Shares of Indigo Paints snapped their three-day losing run to end with a modest gain of 1.12 percent on Wednesday.
The stock has been under strong pressure in the last one year. Data shows it is down over 42 percent in the last one year against a 5 percent gain in the benchmark Sensex index.
In a BSE filing on February 10, Indigo Paints said its net revenue from operations for Q3FY23 stood at ₹281.27 crore against ₹265.46 crore in the corresponding quarter of the last year, registering an increase of 5.95 percent year-on-year (YoY).
Net profit for Q3FY23 rose 8.06 percent YoY to ₹26.26 crore against ₹24.30 crore in Q3FY22.
EBIDTA (excluding other income) for the December quarter rose 4.86 percent YoY, coming in at ₹40.56 crore against ₹38.68 crore in the corresponding quarter of the last year.
Should you buy Indigo Paints?
The prospects of Indigo Paints stock do not look bright as brokerages have mixed views on the stock. Even those, who maintained a ‘buy’ or ‘hold’ call on the stock, have trimmed their estimates after its December quarter numbers.
Brokerage firm Sharekhan by BNP Paribas maintained a 'buy' call on the stock with a downward revised target price of ₹1,400.
Sharekhan highlighted increased competitive pressures from large players and a sustained rise in key input prices as key risks to the company.
"We have revised downwards our earnings estimates to factor in the soft performance in Q3. We have also lowered operating profit margin (OPM) compared with earlier estimates, as the company has decided to spend higher raw-material savings in providing trade discounts to dealers in the quarters ahead to push sales in key markets," said Sharekhan.
Brokerage firm ICICI Securities has maintained a 'hold' call on the stock with a target price of ₹1,200, citing prolonged monsoon and early Diwali impacted Q3FY23 revenues for Indigo.
The brokerage firm said even after adjusting for transitory issues, its Q3FY23 revenues were below its, as well as, consensus expectations.
However, ICICI Securities highlighted that the company's revenues recovered in Nov’22 and Dec’22 with emerging market stability. Moreover, it likely gained market shares in cement paints and putty with 34.8 percent volume growth YoY.
The brokerage firm also added that Indigo Paints increased trade discounts to drive off-take with a correction in input prices. Its investments in trade also remain strong with the addition of 262 tinting machines during Q3FY23.
"We model sales and earnings CAGR of 21.7 percent and 30.8 percent respectively, for FY22-FY25E," said ICICI Securities.
As per the brokerage firm, key business risk is potentially higher competitive intensity in Kerala and key stock risk is potentially lower trading multiples due to increasing competitive activity and intensity in the paints industry. The key upside risk is a steep correction in input prices.
Kotak Institutional Equities has a 'reduce' call on Indigo Paints stock and cut the target price to ₹1,190 from ₹1,475.
Kotak said Indigo Paints’ topline growth was marginally better than the industry’s, but a tad underwhelming considering the small scale, increased focus on 750 tier-1/2 cities and an increase in trade discounts (some gross margin sacrifice for growth).
"We cut FY2023-25E EPS (earnings per share) by 12-15 percent as we factor in a demand deceleration and reduce margin forecast (competitive intensity + lower operating leverage)," said Kotak.
Even on technical charts, the stock is not looking strong.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers, pointed out that since February 2021, this counter has been in free fall mode which resulted in a massive 68 percent cut in price.
"At the current juncture, it has broken the crucial support of ₹1,127. From an indicator point of view, weekly RSI and MACD are hinting at a further downside to ₹990," Patel observed.
"As of now no fresh longs are advised," said Patel.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.