While Indigo Paints' volumes growth, at 41% year-on-year, was in line with analysts' estimates, net profit and Ebitda declined by around 9% and 8% y-o-y, respectively
Shares of Indigo Paints Ltd, which listed in February, slipped nearly 6% on the NSE in Monday's opening trade, reacting to the company's March quarter earnings. While its volumes growth, at 41% year-on-year (y-o-y), was in line with analysts' estimates, net profit and Ebitda declined by around 9% and 8% y-o-y, respectively. Ebitda is short for earnings before interest, tax, depreciation, and amortization.
Akin to peers, elevated raw material prices are seen as a threat to the company's margins. But the hit on margins for Indigo Paints has been higher than peers. The company's gross and Ebitda margins declined by 570 basis points (bps) and 890bps, respectively, compared with the year-ago period. One basis point is one hundredth of a percentage point. The consolidated gross margin of Asian Paints declined by 270bps y-o-y in the March quarter, however its Ebitda margin expanded in Q4FY21.
Prices of key input materials titanium dioxide and other crude-based monomers have risen by about 10-15% in the past one year. The company did raise prices during December-February and again in May. However, given the steep surge in costs, more price increases may be required to absorb the pressure.
Going ahead, investors would be watching out for the impact of the second covid wave on the company's demand, especially in its key state of Kerala. According to analysts at ICICI Securities Ltd, Kerala reported low-single-digit revenue growth and its contribution declined to nearly 30% in FY21 from around 35% in FY20. They feel, while the long-term growth is intact, key business risk is the potentially higher competitive intensity in Kerala. Further, they caution that key stock risk is the potentially lower trading multiples due to entry of Aditya Birla Group in the paints sector.
Meanwhile, the company increased its dealer count by 18% y-o-y to 13,200 in FY21 and its tinting machine count increased from 4,300 in FY20 to 5,500 in FY21.