Indigo Paints Ltd. share price target

There was sequential recovery in almost all segments of Indigo in Q4FY23 and Apr May’23 are also strong months. We attribute this improvement to likely success of ‘Strategy 2.0’ as tier 1 and 2 cities are growing at ~100% higher than tier 3 and 4 cities and rural markets.

In-line with peers, prolonged monsoon and early Diwali impacted Q3FY23 revenues for Indigo. Even after adjusting for transitory issues, it’s Q3FY23 revenues were below our and consensus expectations.

While Indigo’s Q2FY23 results were largely in-line with our estimates, we believe consensus was positively surprised. In-spite of headwinds like prolonged rainfall which impacted exterior emulsions, we note Indigo’s revenue growth (23.7% YoY) was higher than Asian Paints (19.4%) and Kansai (19.2%).

While Indigo’s revenue of 43.6% appears lower than peers, we note it has grown largely in-line with peers with 17% three-year revenue CAGR and has maintained market shares.

While Indigo’s most segments reported strong volume growth in FY22, its volumes/store declined slightly in FY22 owing to multiple reasons such as (1) aggressive rollout of new stores, (2) slowdown in Kerala impacted by covid and state elections. Kerala’s 18% population was impacted by covid (India: 3%) and it resulted in higher restrictions; state elections in Apr-May’21 also disrupted labour (painter) market