INDIGOPNTS - Indigo Paints Limited Share Price

Management provided an outlook indicating a gradual recovery in demand as visible in Q4 FY25 and expected to continue into Q1 FY26. Key points included:

1. Growth Expectations: Hemant Jalan, Chairman and Managing Director, stated that while the Q4 growth was modest at 0.3%, an improvement in demand is anticipated to potentially bring revenue growth back to double digits in FY26.

2. Margins and Costs: As raw material prices soften, EBITDA margins are projected to improve. In Q4 FY25, Indigo Paints achieved a record EBITDA margin of 23.4%, up from 22.5% in Q4 FY24, while the full fiscal EBITDA margin was slightly down at 18.1% compared to 18.5% in FY24.

3. Operational Efficiency: The company's active dealer count was steady at around 18,400. Plans to expand dealer networks and increase tinting machine installations were emphasized to drive future sales.

4. Market Position: Indigo Paints maintained a leadership position with a gross margin of 47.4% in Q4 FY25. Although facing competitive intensity from rivals like Berger and the entry of new players, management remains confident, citing a strong distribution network and targeted marketing strategies.

5. Sustainability Initiatives: The company has installed solar panels at its Pune and Cochin facilities and is actively involved in social initiatives, including educational support for underprivileged girls and health initiatives for painters.

In summary, Indigo Paints is poised for recovery with a focus on enhancing margins, expanding market presence, and improving operational efficiencies while navigating a challenging market environment.

Question 1: What are your thoughts on the overall demand outlook and why is Indigo Paints growing slower than Berger Paints in Q3-Q4 of FY25? Answer: We have pockets of strength and weakness across India, and demand recovery isn't uniform. In Q4, we returned to modest growth while facing challenges primarily in Kerala, which is crucial for us. Although we didn't outperform Berger, our top-line growth aligns with the broader industry. Ultimately, we anticipate that as demand continues to recover, our growth rate relative to competitors will improve significantly.

Question 2: Are you taking any proactive steps to grow faster than the industry again? Answer: Absolutely. We aim to grow at 2.5X to 3X the industry rate. We're enhancing our dealer count and ramping up our Business Development Officers to engage with contractors and painters, which aids secondary sales. While our dealer count saw a slight decrease recently, we're currently focused on network expansion, and you'll see positive results in Q1 of FY26.

Question 3: How do you perceive the competitive intensity from new players and market share claims? Answer: The new entrant's claims don't concern us much. We continue to maintain our gross margins. While there may have been a slight increase in trade schemes due to soft demand, we're optimistic about returning to normal margins as demand recovers, aided by softening raw material prices and improved product mixes across the board.

Question 4: Can you comment on your working capital situation, especially regarding debtors' days? Answer: Our debtors' days have remained stable at 32 days compared to last year. The reduction in trade payables is largely due to adhering to government mandates for quicker payments to MSME suppliers. Overall, our working capital remains healthy, with no significant concerns on borrowings.

Question 5: What are your plans for the institutional sales side, especially with the improved real estate demand? Answer: We don't have a significant focus on institutional sales in decorative paints, as our strategy has been to stay away from that sector. However, our subsidiary, Apple Chemie, focuses on B2B sales in construction chemicals and has seen robust growth, benefiting from increasing government infrastructure spending.

Question 6: Are there any plans to enter adjacent businesses like industrial paints or automotive paints? Answer: We're currently not looking to enter industrial or automotive paints. While we've seen success in waterproofing and construction chemicals, industrial paints have low margins, and automotive paints present high entry barriers. Our focus remains on thriving within our current segments, particularly in premium categories.

Question 7: How do you view the trend in advertising and promotional spending, especially in the current competitive environment? Answer: Our A&P spending as a percentage of revenue is declining primarily due to reduced demand. While we decreased absolute spends from Rs. 92 crores to Rs. 82 crores, this reflects a strategic pivot to video engagement with painters. As demand recovers, we'll likely increase A&P spending but possibly remain lower as a percentage of revenue.

Question 8: Given the recent changes in material costs, what's your outlook on the impact on margins? Answer: We've seen a mild softening of raw material prices, primarily in emulsion monomers. The anticipated anti-dumping ruling on titanium dioxide could impact us temporarily but overall, we expect some continued reduction in costs. As production stabilizes, we expect to improve margins, reflecting overall industry trends.

Question 9: Can you provide insights on your growth expectations moving forward? Answer: We anticipate a return to double-digit growth, contingent on the overall demand recovery. Factors like early monsoons and regional tensions have affected Q1 demand; however, as conditions normalize, we expect improved performance in Q2 and beyond, aligning us back to historical growth patterns.

These responses encapsulate the core inquiries and respective insights from the Q&A session of the earnings call.