Indigo Paints is planning to enter the allied segment of construction chemicals and waterproofing, in order to compete with existing players who derive about a tenth of their revenues from this segment.

The company is also gearing up to increase its presence by expanding its sales force by 40 per cent in the next few months. It is also intending to expand into larger towns and cities, where it is still largely underpenetrated having focused mostly on tier 3 and 4 towns.

The company is also unfazed by the entry of Grasim Industries into the paints business.

Also read: Paints business margin to reduce with entry of Grasim Industries

The management of the company met Nuvama Institutional Equities and detailed its plans.

Allied segment foray

Most paint companies offer waterproofing and construction chemicals as part of their portfolio since it is closely allied with the paints sector and offers long-lasting effects.

With other paint players getting over a tenth of their revenues from construction chemicals and waterproofing products, it makes sense for Indigo to enter this segment as well.

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The products would be launched under the Indigo brand.

Expanding distribution, reach

Being a late entrant in the paints industry, the company is plugging gaps in its distribution and reach by increasing its sales force by 40 percent in the next few months.

Simultaneously, it is also expanding into larger towns and cities, primarily tier 1 and tier 2 cities, as it is currently mostly present in smaller towns and cities.

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Nuvama said in a note that the sales force expansion would raise expenses only marginally by ₹6-7 crore.

“Given the amount of money Indigo already spends on marketing, this incremental amount should not be an issue for the company,” it said.

The company has been expanding its sales force in the past too. For instance, it had 16,785 active dealers at the end of December 2022 compared to 13,214 at the end of March 2021.

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Demand and margins to improve

The paint industry is coming off a period of muted demand growth, due to a higher base and also because extended monsoon in some parts of the country dampened demand in October and November. In December, there was some recovery and the first two months of 2023 have been fairly good for the sector. Demand in the current month is also holding up well.

With good volume growth expected in the March quarter and a softening in raw material prices, profitability margins of the industry and Indigo Paints are seen improving.

Competition ahead

A major headwind is the entry of Grasim into the paints business, which is expected to affect all players in the sector.

Indigo Paints however maintained that a new entrant into the sector would not create any significant ripple in the immediate term because a new player would take 5-6 years to establish itself and then start to be a competitor for incumbents.

Building a dealer network was itself time-consuming, though Grasim can use cement depots to sell its paints. Indigo Paints took ten years to build brand recall among customers through heavy advertising.