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Indigo paints Ltd. Q4FY21 Conference Call Transcripts

Indigo paints Ltd. Q4FY21 Conference Call Transcripts

Published on 24 May 2021|
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Management Participants:

Mr. Hemant Jalan - chairman & managing director — indigo paints limited

Mr. T. S. Suresh Babu - chief operating officer - indigo paints limited

Mr. Chetan Humane - chief financial officer - indigo paints limited

Mr. Srihari Santhakumar — deputy general manager (finance) investor relations & treasury- indigo paints limited

 

IPO completion:

  • Company completed a successful IPO in Jan 21, and was listed on Feb 2, 2021; issue

subscribed 117 times; IPO quantum Rs 1169 cr

  • Institutional investors: 190 times
  • HN Investors: 263 times
  • Retail investors: 16 times
  • Huge participation from marquee investors globally
  • Primary capital raised during IPO was ~Rs 300 cr
  • As per Objects of Issue, Company repaid ~Rs 25 cr of debt following IPO, and is now

completely debt-free

 

COVID impact:

  • during the first COVID wave, the smaller towns and rural areas of India were relatively less impacted, and the company witnessed an excellent bounce back in sales starting as early as May 2020 which gradually got better as the year progressed.
  • Severe impact in Apr 20 due to nationwide lockdown; manufacturing facilities resumed operations in end-Apr
  • Excellent bounce-back in sales from May 20, as smaller towns were less impacted by COVID.
  • No impact on cash-flows of company.
  • No layoffs of any employee.
  • Complete support for all employees and workmen during COVID times.
  • Have given annual increments again in Apr 21.

 

Financials for Q3 and Q4:

  • Net revenues grew by 22% YoY to Rs 209.6 cr in Q3 and 41% oY to Rs 254.3 cr in Q4.
  • There were extreme spikes in raw material costs in the latter half of the year. Indigo

started increasing its paint prices in tranches starting from mid-November onwards

  • Gross margins were protected in Q3 (49.6% in Q3) due to several such price hikes but, the margins declined in Q4 (46.7% in Q4) due to continued spiralling of raw material cost.
  • EBITDA margins dipped to 15% during Q3 due to heavy advertising in festive season & IPL, but recovered to close to 16.9% in Q4,
  • Sales growth, which was negative in first half (due to April lockdowns), picked up to Rs 20964 lakhs which is > 22% growth In Q3, and Rs 18054 lakhs i.e. 41% in Q4.
  • the volume and the value growths were healthy for each of the three categories which are Cement Paints + Putty, enamel and wood coating, primers distempers and others averaging around 20% except for the emulsion category where both of the volume and the value growths were somewhat lower ranging between 11% and 12% and this is because April and May months are traditionally heavy months for emulsion sales and the sales that we lost last year in April and May during the lockdown period could not be adequately recovered during the entire year.
  • Differentiated products which had contributed 28.6% of our overall revenue in FY2020 grew further to 29.5% of our overall revenue in FY2021.
  • Kerala’s share in their overall revenue declined from about 35% in FY2020 to lessthan30% in FY2021 and is likely to continue to decline in the coming years even though the company is registering good growth in the state of Kerala.

 

Network Expansion FY 21:

  • increased active dealer count by 2,000 from 11,200 at the start of the year to 13,200 at the end of the fiscal year.
  • Tinting machines increased from ~4,300 to ~5,500 during FY 21.
  • 8 new depots were Opened in FY 21 at Jammu, Dehradun, Purnea, Silchar, Sambalpur, Bhopal, Aurangabad, and Kadappa (Total number of depots now 44).

 

Brand building FY 21:

  • Despite headwinds of COVID and rising raw material costs, the company elected to continue to invest in Brand-building activities during FY 21
  • Media advertising spends of Company increased from Rs 61.52 cr (FY 20) to Rs 63.35 cr (FY 21), despite zero advertising from Apr-July 2020
  • However, Total Advertising & Sales Promotion exp declined from Rs 79.05 cr (FY 20) to Rs 77.06 cr (FY 21) due to reduced promotional activities (other than media advertising) during lockdown months.

 

Key financials FY 21:

  • Net revenue grew from Rs 624.8 cr to Rs 723.3 cr which is around 15.8%.
  • Volume growth has been healthy across all product categories
  • Managed to maintain Gross margins with marginal 0.5% drop from 48.5% to 47.9%, despite unprecedented raw material cost increase in Q3 and Q4.
  • EBITDA increased by 34.7% to Rs 122.52 cr; EBITDA margins increased to 16.94% (from 14.56%)
  • PAT increased by 48.2% to Rs 70.85 cr, despite a Rs 4.05 cr impact due to change in IT act on deduction of goodwill
  • Company increased media advertising spends, although Advertising & Promotion exp as % of Revenues declined from 12.7% to 10.7%
  • Maintained tight control on costs, evidenced by decline in Freight expenses and Overhead expenses (Other Operating exp)

 

Future Outlook:

  • Sales outlook is very uncertain in near-term; however, confident of sharp recovery once lockdowns are lifted. Expect to continue to outperform industry growth figures
  • The company will accelerate expansion of Dealer network and tinting machines
  • Raw material prices have started moderating in Q1, and another round of price increase has been in effect from 15 May; company is expecting that the gross margins will improve soon
  • Company will continue to increase media advertising spends, although advertising & promotion expense as % of Revenues can be expected to continue to decline, having positive impact on EBITDA margins
  • As in past, company will continue to keep tight control on costs.
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