Indigo Paints Ltd (INDIGOPNTS) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator (ICICI Securities Limited): Ladies and gentlemen, you're connected for the Indigo Paints conference call. Please stay connected, the conference will begin shortly. A reminder to all the participant, you are connected for the Indigo Paints conference call. Please stay connected, the conference will begin shortly. Thank you.
Moderator (ICICI Securities Limited): Ladies and gentlemen, good day and welcome to the Indigo Paints Q2
Moderator (ICICI Securities Limited): FY '27 earnings conference call hosted by ICICI Securities Limited. As a reminder, all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities Limited. Thank you and over to you, sir.
Aniruddha Joshi (ICICI Securities Limited): Yeah. Thanks, Ikra. On behalf of ICICI Securities, we welcome you all to Q2 FY '27 results conference call of Indigo Paints Limited. We have with us senior management today. Now, I hand over the call to Mr. Srihari Santhakumar, General Manager, Finance and Investor Relations, to introduce the management and take the call forward. Thanks, and over to you, Srihari, sir.
Srihari Santhakumar (Indigo Paints Ltd): Yeah. Thanks, Aniruddha. Good morning, everyone. Once again, thanks for joining the earnings call today. We have uploaded the results for the quarter and half-yearly ending September 30th on the portals of the stock exchanges. Kindly go through them along with the disclaimer. To discuss the highlights of the performance, we have with us, Mr. Hemant Jalan, Chairman and Managing Director of the company, Mr. T.S. Suresh Babu, Chief Operating Officer, Mr. Aishwarya Pratap Singh, Chief Business Officer, Mr. Chetan Humane, Chief Financial Officer, and myself on the call today. Over to you, sir, for the opening remarks.
Hemant Jalan (Indigo Paints Ltd): Thanks. Good morning, everyone, and thank you for joining us today to discuss Indigo Paints' performance for Q2 and the first half of FY '27. As mentioned, we have uploaded the investor presentation on the stock exchange portals, and trust you have had the opportunity to review our results. Now, let me start with an honest summary. Our top line continued to grow well through the quarter, but profitability was materially affected. Standalone revenues grew 14.1% on a y-o-y basis. At the same time, our EBITDA margins fell from 15.3% a year ago to 8.9% this quarter. Almost all of this decline is accounted for by a decline in gross margins, which was affected by an unfavorable product mix and mainly by high-cost raw material inventory carried over from the previous quarter. Now, we are not satisfied with this margin outcome, and let me take you through what drove it and what we are doing about it and what we expect in the quarters ahead. Now, the raw material shock that began in March 2026, typically, I would say from mid-March onwards, continued to weigh on our cost base right through Q2 of FY '27. During March and April, prices of many key raw materials almost doubled, and I'm not exaggerating, due to the start of the Iran War, and consequent to that, the industry implemented price increases of approximately 10% to 12% as a response. Thereafter, raw material prices started falling sharply during May and June. And for a while, it appeared that the price increases that the industry had implemented were now more or less adequate with the modified raw material pricing. However, raw material prices again started climbing up in July and August, and the industry has already announced two sets of price hikes in Q3, one of which has already been implemented in the last few days and another one due to come in the third week of this month. Now, when input prices go through such an unprecedented roller coaster ride, sometimes sharply up, sometimes dramatically down, and then up again, the cost of goods sold that passes through the P&L becomes a little unpredictable. For example, during Q1, when our top line grew by 19%, our EBITDA grew by 42% and PAT grew by 61% on a y-o-y basis, figures almost too good to be true. Obviously, what had happened is that the low-cost raw material
