Shares of Indigo Paints hit their all-time low of ₹1,324.20 in intraday trade on Tuesday, November 22.
The stock has been under pressure this year so far. As of November 21 close, the stock is down 37 percent year-to-date (YTD) thanks to an increase in key raw material prices such as crude oil and the competitive intensity of the sector.
The company's net profit for the September quarter of the current financial year (Q2FY23) stood at ₹37.09 crore, up 173.73 percent year-on-year (YoY) against ₹13.55 crore in the corresponding quarter of the last year.
Net revenue from operations for Q2FY23 jumped 23.71 percent YoY to ₹242.61 crore against ₹196.11 crore in the corresponding quarter of the last year.
EBIDTA (excluding other income) for the quarter under review came in at ₹33.77 crore against ₹23.38 crore in Q2FY22, marking an increase of 44.47 percent YoY.
Let's look at what brokerages and analysts have to say about the fundamentals and technicals of the stock.
Brokerage firm: Kotak Institutional Equities
Indigo Paints has emerged as the fifth largest player with healthy profitability in an almost impregnable Indian decorative paints industry on the back of product innovation and brand building.
After successfully scaling up in Tier 3/4 cities, it is now focusing on Tier 1/2 cities with the goal of delivering 2 times the industry growth.
"We estimate a 21% and 31% CAGR in revenues and EPS (earnings per share), respectively, over FY2022-25E and initiate coverage with a 'reduce' rating, with DCF-based fair value (target price) of ₹1,475 (38 times Dec-24E PE)," said Kotak.
Kotak highlighted that the rise in competitive intensity (Grasim’s foray and Asian Paints’ aggression) would likely weigh on industry profitability and return ratios, as well as valuations.
"Though we appreciate Indigo’s track record of strong growth, financial discipline, impressive profitability, cash generation and good governance, we believe the changing competitive dynamics warrant a more favourable risk-reward, especially as it poses higher risks to smaller players," said Kotak.
Analyst: Akhilesh Jat, Category Manager - Equity Research, CapitalVia Global Research
The stock has been continuously sustaining below its 200 DEMA, indicating a downtrend in the near term.
The breakout of a crucial support level of ₹1,330 and closing below this level on a daily basis may drag down the prices to ₹1,180.
For an upside, we should wait to close the stock above ₹1,550 on a daily basis.
Momentum oscillators RSI continues heading downward and stands below the centreline, suggesting further downside movement in the prices.
The MACD indicator is sustaining below the zero level with a negative crossover, indicating the drag-down in the near term.
"At this juncture, one should avoid the fresh entry in this counter at the current market price," said Jat.
Analyst: Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers
In the last two months, Indigo Paints has corrected almost 23 percent. Currently, it is approaching its crucial historical support zone of ₹1,340.
Volume is dropping as price decreases, which is an anomaly with respect to volume price analysis (refer to the below chart).
"The daily MACD is overstretched which is a sign of early caution. One can buy at the current levels with an upside target of ₹1,500 and a stop loss of ₹1,265," said Patel.
According to a MintGenie poll, 7 analysts on average have a ‘hold’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.