Shares of Indigo Paints Ltd experienced a sharp decline of 13.15% on Monday, closing at Rs 866.8, down from its previous close of Rs 998.10. This significant drop followed the release of the paint manufacturer's second-quarter earnings, which revealed a substantial fall in profitability.
Q2 Profit Plunges as Costs Rise
For the second quarter, Indigo Paints reported a net profit of Rs 13.3 crore, a steep 47% decrease compared to Rs 25.1 crore recorded in the same period last year. The company's market capitalization also saw a considerable reduction, plunging to Rs 4186.5 crore.
Despite the profit downturn, revenue from operations did show growth, rising 15% to Rs 359 crore in Q2, up from Rs 312 crore in the year-ago quarter. However, this revenue growth was overshadowed by rising operational costs.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) fell by 33.5% to Rs 31 crore from Rs 47 crore previously. Consequently, the EBITDA margin also contracted significantly, dropping to 8.7% in Q2 from 14.9% a year earlier. Gross margins slipped 643 basis points year-over-year to 38.3%, and the EBITDA margin decreased by 628 basis points year-over-year to 8.6%.
Nuvama Cites High Raw Material Costs and A&P Spends
Brokerage firm Nuvama noted that Indigo Paints' Q2 EBITDA performance missed consensus estimates. According to Nuvama, the underperformance was primarily due to elevated raw material costs, stemming from high-cost inventory carried forward from the previous quarter, alongside increased advertising and promotion (A&P) expenditures.
Nuvama also drew a comparison with competitor Asian Paints, which reported 17% year-over-year revenue growth, supported by 6.4% volume growth, outperforming Indigo Paints' 15% revenue growth. The divergence was even more pronounced at the operating level, with Asian Paints' EBITDA growing 4% year-over-year while Indigo Paints' EBITDA declined by 33.5%.
"The divergence was more pronounced at the operating level, with Asian Paints' EBITDA growing 4% YoY, while Indigo Paints' EBITDA declined 33.5% YoY," stated Nuvama in its analysis.
Despite these challenges and the sharp share plunge, Nuvama has maintained a 'BUY' call on Indigo Paints stock post its Q2 earnings report, signaling a belief in its long-term potential.