Hemant Jalan (Indigo Paints Ltd): inventory that we were carrying purchased prior to March got expensed out of the P&L in Q1 leading to unbelievably good increases in EBITDA and PAT. This quarter in Q2 the reverse has happened. High-cost raw materials purchased in March and April have got expensed out in the P&L leading to a drastic drop in both EBITDA and PAT. The picture becomes a little better and clearer when you see the profitability movement over the entire 6 months of H1. And during H1, our top-line has increased by 16.4% and the EBITDA margin has dropped slightly from 15.1% last year to 13.4% this year. Not a great set of numbers, but not as bad as what Q2 looks in isolation. If I can just spell out the standalone results in Q2. Our standalone revenue for from operations in Q2 was 340.5 crores, up 14.1% Y-on-Y. At the gross level, our revenue growth in Q2 was actually 18.8%. However, an unfavorable product mix resulted in higher discounts compared to discounts last year, leading to a lower net revenue growth of 14.1%, which is what is reported. The top-line growth may appear to be in line with industry performance and not an industry-beating performance as we were hoping for. The reason is that we have embarked on many initiatives on an aggressive basis to enhance our top-line growth, many of which will take a little time to show results. And we are confident that results will emerge in the quarters ahead. Our gross margin for the quarter was 38.5% against 45.1% in Q2 of last year, a decline of 660 basis points. Now, this is the largest single driver of this quarter's profitability performance. Part of this drop reflects the shift shift in product mix, but the major part reflects the higher cost of raw material inventory purchased in the previous quarter, which got expensed out in Q2. The saving grace is that the pass-through of this higher-priced raw material inventory was largely over by August, and from September onwards, our gross margins and EBITDA margins are back to near normal. Hence, we do not anticipate future profitability shocks in Q3 and onwards. EBITDA for the quarter was 30.3 crores, down 33.8% on a Y-on-Y basis at a margin of 8.9% against 15.3% last year. Of this 640-basis-point decline, the overwhelming majority is accounted for by a decline in the gross margin. Advertising and promotional spends were slightly higher this quarter, which has also contributed marginally to this decline, but only marginally. We spent 18.3 crores on A&P or 5.4% of our revenue in Q2 against 15.7 crores in Q2 of last year with the increase directed towards media and sustained BTL engagement with painters and contractors. I would like to remind everyone that our company has consistently recorded the highest gross margin in the industry in every quarter during the last 5 years without exception. Our EBITDA margins have generally been the second best in the industry just after the industry leader. In that backdrop, the sudden drop in both gross margins and EBITDA margins this quarter should be treated as a one-off exception for reasons already explained. We do not expect this to recur. I would also remind you that our margins have historically peaked in Q4 of every year, as that is when our product mix is the most favorable. PAT for Q2 was 13.8 crores at a margin of 4.0%
Hemant Jalan (Indigo Paints Ltd): compared to 25.5 crores and 8.5% in Q2 of last year. Treasury income was lower as adverse bond yield movements affected our treasury returns. This is a non-operational item and a smaller part of the decline. Bulk of the decline in operating margin pressure is what has caused this drop in PAT. Coming to stand-alone results for the first half, the half-year view places the quarter in slightly better perspective. Stand-alone revenues for H1 was 690.5 crores, up 16.4% Y-o-Y. Gross margin was 41.9% against 45.6% in H1 of last year. EBITDA was 92.3 crores at a margin of 13.4%, and PAT was 56.2 crores at a margin of 8.0% against 8.6% last year. Advertising and promotion expenses were 4.8% of revenue for the half-year. Even after absorbing a difficult second quarter, both EBITDA and PAT numbers for H1 have grown in absolute terms over the first half of last year, albeit by a modest 3.2% for EBITDA and 8.3% for PAT. Coming to our various product category performances and value and volume growths, all four of our categories grew in value during the quarter. The category of primers, distempers, and others led with a 29.4% value growth and a 9.4% volume growth. Enamels and wood coatings grew by 17.8% in value and 8.2% in volume. Emulsions grew 13.3% in value and 10.4% in volume. Putty and cement paints grew 12.6% in value, and the volumes were broadly flat with a marginal decline of 0.2%. The volume has grown across most of our categories in a healthy manner. When we come to the biggest category, which is the emulsions, while the volume in emulsions have grown by healthy 10%, the mix was more skewed towards the lower end of the emulsions, which is quite typical in Q2 of any year. Coming to our consolidated results on a consol basis, which includes our subsidiary, Applechemie India Limited, our Q2 FY '27 revenue was 358.7%, up 15% Y-o-Y. EBITDA was at 31 crores with a margin of 8.6%, and PAT was 13.4 crores with a margin of 3.7%. And for the first half, consol revenue was 728.4 crores, up by 17.3%. Consol EBITDA was 93 crores, up 2.5% at a margin of 12.8%, and PAT was 55.1 crores, up by 7.4%. Our subsidiary, Applechemie, delivered strong revenue momentum. Their Q2 FY '27 revenue was 18.4% 18.4 crores, I'm sorry, up 35.3% Y-o-Y, and their H1 revenue was at 38.1 crores, up by 37.8%. Margins here were constrained by the same elevated raw material costs, along with slightly higher promotional spends. Coming to our network and marketing, our distribution network continued its steady expansion. As of September 30th, we had 19,730 active dealers, more than 12,700 tinting machines, and we had 56 depots across 28 states, served by 6 manufacturing plants. During the quarter, we opened a new depot at Bikaner in Rajasthan,
