Indigo Paints rallies 16%; Motilal Oswal initiates coverage with 'buy'

NEW DELHI: Shares of Indigo Paints rallied nearly 16 per cent in Friday's trade as Motilal Oswal Securities initiated coverage on the stock with a buy rating.

The stock soared 15.68 per cent to hit a high of Rs 2,247 on BSE.

The brokerage has a target of Rs 2270 on the stock, suggesting a 5 per cent upside from current levels. The figure is, however, below 47 per cent from the all-time high level of Rs 3,348.

Indigo, it said, has successfully surpassed the high entry barriers of the Indian paints industry through its patient strategy, comprising introducing differentiated products, purposefully building a distribution network via the rural markets, high investments in branding, rapidly driving the penetration of tinting machines, and engaging with contractors.

The Rs 54,500 crore paints industry is expected to post 12 per cent compounded annually over FY19–24, driven by urbanisation, the shortening of the repainting cycle, growth in branded players, and the robust pricing power of the branded players.

"The oligopolistic nature of the industry leads to considerable growth opportunities for the incumbents," it said.

The brokerage expects the company to deliver a sales growth of 28 per cent, Ebitda growth of 35 per cent and PAT growth of 41 per cent annually over FY21–24.

"It focuses on niche and differentiated products (30 per cent of sales in FY21, with the first-mover advantage in many cases), which helps it to distinguish itself in a competitive market and get access to dealer shelf space. These products are also margin accretive," Motilal said.