industry, and A&P spends grow at lesser rate, then some benefits will show up in the EBIDTA, and the co. expects that it could reach 20% EBITDA margins next year. Currently their margins are second best, slightly behind Asian Paints.
The company has finished the TN capex and initiated the Jodhpur capex. Their strategy of focusing on 750 cities has resulted in growth. The mgmt is expecting to finish the year (FY24) around 1350 Cr, this is 25% growth over last year. And next year they are targeting to grow beyond 25% (their target is to grow between 30-40%), provided industry grows to its pre-pandemic levels of around 8-10%. The co. is expecting Apple Chemie also to grow to 55-60Cr, and very bullish on the subsidiary outperforming going forward.
The mgmt has, multiple times, alluded to reaching closer to #2 and #3, and if from Fy24, they grow 5x they would still not be #3 by 2029, they will be less than 7000Cr topline. Assuming they maintain their margins (10% NPM), and assuming PE multiple of 40, the mcap could reach 28,000Cr, that would be over 4x from current levels in 5 years (32% CAGR).
The triggers are:
- Focus on 750 cities, increasing the tinting machines, increasing per dealer business, increasing engagement with influencers in these 750 cities
- Foray in projects business
- Foray in retail waterproofing segment
- Taking Apple Chemieโs waterproofing and construction chemicals business to PAN India level from a single state of MAH at the time of acquisition.
A big question is, will the company be able to grow as per its own expectations.
Another big risk to this thesis, and connected to the above risk will be, how Grasim executes its plan. There are fears that Grasim will alter the industry structure significantly and historical profits/returns earned by the incumbents will reduce. If that plays out, then all the parameters like growth, margins, multiples will reduce for the current players and above thesis will fail.
Disc: not invested, but interested
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Another set of good results (just skimmed through them). They have been delivering consistently on the business front. It has undergone price and PE correction during the same time frame in which it increased its revenue, profit and market share. To me, the current stock price behaviour is a reflection of the macro environment and nothing more. I am happy to hold as long as they keep walking the talk.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/56bc180f-b452-45f7-8180-284cfd868b92.pdf
NOTE - Invested, biased and not a SEBI registered advisor. So if you want to gamble your hard earned Rupees on my 2 cents, you are better off playing Roulette 
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Few of my takeaways from Q1 FY25 of Indigo Paints
Indigo Paints delivered industry-leading growth of 7.8% in a challenging quarter, though management admitted this fell short of internal expectations. The company saw robust 47% growth in its subsidiary Apple Chemie, signaling strong momentum in the construction chemicals segment. However, weakness in the key Kerala market dragged down overall performance. Management expressed cautious optimism about demand revival, noting strong sales in July.
๐๐ญ๐ซ๐๐ญ๐๐ ๐ข๐ ๐๐ฅ๐ฎ๐๐ฉ๐ซ๐ข๐ง๐ญ:
The company is doubling down on digital marketing to complement its TV advertising. Itโs also expanding its waterproofing and construction chemicals portfolio, aiming for 8-10% revenue contribution in the medium term. Indigo continues to focus on expanding its dealer network and tinting machine installations to drive growth.
๐๐๐ซ๐ค๐๐ญ ๐๐ฒ๐ง๐๐ฆ๐ข๐๐ฌ:
Thereโs a clear shift towards value-added and differentiated products. Indigo is leveraging its technological edge from subsidiary Apple Chemie to develop superior quality waterproofing solutions. The company is also seeing traction in its economy range of distempers, indicating demand across price points.
๐๐ง๐๐ฎ๐ฌ๐ญ๐ซ๐ฒ ๐๐๐ข๐ฅ๐ฐ๐ข๐ง๐๐ฌ:
Gradual recovery in rural demand could boost sales of economy products. Recent price hikes of ~2% by the industry should aid margin recovery. Growing focus on waterproofing and construction chemicals presents a sizeable growth opportunity.
๐๐ง๐๐ฎ๐ฌ๐ญ๐ซ๐ฒ ๐๐๐๐๐ฐ๐ข๐ง๐๐ฌ:
Subdued consumer sentiment continues to impact discretionary spending. Raw material cost volatility remains a concern. Intense competition among established players is putting pressure on channel discounts.
๐๐ง๐ฏ๐๐ฌ๐ญ๐จ๐ซ/๐๐ง๐๐ฅ๐ฒ๐ฌ๐ญ ๐๐ฎ๐๐ฌ๐ญ๐ข๐จ๐ง๐ฌ:
Analysts probed about the impact of new entrants like Birla Opus. Management downplayed concerns, citing historical precedents of new players struggling to gain significant market share quickly. They emphasized Indigoโs 25-year survival instinct and ability to compete against giants.
๐๐จ๐ฆ๐ฉ๐๐ญ๐ข๐ญ๐ข๐ฏ๐ ๐๐๐ง๐๐ฌ๐๐๐ฉ๐:
While dismissing immediate threats from new entrants, management acknowledged fierce competition from the top 4 players. Indigo aims to differentiate through superior product quality, especially in waterproofing, and better execution on the ground.
๐ ๐ฎ๐ญ๐ฎ๐ซ๐ ๐๐ซ๐จ๐ฃ๐๐๐ญ๐ข๐จ๐ง๐ฌ:
Management refrained from providing specific guidance but expressed hope for sharp uptick in both top-line and bottom-line from Q2 onwards. They cautioned that Julyโs strong performance may not necessarily continue in August and September.
๐๐๐ฉ๐ข๐ญ๐๐ฅ ๐๐๐ฉ๐ฅ๐จ๐ฒ๐ฆ๐๐ง๐ญ:
Indigo has completed major capex with its Tamil Nadu plant and is now expanding capacity at Jodhpur. Management expects these investments to meet requirements for the next 4 years, indicating a shift towards sweating existing assets.
๐๐ฉ๐ฉ๐จ๐ซ๐ญ๐ฎ๐ง๐ข๐ญ๐ข๐๐ฌ & ๐๐ข๐ฌ๐ค๐ฌ:
The waterproofing and construction chemicals segment presents a significant growth opportunity. However, the company faces risks from potential prolonged demand weakness and margin pressure due to competitive intensity.
๐๐จ๐ง๐ฌ๐ฎ๐ฆ๐๐ซ ๐๐ฎ๐ฅ๐ฌ๐:
Management noted subdued market conditions but saw encouraging signs in July sales. They remain cautiously optimistic about demand recovery in the coming quarters.
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Peak XV (formerly Sequoia capital) sells 22 pc stake in Indigo Paints to investors like Morgan Stanley, Mercer, HDFC MF.
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While studying Indigo Paints found some interesting insights on what Hemant Jalan, the promoter had to tell about the industry from his learningโs. Below is a presentation on the same
Management Insights.pdf (932.1 KB)
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I believe the chart is self-explanatory in identifying the most efficient player in the paint industry when it comes to working capital management.
Inspite of the pain in the industry, wonder why FIIs and DIIs have increased stake so much? Any insights what is cooking here?
This is because Peak XV Partners sold 22% stake in a bulk deal in September. FIIs and DIIs picked up most of that stake. Peak XV Partners is classified under โPublicโ shareholders.
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