INDIGOPNTS - Indigo Paints Limited Share Price

During the earnings call for Q1 FY '26, management at Indigo Paints shared a cautious yet optimistic outlook. Despite facing significant challenges, including an early monsoon and interruptions due to geopolitical tensions, the company reported a slight revenue growth of 0.3% year-over-year with Q1 standalone sales reaching INR 307.5 crores, while consolidated revenue fell by 0.7% to INR 308.9 crores. The gross margin stood strong at 46.1%.

Management highlighted several forward-looking points:

1. Recovery Expectations: July 2025 showed a notable recovery in sales post the challenging months of May and June, and management anticipates sustained demand in Q2 with expectations for a stronger second half of FY '26.
2. Strategic Expansions: The addition of 50 to 70 new experiential stores branded as Indigo color canvas is in the pipeline to enhance the consumer experience and drive sales further.
3. Product Mix Improvements: Although the emulsion segment saw a slight volume decline of 5.4%, the higher value growth suggests a favorable shift toward premium products.
4. Subsidiary Performance: Although Apple Chemie faced a 17.6% drop in revenue due to early monsoons, improved gross margins and new product launches are expected to bolster performance moving forward.
5. Capex and Production Initiatives: New water-based and solvent-based paint plants are set to be operational in FY '26 Q3/Q4, which will enhance production capacity and efficiency.
6. Raw Material Trends: While raw material prices are showing signs of softening, management remains optimistic about stable margin maintenance.

Overall, the management conveyed a sense of cautious optimism, projecting a turnaround based on pent-up demand and seasonal recovery.

Question 1: Other peers have been highlighting certain issues with respect to demand and competitive pressures in southern markets. Can you comment on your sales mix and growth in the Southern region?

Answer: Our market share in states other than Kerala, like Tamil Nadu, Andhra, Telangana, and Karnataka, is low. Thus, we aren't facing significant competitive pressure. While Kerala has seen demand softness due to early monsoons, we anticipate a good rebound as pent-up demand builds.

Question 2: I wanted to know the sales contribution to the top line from the Southern part of the country.

Answer: About 35% of our sales come from South India, with a large portion attributed to Kerala. The product mix in the South isn't much different from other regions, but higher-margin products do perform better here than in other areas.

Question 3: We've seen a good growth in enamels and wood coatings, up 11.5% in value. Is this due to a low base or specific geographies?

Answer: The growth primarily stems from our differentiated PU enamel, which we've pioneered. Although our revenue contribution from enamels is less than competitors, these products aren't high-margin. Wood coatings contribute more margin-wise, but their share is significantly lower than enamels.

Question 4: Demand has been muted industry-wide. Do you see a recovery in H2, and what areas would lead this?

Answer: Although real estate has shown limited impact on us, I believe a broader recovery is underway, particularly in FMCG demand. While July saw improved sales despite monsoon challenges, I remain optimistic about a robust second half, driven by pent-up demand and overall macroeconomic stability.

Question 5: On Apple Chemie, do you expect a rebound in monsoon sales, and what proportion of sales comes from infra and construction chemicals?

Answer: All of Apple Chemie's sales are linked to infra projects, so sales are affected by weather. However, we expect a recovery as monsoon recedes, and we have good visibility on their order book for August and September, which looks promising.

Question 6: How has geographic expansion been affected in the last 12 months? Are there any adjustments needed?

Answer: Geography expansion continues as we focus on increasing dealer throughput, especially in Northern states. Our goal is to improve the volume of business with our existing dealers, which is crucial for future growth.

Question 7: Any thought on acquiring the remaining 49% stake in Apple Chemie?

Answer: The call options to acquire the remaining stake kick in after April next year. We will evaluate the situation then and make an informed decision based on performance, market conditions, and strategic fit.

Question 8: What will be the selling and distribution strategy for the new plants coming online?

Answer: While new capacity will enhance our operational efficiency, sales depend on market demand. The addition of solvent-based paints production at Jodhpur will significantly reduce freight costs for Northern India, improving our distribution efficiency overall.