Indigo Paints Ltd. share price target

Indigo has been investing in strategy 2.0 (focus on 750 non-metro towns and higher investments in distribution and influencers) since Q1FY23. Benefits are visible now with >3x industry growth in Q1FY24 and likely market share gains across segments.

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.