Domestic brokerage Motilal Oswal Financial Services Limited (MOFSL) remains constructive on Indigo Paints, betting on an improving demand outlook, easing competitive pressures and the company’s ability to consistently outgrow the broader paints industry through deeper market penetration and distribution expansion.
The brokerage has reiterated its ‘Buy’ rating on the stock, with a revised target price of ₹1,450, valuing the company at 35x Dec’27E earnings.
Following interactions with chairman and managing director Hemant Jalan, Motilal Oswal noted that near-term demand conditions remain muted, but visibility is improving meaningfully beyond the current quarter. Industry growth in the third quarter of FY26 is expected to remain in the low-to-mid single digits, trending below earlier expectations, largely due to post-festive season sluggishness. However, management expects demand momentum to pick up from the fourth quarter of FY26, setting the stage for a healthier growth trajectory in FY27.
The brokerage expects the paints industry to normalise to 7-8 per cent growth in FY27, driven largely by volumes rather than pricing, unlike the sharp price-led growth seen in FY21-FY22. Against this backdrop, Indigo Paints believes it is well placed to outperform the industry, aided by expanding distribution reach, improving brand acceptance and a sharper focus on non-metro markets.
Kerala continues to be the company’s single largest market, contributing 20-25 per cent of revenues, though management sees major headroom for gains even within the state, where Indigo has the second-largest distribution network but relatively lower revenue market share. Outside Kerala, states such as Bihar, Uttar Pradesh, Chhattisgarh and West Bengal each generate around ₹100 crore in annual revenues, offering ample scope for market share expansion. Motilal Oswal highlighted that growth from ex-Kerala markets is expected to exceed 20 per cent, supporting the company’s overall revenue growth guidance of 15-20 per cent.
Regional trends remain mixed. While demand in parts of the northern belt, including Rajasthan, Uttar Pradesh and Madhya Pradesh, has been relatively weak post-Diwali, eastern markets, particularly West Bengal, have performed better, supported by stronger traction in premium emulsions. In terms of market positioning, Indigo Paints ranks No. 2 in Chhattisgarh, No. 3 in Kerala, and No. 4 in most other states, underscoring the opportunity for further share gains.
On the competitive front, management indicated that pressures from new entrants are beginning to ease. While the entry of Birla Opus initially impacted most players, Motilal Oswal believes incremental disruption from distribution expansion is likely to be limited going forward. Pricing gaps across players remain narrow, especially in the mass segment, where differences are roughly 1 per cent, while premium products still command a modest pricing advantage for market leaders.
Indigo Paints continues to invest heavily in distribution and brand-building initiatives. The company is focusing on Tier-1 and Tier-2 cities for penetration-led growth, while selectively expanding into Tier-3 and Tier-4 towns. With around 600 sales personnel, Indigo is strengthening influencer engagement through painters and contractors using on-ground product demonstrations, blind tests and QR code-based reward programmes. As of the second quarter of FY26, the company had 11,656 tinting machines, 18,914 active dealers, and 54 depots.
From a profitability standpoint, Motilal Oswal expects margins to improve gradually. With pricing across the industry remaining steady and raw material costs benign, Indigo does not expect near-term price hikes, choosing instead to pass on some benefits through higher trade and consumer offers. The brokerage expects Ebitda margins of 18-18.5 per cent in FY26, with the potential to expand to around 19 per cent in FY27, supported by operating leverage, favourable product mix and lower logistics costs.
While Indigo Paints is targeting revenue growth of 15-20 per cent in FY27, Motilal Oswal has conservatively modelled a ~14 per cent CAGR for FY26-FY28E, factoring in rising competition and a slower-than-expected industry recovery. Even so, the brokerage projects Ebitda and PAT CAGR of 16 per cent and 18 per cent, respectively, over the same period.
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