Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Indigo Paints Ltd (BOM:543258, Financial) reported industry-leading growth for the fifth consecutive quarter with a top-line growth of 7.8% despite subdued market conditions.
- The company maintained a strong gross margin of 47.0%, which is significantly higher than other major paint players.
- Apple Chemie, a subsidiary of Indigo Paints Ltd (BOM:543258), registered a robust growth of about 47% year-on-year and received NABL accreditation for its laboratory.
- The company has expanded its active dealer base to about 18,500 and increased its tinting machine population to 10,210 as of June 30, 2024.
- Indigo Paints Ltd (BOM:543258) has extended its ESG initiatives, including electrical vehicle last-mile delivery services in three more states and targeting the installation of one megawatt of renewable energy via rooftop solar installations.
Negative Points
- The company's EBITDA decreased marginally by 4.1% from INR47.7 crores in Q1 of last year to INR45.8 crores in Q1 of this year.
- The EBITDA margin reduced from 17.2% last year to 15.6% in Q1 of FY25, largely due to a sharp increase in employee costs by around 23% to 24% year-on-year.
- The PAT decreased from INR31.3 crores in Q1 of last year to INR26.5 crores in Q1 of this year, primarily due to additional depreciation charges from the commissioning of the Tamil Nadu plant.
- The Kerala market, a significant contributor to the company's top line, showed negative growth, impacting overall growth rates.
- The company experienced a slight reduction in gross margin from 47.6% in Q1 of FY24 to 47.0% in Q1 of FY25 due to price cuts, elevated channel discounts, and a temporary spike in certain raw material prices.
Q & A Highlights
Q: Are you seeing any margin pressures on your differentiated products due to increasing competitive intensity?
A: We have not seen any change in the competitive landscape affecting our pricing. There has been no significant impact from new entrants, and the industry has even taken price hikes recently. (Hemant Jalan, Chairman & Managing Director)
Q: Have there been any changes in consumer prices or channel margins due to new market entrants?
A: There has been no significant change attributable to new entrants. Any minor uptick in channel discounts is more due to muted demand rather than new competition. (Hemant Jalan, Chairman & Managing Director)
Q: What is the current situation in the Kerala market, and do you expect it to improve?
A: The Kerala market has shown negative growth, but we saw an improvement in July. However, it is too early to predict a sustained recovery. (Hemant Jalan, Chairman & Managing Director)
Q: Can you provide more details on the growth and strategy for your waterproofing business?
A: Our waterproofing segment has grown to contribute over 5% of our top line within a year. We expect this to increase to 8-10% in the next year or year-and-a-half. The quality of our products, supported by technology from our subsidiary Apple Chemie, is a key differentiator. (Hemant Jalan, Chairman & Managing Director)
Q: What has been the impact of the new Tamil Nadu plant on your costs and capacity utilization?
A: The new plant has increased our depreciation expenses significantly. We expect capacity utilization to increase gradually over the next four years, with the plant catering primarily to Southern and some Central and Eastern states. (Hemant Jalan, Chairman & Managing Director)
Q: How do you communicate the superior quality of your waterproofing products to customers?
A: We use product demonstrations and comparisons with competitors during meetings with painters and contractors. While it is easier to demonstrate wall emulsions, we use makeshift arrangements for waterproofing products to show their effectiveness. (Hemant Jalan, Chairman & Managing Director)
Q: What is your strategy for increasing sales throughput per dealer?
A: We focus on deploying tinting machines, which significantly increase sales per dealer. We also support dealers through contractor programs and have been adding wholesalers to our network. (T S Suresh Babu, Chief Operating Officer)
Q: How do you plan to sustain growth and outpace the industry?
A: Our strategy involves a combination of new dealer appointments, wholesaler additions, tinting machine installations, and loyalty programs. Continuous micro-analysis and execution are key to maintaining our growth trajectory. (Hemant Jalan, Chairman & Managing Director)
Q: What has been the trend in demand and your expectations for the coming months?
A: July showed high growth, but it is too early to predict if this will continue into August and September. We remain cautiously optimistic and will monitor the situation closely. (Hemant Jalan, Chairman & Managing Director)
Q: How have employee expenses impacted your margins, and what are your expectations going forward?
A: Employee expenses increased due to a significant expansion of our sales force last year and annual salary hikes. We expect the impact to normalize from Q3 onwards. (Hemant Jalan, Chairman & Managing Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
