PremiumShares of Indigo Paints Ltd, which had listed in February, fell around 4% in early deals on Monday on the National Stock Exchange, reacting to the company's lacklustre June quarter earnings. Particularly disappointing was operating performance, which was hit by increased advertising expenses.Ad-spends rose to Rs16 crore in Q1FY22 from Rs2.5 crore in Q1FY21. Ebitda margin fell 520 basis points (bps) year-on-year to 12.9%. One basis point is one hundredeth of a percentage point. Ebitda is short for earnings before interest, tax, depreciation and amortization. Gross margins also took a hit on elevated raw material prices.
In response to this, the company has raised product prices by eight times in past twelve months. According to analysts at ICICI Securities Ltd, while the input prices are inching upwards and may impact gross margins, Indigo will benefit from price hikes in multiple tranches over past 12 months and ‘percentage’ reduction in ad-spend and sales promotion. The company's management has guided for Ebitda margin of around 18.5% in FY22 and expects ad spends to reduce to nearly 9% in FY22 from 10.7% in FY21.
As far as growth rates across products are concerned, its cement paints and putty grew 23.7%, emulsions were up 73% and enamels and wood coating rose 17.4%. it should be noted that sales in these segments was aided by a favourable base of last year. Analysts say, the company has reported weaker growth rates in its key state Kerala. On a consolidated basis, its net profit halved to Rs11.6 crore on a sequential basis. Revenue fell around 34% to Rs143 crore, sequentially.
Meanwhile, in the June quarter the company expanded its dealer count and tinting machines by 5.1% and 6%, respectively, on a sequential basis.
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