HDFC Securities: Indigo Paints - The Promising One
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HDFC Securities Report
Making inroads into the oligopolistic paints industry remains a herculean task, given strong distribution moats of the top few.
Against this backdrop, Indigo Paints (founded in 2000) has been consistently chipping away market share within the ecosystem.
The company has clocked 47% sales compound annual growth rate over FY15-20 (organic growth CAGR: 40% plus; relative market share has moved from near-zero to approximately 2.5% over FY15-20 in decorative paints).
Interestingly, revenue ramp-up has been smartly executed with consistently improving unit economics, which is amply reflected in the company’s steadily improving fundamentals –
1) LTL revenue/dealer grew at 11% CAGR, 2) Ebitda and management fees up 15pp plus at 14.6%, 3) cash conversion cycle halved and 4) return on invested capitals improved from -13% to 25% over FY17-20.
The pandemic-led demand destruction is likely to have the least impact (within peer set) on Indigo Paints as its exposure to big cities is negligible (Predominantly operates in Tier 2-4 cities).
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