The initial public offering (IPO) of Sequoia Capital-backed Indigo Paints that opened for subscription today will be the second IPO of 2021 just after IRFC's share sale that ends today.
While IRFC IPO objective is to augment the company's equity capital base to meet business future growth requirements, Indigo Paints plans to use the net proceeds to meet the capital expenditure requirements for manufacturing facility expansion at Pudukkottai, Tamil Nadu as well as to repay all or certain borrowings.
The government plans to reduce its stakeholding in IRFC to 86% from 100% from the IPO. On the flip side, the promoter holding in Indigo Paints of 60.05% will reduce to 54%, post the issue.
Most brokerages have given IRFC subscribe rating, especially for the long term. The Rs 4,600-crore IPO of IRFC, offering up to 178.2 crore shares at a price band of Rs 25 to Rs 26, appears to rank better in terms of IPO valuation and growth prospects. The company also has a low-risk profile since it caters to the Indian Railways and other Public sector Undertakings. IRFC has a stable balance sheet and has diversified sources of funding.
Although, IRFC's grey market premium fell today to Rs 0.80-0.90 from Rs 1.3 yesterday.
Nirali Shah, Senior Research Analyst, Samco Securities said," IRFC is the first IPO to hit Dalal Street in the calendar year 2021 which is a direct play on the growth of Indian railways. The Company's leases and loans are backed by MOR and that's why it has reported nil NPAs for the quarter ended September 2020. IRFC's AUM has also grown at a 20% CAGR from 2018 to 2020."
She added," However, despite being the primary lender to the Indian Railways the company comes with its own set of risks. Firstly, it is highly dependent on the MOR for its margins and any adverse determination of the margin will also impact its profitability. Additionally, there is a possibility that its cost of funds may rise in the future. Keeping these inherent risks in mind, we feel investors should assess their own risk appetite and then decide to go for the IPO."
On the other hand, Indigo Paints IPO, with price band of Rs 1,488-1,490 a share issue, is aggressively priced as compared to its listed peers. Analysts have recommended only investors with a high-risk appetite to subscribe for the Indigo Paints IPO.
Being one of the fastest-growing paint companies in India and in terms of revenue, Indigo Paints has a strong market network with dealers in Tier 1, Tier 2, and metros. The company was least impacted by Covid-19 compared with its peers, in a highly oligopolistic paint market.
The company has a large product portfolio with differentiated products, extensive network distribution and strategically located manufacturing facilities. As per experts, the firm has managed to rapidly grow its market share and the growth outlook of the company seems to be attractive.
In the grey market, shares of the company were trading at Rs 2,330 apiece, up Rs 840 or 56.37% from the IPO price.
Nirali Shah gave subscribe call to Indigo Paints for listing gains and said,"Indigo Paints has made its brand name despite strong entry barriers due to experienced players such as Asian Paints. 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."
On its third day, IRFC issue was subscribed 3.41x times. The public issue was subscribed 3.51x in the retail category, 3.78x in the QIB category, and 2.67x in the NII category.
Meanwhile, Indigo Paints IPO got subscribed 1.90 times on first day of share sale. The public issue was subscribed 3.29 times in the retail category, 0.11x in the QIB category, and 1.10x in the NII category.
Another IPO on the cards-Home First Finance Company, is scheduled to open on January 21. The company has fixed the issue price at Rs 517 to Rs 518 per equity share.