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Indigo Paints IPO opens today: Should you subscribe to the issue?

As per company's DHRP, its main objective for the issue is to meet the upcoming capital expenditure requirement for manufacturing facility expansion at Pudukkottai, Tamil Nadu, to purchase tinting machines and gyroshakers and repay all or certain borrowings

twitter-logoBusinessToday.In | January 20, 2021 | Updated 12:50 IST
Indigo Paints IPO opens today: Should you subscribe to the issue?
American venture capital firm Sequoia Capital-backed firm garnered Rs 347.9 crore from 25 anchor investors ahead of the share sale

The three-day initial public offering (IPO) of Indigo Paints, that opened today is priced at Rs 1,488 to Rs 1,490 per equity share. Shares can be bought with a minimum order quantity of 10 shares. The IPO closes on January 22, 2021. A retail-individual investor can apply for up to 13 lots (130 shares or Rs 193,700).

The Rs 1,170.16 crore public issue comprises Rs 300 crore through fresh issuance of shares and Rs 870.16 crore through offer-for-sale by promoter Hemant Jalan and investors (Sequoia Capital India Investments IV and SCI Investments V).

The finalisation of basis of allotment will be done on January 28, 2021, and the allotted shares will be credited to your demat account by February 1, 2021. The share is likely to list on February 2, 2021. Promoter holding of 60.05% will reduce to 54% post the issue.

American venture capital firm Sequoia Capital-backed firm garnered Rs 347.9 crore from 25 anchor investors ahead of the share sale.

As per the company's DHRP, its main objective for the issue is to meet the upcoming capital expenditure requirement for manufacturing facility expansion at Pudukkottai, Tamil Nadu, to purchase tinting machines and gyroshakers and repay all or certain borrowings.

Motilal Oswal said in its note,"We like Indigo Paints given its differentiated product portfolio and robust expansion plans. We believe it can attain scale and maintain its strong growth over the next few years. The issue is valued at 11.3x FY20 Mcap/sales which is comparable to peers. Hence, we recommend Subscribe to the IPO from long term perspective. Further, given the current buoyant market and high interest for consumer stocks, the issue could see listing gains as well."

Geojit Financial Services said in its note," Inspite of premium valuations, being the fastest growing paint company in India driven by developing niche product to compete market leaders, expansion plans, low debt & strong return profile with RoE of 25% in FY20 will make it an emerging player in the industry, we assign a "Subscribe" rating."

Angel Broking said in its note today,"Company's revenue from operations have grown at a CAGR of 41.9% between Fiscal 2010 and Fiscal 2019, compared to the range of 12.1% to 13.1% recorded by the top four paint companies in India. Issue is priced at 98.4x PE on a trailing basis in terms of fully diluted EPS, which we believe is quite reasonable by looking at the future growth prospects of the company. We are positive on the long term prospects of the industry as well the company, we recommend "SUBSCRIBE" to the Indigo Paints IPO for long term as well as for listing gains."

"The company is actively present in the public eye due to their aggressive A&P spends accounting to around 12.7% of their revenue vis-a-vis peers who spend close to 4-5%. Financials have been extremely strong for this paints player with minimal debt on its books. There are a few challenges in terms of setting up a wide distribution presence amidst well-established players, its skewed market presence in South India especially Kerala and rich valuations at a PE of 140x compared to a sector average of 95x. Therefore, investors can subscribe to Indigo Paints for listing gains only at the moment," said Nirali Shah, Senior Research Analyst, Samco Securities.

LKP Securities also rated 'Subscribe' to the IPO and said,"Indigo is the fastest growing paint company which has grown at a much faster pace in the last decade than any other paint company in India. The company has adopted a differentiated approach to market and sell its products in the industry which is dominated by the larger players. Indigo has been able to expand its EBIDTA/PAT margins from 6.4%/3.2% in FY18 to 14.6%/7.7% on the back of economies of scale and better raw material sourcing. The company's ROE & ROCE has also improved significantly to be at par with the industry leaders in the last five years."

Besides these brokerages, Capital Market, Spark Capital, Elara Capital have given subscribe rating to the IPO.

One of the fastest-growing paint companies in India and in terms of revenue, Indigo Paints has a strong market network and three strategically located manufacturing facilities situated in Jodhpur (Rajasthan), Kochi (Kerala), and Pudukkottai (Tamil Nadu). It is further looking to expand its manufacturing capacities at Pudukkottai to manufacture water-based paints.

The company is engaged in manufacturing different types of decorative paints like enamels, emulsions, wood coatings, primers, distempers, putties, and cement paints. Indigo Paints has a strong market network with dealers in Tier 1, Tier 2, and metros.

It is the first company that started manufacturing certain differentiated products like Metallic Emulsions, Bright Ceiling Coat Emulsions, Tile Coat Emulsions, Dirtproof & Waterproof Exterior Laminate, Floor Coat Emulsions, Exterior and Interior Acrylic Laminate, and PU Super Gloss Enamel.

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