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Shares of decorative paints maker Indigo Paints Ltd. hit a new 52-week low of 1,375.05 on the National Stock Exchange on 12 May.

Compared to its stellar listing on 2 February 2021, the decline was sharp. The stock had closed at 3,117 on its listing day, having risen 109% from its issue price of 1,490 apiece.

Investors are well aware that the paints industry has been grappling with severe cost inflation pressures over the last few months. A spike in crude price has pushed the cost of monomers higher. Further, the recent carnage in the midcap and smallcap stocks is said to have taken an additional toll on the shares of Indigo Paints, said analysts.

The company's March quarter earnings performance for FY22 was a mixed bag. Revenue growth was largely driven by price increases, while cost inflation pressures sustained with gross margin declining 310 basis points sequentially due to higher raw material prices. One basis point is 0.01%.

In the post earnings conference call on Monday, the company's management said volume offtake for the company was good in April. While the medium to long-term outlook on movement in input costs remains uncertain, in the near term prices have remained stable. Also, the company would be looking at more price hikes in the coming month. So, the company's management expects gross margins to see a gradual improvement in FY23. The management also said it has identified 750 cities to boost its output per dealer and would focus more on intensive engagement with painters.

On Monday, shares of the company rose 5.5% intraday on the NSE.

Analysts at ICICI Securities Ltd note that in Q4FY22, Indigo has largely maintained volume market share in paints with low single digit volume growth. The domestic brokerage house is upbeat on the company's strategy which aims on regaining it's growth trajectory of 2x of industry growth. "We like its aggression and believe the benefits of investments will be achieved in FY22-24," ICICI Securities said in a report on 22 May.

However, on the flipside, rising competitive intensity in the industry is a key risk. Note that Aditya Birla led Grasim Industries Ltd is expected to make its foray into the sector in the second half of calendar year 2022.

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