Indigo Paints stock price has gained 48% since early March 2023. The company has been reporting double-digit YoY revenue growth over the past three quarters. According to the management, Indigo Paints has witnessed an industry leading growth rate and that too by a factor of more than 3x to 4x, which indicates significant market share gain.
Economy segment performed better than premium product segment
The company reported revenues of Rs 271 crore in Q2FY24, a rise of 11.5% YoY. Operating margins came in at 15.45%, expanding 150 basis points (bps) YoY in September Quarter 2023.
Indigo Paints delivered higher volume growth vs value growth in Q2FY24, indicating higher sales of economy products. Speaking on lower value growth, Hemant Jalan, Managing Director at Indigo Paints said, “Painting is led by exterior painting and most of your premium products in terms of share of total pie happen to be your exterior range products. And exterior products do suffer a muted growth rate during this period, because of monsoon. September quarter is completely a monsoon quarter.” He further added that higher sales of lower end products or economy products was seen both in Tier 1, Tier 2 and also in small towns and cities in Q2FY24. But in Q3FY24, the company is positive that sales of premium products will rise, improving operating margins.
Speaking on Q3FY24 demand outlook, Jalan said, “Q3FY24 has started off on a very positive note for us. And the growth rate that we have witnessed in sales in October has surpassed the growth rate that we have seen in any given month during the last three years to four years.”
Indigo Paints confident of maintain growth rate higher than industry average
The management is confident that the growth gap between Indigo Paints and the industry is going to widen in Q3 and Q4FY24. But the state of Kerala with 25% sales exposure is not performing well. This indicates robust growth in other states which led to double-digit revenue growth in Q2FY24. “There are many markets in India, which in the last quarter have given us in excess of 100% growth. And these are not tiny territories. These are some fairly big states where we already had a good presence”, said Jalan.
Construction chemicals and project sales to augment Indigo Paints revenue base
But what are the main reasons for the double-digit revenue growth much higher than the industry average.
While according to the management, higher focus on large cities, augmenting sales force and increasing number of tinting machines has led to higher growth, Indigo Paints has a lower base compared to its peers. So, even if the growth rates are high, there is a lot of catching up to do in terms of overall sales and profitability. Asian Paints and Berger Paints sales are twenty-seven and ten times respectively higher than Indigo Paints in September Quarter 2023. To enhance its revenue base at a faster pace, Indigo paints has forayed into construction chemicals and projects sales. Speaking on entry in project sales space, Jalan said, “We are attempting to enter project sales space initially in about eight states. We will see how the going goes, what kind of traction we get, what kind of corrective actions, if any, are required in our approach, and then gradually scale up on an all-India basis.”
Indigo Paints acquired Apple Chemie in April 2023, technology-driven construction chemicals company. Apple Chemie is a B2B player in construction, chemicals and waterproofing in the state of Maharashtra, with marquee clients like L&T, Shapoorji Pallonji and B.G. Shirke and Afcons. The management is expecting turnover of Rs 55-60 crore in current fiscal and Rs 100 crore in FY25 from construction chemical business.
