Indigo Paints hits new low; falls 8% in one week post Q3 results

Shares of Indigo Paints hit a new low of Rs 1,788.80, down 3 per cent in Thursday’s intra-day trade, falling 8 per cent in one week after the company announced its December quarter (Q3FY22) results. In comparison, the S&P BSE Sensex was down 1 per cent during the same period.

In Q3FY22, the company’s earnings before interest tax and depreciation and amortization (EBITDA) margin fell 45 bps at 14.57 per cent primarily due to reduction in gross margins, down 670 bps at 42.89 per cent, and higher A&P expenses. However, its revenue was up 26 per cent year-on-year (YoY), profit after tax (PAT) rose 29 per cent YoY and volume grew 16 per cent YoY in emulsions.

In line with the industry, Indigo Paints had also increased the product prices in the December quarter to mitigate the sharp escalation in the price of raw materials. The company expects a very strong boost in top line, gross margins, EBITDA and PAT numbers in the March quarter (Q4FY22).

"The unprecedented escalation of raw material prices across all categories in recent months has been matched with unprecedented price hikes by the industry in Q3FY22. The prices of most of raw materials have stabilized, albeit at higher levels, and in fact are showing slightly downward trend during the last two months. With the price hikes undertaken, the profitability is expected to improve sharply in Q4FY22," Indigo Paints said.

Edelweiss Securities expects the paints industry to sustain its robust revenue trajectory riding sustained rise in urbanisation, growth in popularity of branded paints, shortening repainting cycle and robust pricing power of industry players.

Overall, Indigo is a quality play on India’s consumer discretionary segment anchored by its high innovative quotient. It is backed by a multi-pronged approach of introducing differentiated products to create a distinct market in the paints industry, building brand equity and creating an extensive distribution network, it said. 

"We expect the paints industry to sustain its robust revenue and volume trajectory. Meanwhile, the company’s advertisement spend as % of revenue should continue to come off but ahead of peers, which should aid operating margins going ahead," the brokerage said in a company update.