Shares of Decorative Paints Maker Indigo Paints Limited, K reached 52-week low 1,375.05 on the National Stock Exchange on May 12.
The decline was sharper than its stellar list on 2 February 2021. closed on stock 3,117 on the day of listing, up 109% from its issue price 1,490 per.
Investors are well aware that the paint industry has been reeling under severe inflationary pressures over the past few months. The rise in crude oil prices has further increased the cost of monomers. Besides, the recent carnage in midcap and smallcap stocks is said to have an additional impact on Indigo Paints shares, said analysts.
The company’s March quarter earnings performance for FY12 was mixed. Revenue growth was largely driven by a rise in prices, while cost inflation continued to remain under pressure with gross margin declining 310 basis points sequentially due to higher raw material prices. One basis point is 0.01%.
In a post earnings conference call on Monday, the company’s management said that the volume offtake for the company was good in April. While the medium to long term outlook on input cost volatility remains uncertain, prices remain stable in the near term. Also, the company is looking to increase the prices further in the coming months. Therefore, the company’s management expects a gradual improvement in gross margin in FY13. The management also said that it has identified 750 cities to boost its production per dealer and will focus more on deeper engagement with painters.
The company’s shares rose 5.5% intraday on the NSE on Monday.
Analysts at ICICI Securities Ltd note that in Q4FY22, IndiGo largely maintained the volume market share in paints with low single digit volume growth. The domestic brokerage house is bullish on the company’s strategy which aims to regain the growth trajectory of 2x the growth of the industry. “We like its aggressiveness and are confident that the benefits of the investment will be achieved in FY22-24,” ICICI Securities said in a report on May 22.
However, on the other hand, increasing competitive intensity in the industry is a major risk. Note that Aditya Birla-led Grasim Industries Limited is expected to enter the segment in the second half of the calendar year 2022.