Hemant Jalan (Indigo Paints Ltd): another two to three depots in Q3 and Q4 to improve service efficiency. Till date, we have also set up 19 Indigo Colour Canvas stores across the country. On the brand side, we stepped up advertising to deepen our TV and digital presence and invested in relationships with painters, contractors, and the influencer community. That spending is reflected in the A&P investment behind this quarter's numbers. When we were under margin pressure this quarter, it would have been easy to cut A&P spends, but we chose to hold the line because returns on brand investment are built over years, not over a quarter. Our water-based plant at Jodhpur, the new one, with an annual capacity of 90,000 kl per annum, commenced trial production in September 26. Earlier, the solvent-based plant and the expanded putty plant at Jodhpur had commenced production before the end of the fiscal, last fiscal. And once this new water-based plant is fully operational, which we hope it will be by the end of November, we will have substantial incremental capacity to serve growing demand for our premium water-based products across North, East, and Central India, together with materially better supply chain responsiveness in those markets. On the sustainability front, our installed solar capacity now stands at 350 kW across Pune and Cochin. Commissioning of another 1,200 kW is underway at our new Jodhpur plant and is expected to be completed by December 2026, taking our overall installed solar capacity to over 1,500 kW. On the community side, our Indigo Seva Utsav initiative, through which our painter community repaints government schools in tier 2 and tier 3 towns, has now repainted over 260 schools in the country. The painter health benefit program has been extended nationwide and covers over 30,000 painter families. Our Skill Up program has trained more than 2,300 painting professionals in soft skills and business development. Through the Payal Jalan Trust, our Educare initiative has supported around 480 underprivileged girls with education assistance and career guidance in and around Pune. And we continue to support health care for the underprivileged through the Cancure Foundation near our Cochin factory. These programs are core to our culture and underpin the trust we hold with the painter community, which remains one of our most important routes to market. Finally, let me close with how we see the rest of the year. The impact of high-cost raw material inventory has been absorbed, which leaves us with a clean base for the quarters ahead. We expect gross margins to improve substantially from Q3 onwards, and we expect to reclaim our leading position on gross margin percentage during the seasonally strong Q3 and Q4 quarters. EBITDA margins should normalize over these quarters, with inventory calibrated to market conditions and gross margin recovery during the second half. As far as demand is concerned, a strong revival in our dealer network gives us confidence of the improved growth and a better product mix in the second half. Our commitment to brand building continues with disciplined annual A&P spends allocated across both ATL and BTL engagement. We expect our subsidiary, Applechemie, to sustain its momentum as its as it enters new territories. Finally, our priorities remain unchanged: to grow significantly faster than the market, deepen our presence in underpenetrated geographies, and build on portfolio premiumization to drive sustainable profitable growth. This was a difficult quarter and margins, and we're not trying to understate it. But the causes were identified identifiable and are now largely behind us. The top-line momentum is real,
Hemant Jalan (Indigo Paints Ltd): we enter the second half in much better shape than this quarter's margin print would suggest. Thank you, and now we'd be happy to take your questions.
Moderator (ICICI Securities Limited): Thank you very much. We will now begin with a question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama. Please go ahead. Mr. Roy, you can go ahead. Your line has been unmuted.
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