Indigo Paints: Upcoming Star

Stock Opportunities Untested - but worth a good look
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Expstrong textanding presence. Indigo Paints to foray into waterproofing strong text , construction chemicals; expand reach

Source : Indigo Paints to foray into waterproofing, construction chemicals; expand reach - The Hindu BusinessLine

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Posted good set of overall numbers.

Some highlights:

  1. Gross margin in Q4 FY23 came in at 46.82%, best in the industry if I am not wrong.
  2. EBIDTA margin also expanded to 22% this quarter.
  3. Crossed the 1000 Crores mark in revenues for the full year for the first time
  4. 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 who’s 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:

  1. Margin expansion even though some of the benefits are passed to retailers due to a better product mix.
  2. Good growth in enamels and wood coatings.
  3. Acquisition in construction range and also entered into waterproofing products.
  4. Slight market share gain over peers(Maybe in the range of 0. something for the quarter)
  5. Growth in Tier 1 & 2 towns is double of Tier 3 & 4 towns.
    Negatives:
  6. Decrease in Active Dealers.
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KEY insight From Concall of Q1 FY24

  1. One of the best Concall that I have read this year
  2. Management is very bullish on there business
  3. High volume growth in all categories
  4. Jodhpur plant 90000 KLPA operational by end FY25
  5. Three month back they acquired satke in Apple chemie a fast growing company in construction chemical and water proofing space
  6. Apple chemical expected to become a pan Indian player in couple of years (currently only maharashtra)
  7. 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:

  1. Focus on 750 cities, increasing the tinting machines, increasing per dealer business, increasing engagement with influencers in these 750 cities
  2. Foray in projects business
  3. Foray in retail waterproofing segment
  4. Taking Apple Chemie’s 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 :slight_smile:

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