Indigo Paints Jumps Most Since Debut After Motilal Oswal Initiates Coverage With A 'Buy'

Shares of Indigo Paints jumped the most since listing after Motilal Oswal initiated coverage on the stock with a ‘buy’.

Indigo Paints has surpassed the high entry barriers of the paints industry through its patient and multi-pronged strategy comprising introduction of differentiated products, building a distribution network via the rural markets, brand investments, driving the penetration of tinting machines, and engaging with influencers (painters/contractors) to build trust, the brokerage said in Dec. 31 note.

Shares of the company rose as much as 15.78%, the most since Feb. 2, to Rs 2,250 apiece. Motilal Oswal has set the target price at Rs 2,270, an implied upside of 17%. The stock’s trading volume was 45.4 times the 30-day average for this time of the day.

The Rs 54,500-crore Indian paints industry, the brokerage said, is expected to grow at an annualised rate of about 12% over FY19–24, driven by urbanisation, shortening of repainting cycle, growth in branded firms and their robust pricing power. “The oligopolistic nature of the industry means that the incumbents have a considerable growth opportunity.”

Indigo Paints has a presence in 27 states and seven union territories with a distribution network of 14,700 dealers.

• Motilal Oswal expects Indigo Paints to continue with its robust strategy and deliver sales, Ebitda, net profit CAGR of about 28%, 35% and 41%, respectively, over FY21–24E.

• The recent sharp price hikes across the industry would further support sales growth and margin recovery in H2 FY22/FY23E.

Since listing, shares of Indigo Paints have risen more than 46% compared with a close to 21% gain in the Nifty 50. Of the five analysts tracking the company, three have a ‘buy’ rating and one each recommend a ‘hold’ and a ‘sell’, according to Bloomberg data. The overall consensus 12-month price target implies an upside of 8.5%.

To read the full Motilal Oswal report, click here.