Indigo Paints Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Indigo Paints reported a challenging Q3 FY25 with negative top-line growth both standalone and consolidated, attributed to a persistent demand slowdown and muted festive season. Despite this, gross margins remained strong at 47.2% standalone, though slightly impacted by industry price cuts. The company continues its network expansion and capex plans, while expressing cautious optimism for a gradual demand recovery in the coming quarters, supported by government stimulus and potential interest rate reductions.

Highlights

  • Standalone sales registered a negative value growth of 4.0% in Q3 FY25.

  • Standalone gross margins stood at 47.2% in Q3 FY25, slightly down from 48.4% in Q3 FY24.

  • Standalone EBITDA decreased by 5.9% to INR57.3 crores in Q3 FY25, with a margin of 17.5%.

  • Standalone PAT declined by 3.3% to INR36.5 crores in Q3 FY25.

  • Consolidated revenue was INR342.6 crores, a negative growth of 3.2% YoY, with EBITDA declining by 8.1% and PAT by 4.5%.

  • Subsidiary Apple Chemie registered a strong top-line growth of 20.6% in Q3 FY25.

  • Active dealer count reached 18,600 and tinting machine population was 10,800 as of December 31, 2024.

  • Water-based paint plant and solvent-based paint plant at Jodhpur are expected to be commissioned by Q3 FY26 and Q1 FY26 respectively.

Concerns

  • Persistent Demand Slowdown

Key financials

  1. Standalone Sales Growth -4% -4%YoY
  2. Standalone Gross Margin 47.2%
  3. Standalone EBITDA ₹57.3 Cr -5.9%YoY
  4. Standalone EBITDA Margin 17.5%
  5. Standalone PAT ₹36.5 Cr -3.3%YoY
  6. Consolidated Revenue ₹342.6 Cr -3.2%YoY
  7. Consolidated EBITDA Margin 16.7%

What they filed

Q1 FY27: revenue up 18.6%, net profit up 61.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue289 327 367 295 298 +3%339 +4%398 +8%350 +19%
EBITDA43 57 86 44 46 +7%66 +16%92 +7%62 +41%
Net profit24 36 57 26 26 +8%36 +0%57 +0%42 +62%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Apple Chemie (Subsidiary)
    20.6% Top-line Growth

Guidance & targets

Revenue

  • Q4 FY25 Revenue Growth Revenue · Q4 FY25 · Medium confidence high single-digit to small double-digit
    I think it will be a gradual recovery, month-on-month basis, and we'll be happy if we do high single-digit growth in this quarter. If we are lucky, we may end up doing small double-digit growth as far as this quarter is concerned, but we have to wait and watch.

    — Hemant Jalan, Chairman and Managing Director

Ad Spend

  • A&P Spends as % of Revenue Ad Spend · FY25 · High confidence decline
    The overall increase in A&P spends will be less than the expected top-line growth in revenues. Hence, A&P spends as a percentage of revenue is still expected to decline for the full fiscal.

    — Hemant Jalan, Chairman and Managing Director

Distribution

  • Tinting Machine Ratio (Active Dealers) Distribution · next 1.5-2 years · High confidence 70%

    From 60% today

    And we just would like to take this ratio of 60% of our active dealers having a tinting machine to maybe 70% in the next 1.5 years, 2 years. That's pretty much what we hope to do.

    — Hemant Jalan, Chairman and Managing Director

Capex

  • Water-based Paint Plant Commissioning Capex · Q3 FY26 · High confidence Q3 FY26
    Due to minor delays in civil construction, the water-based paint plant is now expected to be commissioned by Q3 of FY '26

    — Hemant Jalan, Chairman and Managing Director

  • Solvent-based Paint Plant Commissioning Capex · Q1 FY26 · High confidence Q1 FY26
    while the solvent-based plant is expected to be up and running by Q1 of FY '26.

    — Hemant Jalan, Chairman and Managing Director

  • Putty Plant Expansion Completion Capex · Q1 FY26 · High confidence Q1 FY26
    The brownfield expansion at Jodhpur of the putty plant will also be completed by Q1 of FY '26.

    — Hemant Jalan, Chairman and Managing Director

Market Growth

  • Decorative Segment Value CAGR Market Growth · 10-year horizon · High confidence 9% or 10%
    So, if you start looking at the paint industry from a 10-year horizon, there is absolutely no doubt in anyone's mind that the CAGR will be close to 9% or 10% value based in the decorative segment.

    — Hemant Jalan, Chairman and Managing Director

Risks & concerns

  • Persistent Demand Slowdown

    high

    The company reported negative top-line growth due to an 'unprecedented demand slowdown' across consumer products and the paint sector, with festive demand falling short of expectations.

    Management acknowledged

  • Impact of Increased Salesforce Costs

    medium

    Increased salesforce strength in Q2 and Q3 of last fiscal, anticipating higher growth, led to incremental employee costs that adversely impacted EBITDA due to the persistent slowdown.

