Aiming for the next altitude
In a year marked by several challenges such as supply chain disruptions followingrepeated waves of the pandemic subdued demand scenario and high inflation fuelling risein input costs and putting pressures on margins we have reported double-digit growth inrevenue and profitability.
During the year we focused more on engaging with our customers dealers andinfluencers and supporting our teams to remain undeterred by challenges and emergestronger.
We believe India's mega consumption engine will gradually gain momentum as the 2+trillion-dollar economy shakes off the inertia induced by the pandemic and thegeopolitical tensions in Europe. The macro indicators such as GST collections railwayfreight E-Way bills air travel power consumption are pointing towards a robust revival.The high inflation trajectory is expected to normalise over the medium term with the RBIresorting to a series of repo rate hikes to absorb the excess liquidity in the economy.
Performance during the year
You are aware of the unusual rise in input costs in the last 18 months which hascompelled all industry players to take a series of price hikes. We also focused onenhancing our operational efficiency in order to optimise our costs to the extentpossible. What is heartening to note that despite escalation in input costs we have beenable to contain the reduction in gross margins and Indigo Paints closed the year with agross margin of 43.32% which is perhaps the highest in the industry. This was possibledue to the higher contribution from the differentiated products prudent sourcing and costmeasures undertaken by the Company. The sudden surge in crude prices did not hurt ourmargins significantly because oil-based paints are a relatively small portion of ourportfolio.
Notwithstanding steep rise in input costs our operational income has expanded by25.25% over FY21. EBIDTA and PAT have expanded by 11% and 18.63% over FY2021 despitelower gross margins and higher advertising and promotion (A&P) spends than thepreceding year.
Our EBITDA margin has touched 18.64% in the last quarter which is up sequentially from14.57% in the preceding quarter and even higher than 16.89% that we experienced in Q4 ofFY2021. PAT numbers for Q4 have expanded by 39.14% on a Y-on-Y basis. This points to arevival in the profitability parameters towards the end of the FY 2022.
Coming to the financial numbers for the full fiscal FY2022 our net sales in operationsduring the year have been 25.25% higher than FY2021. Now it should be noted that thisincrease is on a more robust base level of FY2021 because Indigo Paints had not been asseverely impacted by the first Covid-19 wave as other paint companies and we had shown amuch higher top line growth in FY2021 compared to others. Therefore this growth of 25.25%comes from a relatively robust base for us.
EBITDA margin for the full year FY2022 has been 15.01% and PAT margin has been 9.17%both of which are marginally lower than the corresponding figures for FY2021 due to steepraw material inflation. However the contraction in both these margins is not as severe asfor other industry players.
Next leg of the journey
Our growth over the years has been stellar but we believe in order to sustain thatmomentum we need to expand to Tier 1 and Tier 2 cities without diluting our focus on thesmaller towns and cities from where we derive our strength.
In most states of India our network of dealers in these small towns is excellent andan attempt to further increase our network would be counterproductive. Our share ofcounter revenue in these cities is also fairly high. Although there is considerable scopefor further improvement we believe it will happen gradually. Therefore we have nowdecided to focus on the next level of towns or cities in India. We have identified 750such cities in India which are big cities of the country by population where we will nowbe looking to deepen our penetration.
Silver lining on the horizon
We are seeing a gradual improvement in the demand scenario in the current fiscal yearwhich is likely to strengthen further. Prices of key raw materials are also showing astabilizing trend. In view of these positive factors we are confident of growing ourbusiness both in terms of volume and value. Our topline growth has been more or less inline with the industry in the preceding five quarters. We now need to revert to ourearlier growth trajectory of 2X growth compared to the industry.
Our key priorities are
Enhance output per dealer in the 750 cities in focus Intensive engagement with theinfluencer community to drive sales Aggressive innovation to strengthen differentiationand command price premium Increase distribution footprint through wholesalers in selectcities Invest in brand building with an eye on reducing our total A&P spends as apercentage of total revenue.
We are progressing reasonably well on the construction of our new water-based paintplant in Tamil Nadu with civil construction and machinery procurement in full swing. Weexpect to complete the commissioning of this plant by Q3 of FY2023. However this is not acause for concern as we have enough adequate surplus capacity to meet near-term demandincrease.
We are growing a responsible business with the support and encouragement of allstakeholders. We are committed to extending support to the disadvantaged sections ofsociety as a part of our corporate citizenship initiative.
I would also like to reiterate what said in my last letter that Indigo Paints isbalancing growth with environmental sustainability. Before I conclude I must thank allour employees consumers business partners suppliers shareholders and all otherstakeholders for their continued trust in our vision and capabilities.
|Hemant Jalan |
|Chairman/Managing Director |