Robust Urbanization Boosting Paint Industry, Buy This Stock For 17% Return: Motilal Oswal

Renowned brokerage firm Motilal Oswal recommended buying the stocks of Indigo Paints (INDIGOPN), for a target price of Rs. 2900. The Indian Paints industry is expected to grow to Rs. 971 b in FY24E (12.2% CAGR). Hence, the industry sales growth is likely to impact INDIGOPN's growth positively.

Target Price

The Current Market Price (CMP) of Indigo Paints is Rs. 1942. The brokerage firm, ICICI Direct has estimated a Target Price for the stock at Rs. 2270. Hence the stock is expected to give a 17% return, within 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 1942
Target Price	Rs. 2270
1 Year returns	17.00%

Company performance

Over FY18-21, INDIGOPN delivered a sales/EBITDA/PAT CAGR of ~22%/68%/70%. It aims to become the preferred brand among dealers and improve the throughput per outlet. It has added ~6,400 tinting machines, penetrating ~43% of its dealer network. Motilal Oswal said, "While we expect INDIGOPN to continue to outperform larger peers in the industry, aggression by larger players in the rural markets could put the brakes on INDIGOPN's growth aspirations."

Comments by Motilal Oswal

Maintaining a buy rating, Motilal Oswal said, "The Rs. 545 b Indian Paints industry is expected to post a robust ~12% CAGR over FY19-24E, driven by urbanization, the shortening of the repainting cycle, growth in branded players, and the robust pricing power of the branded players. In addition, the oligopolistic nature of the industry means that the incumbents have a considerable growth opportunity."

About the company

Established in the year 2000, Indigo Paints (INDIGOPN) is the fifth-largest company operating in India. Its product portfolio includes emulsions, enamels, wood coatings, distempers, primers, putties, and cement paint. Despite being a late entrant to this industry with high entry barriers, INDIGOPN has been able to create its presence in the market through its multi-pronged strategy of introducing differentiated products, high ad spending (as a percentage of sales), focusing on the rural markets, and increasing the penetration of tinting machines.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.