    Management acknowledged

  • Industry Price Cuts and Product Mix Impact on Margins

    medium

    Gross margins were slightly muted due to price cuts taken by the industry in Q4 of last year and a change in product mix, impacting profitability.

    Management acknowledged

  • Fixed Cost Absorption on Lower Revenue Base

    medium

    EBITDA margins naturally decline when top-line growth is absent, as fixed costs increase year-on-year and are absorbed on a lower revenue base.

    Management acknowledged

Areas of evasion (1)

  • predicting future price changes by the market leader

Q&A highlights

3 direct
Industry demand turnaround, trade inventory levels, and segment-wise growth rates Direct
January has been significantly better for us than any of the preceding 3 months of October, November and December in terms of Y-on-Y growth... the trade level inventory, at least as far as Indigo is concerned, is fairly low... the fastest growing segment for us has been the premium emulsion segment at the retail level.

Reveals early signs of demand recovery in January, confirms low trade inventory, and highlights the outperformance of premium emulsions, which is key for Indigo Paints' strategy.

Asked by Aniruddha Joshi

Impact of new entrants (Birla Opus) on volume growth and market share in the paint industry Direct
the new entrant that you're talking about may have got anywhere around 2.5% to 3% of the market share... As far as Indigo is concerned, I would say that we have been even impacted to a lesser extent by Birla Opus... the presence of the new incumbent is responsible to a very small extent for the decline that is happening for most of the existing players.

Provides management's perspective on the competitive threat from new players, suggesting a limited impact on Indigo Paints' sales and overall industry decline.

Asked by Yasser Lakdawala

Why macro drivers like per capita consumption growth and organized sector shift are not playing out in the current year Direct
this per capita consumption figures have to be taken on a slightly longer time span... the long-term story, nothing changes... there can be temporary blips for 1 quarter, 2 or 3 quarters, but I'm sure it'll come back... I don't see that there is any meaningful change in the unorganized sector or shall I call it more appropriately, the smaller scale sector.

Addresses a fundamental investor concern about the long-term growth thesis for the paint sector, with management reiterating confidence in structural drivers despite short-term blips and downplaying significant shifts from the unorganized sector.

Asked by Tejash Shah

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance Overview and Demand Environment

Indigo Paints reported a disappointing Q3 FY25 with standalone sales registering a negative value growth of 4.0% and consolidated revenue declining by 3.2% YoY to INR342.6 crores. This marks a significant shift after six consecutive quarters of industry-leading growth, primarily due to a persistent demand slowdown and weaker-than-expected festive season. Standalone EBITDA decreased by 5.9% to INR57.3 crores, with margins at 17.5%, slightly down from 17.8% in Q3 FY24, while PAT declined by 3.3% to INR36.5 crores.

Margins and Cost Structure

The company maintained strong standalone gross margins at 47.2% in Q3 FY25, though this was slightly lower than 48.4% in the prior year, attributed to industry-wide price cuts and a shift in product mix. Management noted that EBITDA margins were impacted by higher fixed costs, including increased salesforce expenses, which were scaled up in anticipation of higher growth that did not materialize. Advertising and promotion (A&P) spends as a percentage of revenue decreased from 9.5% in Q3 FY24 to 8.2% in Q3 FY25, partly due to higher spending during the ODI World Cup in the previous year.

Operational Highlights and Distribution Expansion

Indigo Paints continues to focus on network expansion, with active dealers reaching 18,600 and tinting machine population at 10,800 as of December 31, 2024. The company aims to increase the ratio of active dealers with tinting machines from 60% to 70% in the next 1.5 to 2 years. The premium emulsion segment demonstrated resilience, growing by 1.7% in volume and 2.8% in value, outperforming other categories and indicating an improved product mix.

Capex Progress and Financial Health

Work on the water-based and solvent-based paint plants at Jodhpur is progressing, with commissioning expected by Q3 FY26 and Q1 FY26 respectively. The brownfield expansion of the putty plant at Jodhpur is also slated for completion by Q1 FY26. These projects are being funded through internal accruals without debt. Despite the capex, the company maintained a treasury investment of approximately INR195 crores as of December 31, 2024, demonstrating sound financial health.

Industry Outlook and Long-term Strategy

Management expressed cautious optimism for a gradual demand recovery, noting some improvement in January sales. They anticipate potential tailwinds from a favorable harvest, government stimulus, and possible RBI interest rate reductions. While acknowledging the short-term blips, Indigo Paints remains confident in the long-term structural growth story of the Indian paint industry, projecting a 9-10% value CAGR for the decorative segment over a 10-year horizon, driven by rising per capita consumption.

Competitive Landscape and Dealer Dynamics

The company believes the impact of new entrants on its sales has been minimal, estimated at less than 2.5%. Management clarified that most dealers are multi-brand, with only a small percentage (around 750-1,000) being exclusive to Indigo Paints. They emphasized that dealer margins are influenced by distribution width and competitive intensity, rather than being directly dictated by any single player.

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