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Indigo Paints IPO review (May apply)

Review By Dilip Davda on January 14, 2021

•    IPL is the fastest growing paint company and placed in the top five players in India.
•    The company has posted spectacular growth compared to listed peers.
•    Aggressive pricing mirrors future growth prospects, opined management.
•    IPL is largely banking on differentiated products that are being introduced for the first time.
•    Investors may consider investing in this IPO with a long term perspective.

Indigo Paints Ltd. (IPL) is the fastest growing amongst top five paint companies in India. The company initially targeted Tier 3 and Tier 4 cities and rural area for its market penetration and is now entering Tier 1 and Tier 2 cities and Metros.

IPL currently manufactures a complete range of decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties and cement paints. It also identifies potential product needs from customers and introduces differentiated products to meet these requirements, and create a distinct market for products. It is the first company to manufacture and introduce certain differentiated products in the decorative paint market in India, which includes Metallic Emulsions, Tile Coat Emulsions, Bright Ceiling Coat Emulsions, Floor Coat Emulsions, Dirtproof & Waterproof Exterior Laminate, Exterior and Interior Acrylic Laminate, and PU Super Gloss Enamel (together, 'Indigo Differentiated Products') (Source: F&S Report). These products are differentiated based on the end-use they cater to, as well as added properties that they possess. The company is currently present in 27 states and 7 Union Territories with extensive penetration in small towns. IPL has installed 4600 tinting machines till September 30, 2020.

As of September 30, 2020, IPL own and operate three manufacturing facilities located in Jodhpur (Rajasthan), Kochi (Kerala) and Pudukkottai (Tamil Nadu) with an aggregate estimated installed production capacity of 101,903-kilo litres per annum ('KLPA') for liquid paints and 93,118 metric tonnes per annum ('MTPA') for putties and powder paints. IPL is expanding Tamil Nadu unit with installation of 50000 KLPA capacities which is expected to be on stream in FY23.  

About a dozen top players contribute 77% market share in decorative paint segment and the rest is shared between small, regional and local players. IPL has hired M S Dhoni as its brand ambassador and is doing an aggressive media campaign to increase its market share.

To part finance its capital expenditure for expansion of Tamil Nadu unit (Rs. 150.00 cr.), purchase of tinting machines and gyroshakers (Rs. 50.00 cr.), repayment/prepayment of all or certain borrowings (Rs. 25.00 cr.)  and general corpus fund needs, IPL is coming out with a maiden IPO to mobilize Rs. 1168.59 to Rs. 1170.16 cr. (based on lower and upper price bands). The company is issuing approx 2013430 fresh equity shares of Rs. 10 each for Rs. 300 cr. and offer for sale of 5840000 equity shares. Thus this combo offer will be for approx 7853430 shares as overall size. The company has fixed price band of Rs. 1488.00 to Rs. 1490.00 and minimum application is to be made for 10 shares and in multiples thereon, thereafter. The issue opens for subscription on January 20, 2021, and will close on January 22, 2021. IPL is offering employees a discount of Rs. 148 per share to eligible employees.

Post allotment, shares will be listed on BSE and NSE. Out of the total issue, 70000 shares reserved for allotment to eligible employees and from the rest, it has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors. Issue constitutes 16.51% of the total post-issue paid-up capital of the company. The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Edelweiss Financial Services Ltd. and ICICI Securities Ltd. Link Intime India Pvt. Ltd. is the registrar to the issue.  

Having issued initial equity at par, IPL has issued/converted further equity in the price range of Rs. 66.15 and Rs. 106.15 between May 2018 and January 2021. It has also issued bonus shares in the ratio of 64 shares for every 1 share held in March 2017.

The average cost of acquisition of shares by the promoters and selling stakeholders is Rs. 0.15, Rs. 74.49 and Rs. 113.77 per share.

Post issue, IPL's current paid-up equity capital of Rs. 45.56 cr. will stand enhanced to Rs. 47.57 cr. With this IPO price, the company is looking for a market cap of Rs. 7087.78 cr.

On the financial performance front, for the last three fiscals, IPL has posted turnover/net profit of Rs.403.11 cr. / Rs. 12.86 cr. (FY18), Rs. 537.26 cr. / Rs. 26.87 cr. (FY19) and Rs. 626.44 cr. / Rs. 47.82 cr. (FY20). For the first half ended on September 30, 2020, it has earned a net profit of Rs. 27.21 cr. on a turnover of Rs. 260.24 cr.

For the last three fiscals, the company has posted an average EPS of Rs. 7.68 and an average RoNW of 19.89%. The issue is (based on upper price band) priced at a P/BV of 30.28 based on its NAV of Rs. 49.20 as on September 30, 2020, and at a P/BV of 13.53 based on post issue NAV of Rs. 110.12. On the said date, its debt-equity ratio was 0.13: 1. It has just a 2% market share against double-digit share enjoyed by four top leaders.IPL has posted growth in revenue at a CAGR of 41.9% between Fiscal 2010 and Fiscal 2019 and trying to encase on this track record.

If we annualize latest earnings and attribute on fully diluted equity post issue, then asking price is at a P/E of around 130 against the industry average of 81.

As per the offer documents, IPL has shown Asian Paints, Berger Paints, Kansai Nerolec and Akzo Noble as its listed peers. They are currently trading at a P/Es of around 113.78, 128.23, 84.09 and 59.56 (as on January 14, 2021). Although they are not fully comparable on an apple to apple basis, the paint industry is trading at an average P/E of 81 and based on this IPL issue is priced aggressively. However, according to management, this pricing mirrors future growth prospects that are based on past track records of performance which is above the industry average. During the lockdown period too it has posted revenue growth of 16% with differentiated products launch in the market against sub 5% by four major players.

Three merchant bankers associated with this issue have handled 30 public offers in the past three years, out of which 11 issues closed below the offer price on listing date.

Conclusion / Investment Strategy

On prima facie issue is priced aggressively compared to its listed peers. With the planned expansion, lowering debt and other cost control measures, the company is confident of maintaining the growth levels which is mirroring in the pricing of the IPO. Considering these and the growth prospects in light of affordable housing push to meet AVAS for all by 2022 target of the Government, investors may consider an investment with a long term perspective.

Review By Dilip Davda on January 14, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

Indigo Paints IPO FAQs

  1. 1. Why Indigo Paints IPO?

    The initial public offer (IPO) of Indigo Paints Limited offers an early investment opportunity in Indigo Paints Limited. A stock market investor can buy Indigo Paints IPO shares by applying in IPO before Indigo Paints Limited shares get listed at the stock exchanges. An investor could invest in Indigo Paints IPO for short term listing gain or a long term.

  2. 3. Indigo Paints IPO what should investors do?

    Indigo Paints IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Indigo Paints IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is Indigo Paints IPO good?

    Our recommendation for Indigo Paints IPO is to subscribe for long term.

  4. 5. Is Indigo Paints IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Indigo Paints IPO.

  5. 6. When will Indigo Paints IPO allotment status?

    The Indigo Paints IPO allotment status will be available on or around January 28, 2021. The allotted shares will be credited in demat account by February 1, 2021. Visit Indigo Paints IPO allotment status to check.

  6. 7. When will Indigo Paints IPO list?

    The Indigo Paints IPO will list on Tuesday, February 2, 2021, at BSE, NSE.