Indigo Paints Q3 Review - Dolat Capital Upgrade To ‘Accumulate’ Rating, But Lowers Target Price — Here's Why

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Dolat Capital Report

Indigo Paints Ltd.’s Q3 FY25 revenue below, Ebitda in line and adjusted profit after tax were ahead our estimates. Revenue de-grew by 4.0% due to sluggish consumer demand. However, performance was still better compared to leader i.e. Asian Paints (-7.8%). Management is optimistic that a rebound in demand could drive growth back to double digits.

Gross margin contracted by 130 bps to 47.2% due to price reduction in H2 FY24 and change in product mix. Additionally, Ebitdam contracted by 30bps which was better than Asian Paints (-340bps) and Kansai Nerolac (-50bps). However, the company expects a sequential improvement in Ebitda margins in Q4 FY25E.

We have downward revised our FY25/26/27E EPS by 8.2/8.1/7.8% to Rs 29.2/37.6/46.5 to factor in Q3 performance. Going ahead, we believe that Indigo Paints will continue to outpace its peers given low base and penetration opportunities.

Valuing the stock at 30 times FY27E EPS, we arrive at target price of Rs 1,394 (Rs 1,664 earlier). Considering the recent fall in stock price, we upgrade to ‘Accumulate’ rating.

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