Indigo Paints IPO | 10 Things You Must Know

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India’s fifth-largest paint company – Indigo Paints Ltd. – is looking to list on the Indian stock exchanges as it opens its initial public offering on Today.
Let’s talk about it.

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1) About:

Incorporated in 2000, Indigo Paints is the fifth largest decorative paints company in India. The company is engaged in the manufacturing and marketing of a complete range of decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties, and cement paints.

2) IPO Details:

The company is looking to raise close to ₹ 1,170 crore from the primary market via the fresh issue and offer for sale.

IPO Date: Jan 20, 2021 – Jan 22, 2021
Face Value: ₹10 per equity share
IPO Price: ₹1488 to ₹1490 per equity share
Market Lot: 10 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Jan 25, 2021
Initiation of Refunds: Jan 28, 2021
Credit of Shares to Demat Acct: Feb 01, 2021
IPO Shares Listing Date: Feb 02, 2021

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3) Financials:

Over FY15-20, the company’s revenue growth was over 47%, while its gross profit also grew at a similar rate. On the operating and bottom-line front, the company turned profitable in FY18. The company’s gross margins have averaged around 46.5%, while its EBITDA margins off-late have increased due to economies of scale.

The net worth of the company, as of September 30, 2020, was close to ₹ 224 crore, translating to a book value of ₹ 47 per share on a diluted basis. Indigo is virtually a debt-free company. As of September 30, 2020, it had a total debt of ₹ 19 crore, which would come down to ZERO as it is funding to pay-off its debt. The company has so far not announced any dividends as it turned profitable only three years back.

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4) Shareholding Pattern:

Promoters own 60% in Indigo Paints’, while the rest is held by non-promoter and public. After the share sale, non-promoter and public shareholding will increase to 46%.

5) Peer Comparison & Market share

The Rs 40,300-crore Indian decorative paints space is dominated by Asian Paints Ltd., Berger Paints India Ltd., Kansai Nerolac Paints Ltd. and Akzo Nobel India Ltd., which collectively own 66% of the market. Indigo Paints own 2% of the decorative paints segment.While Indigo Paints completely focuses on the decorative paints segment, that for Asian Paints account for 95-97% of revenue.

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6) Valuations:

Indigo’s earnings per share for the financial year 2020, post-dilution, comes to ₹ 10. At the upper end of the price band, the price-to-earnings ratio stands at 148.3 times Vs industry average of 80.6 times which is overvalued.

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7) Grey Market premium:

In the grey market today, a strong premium was seen as shares were trading at Rs 2,330 apiece, up Rs 840 or 56.37% from the IPO price of Rs 1,490 apiece.

8) Objects of the Issue:

The net proceed from the Indigo Paints IPO will be used against following objectives.

  • To meet the capital expenditure requirements for manufacturing facility expansion at Pudukkottai, Tamil Nadu
  • To purchase tinting machines and gyroshakers.
  • To repay all or certain borrowings.
  • To meet general corporate purposes.

9) Pros.

  • Virtually debt free.
  • Large product portfolio with differentiated products.
  • Well-proven, and consistent growth track record.
  • Strong brand equity.
  • Extensive network distribution.
  • Strategically located manufacturing facilities.

10) Cons.

  • The continuing impact of the Covid-19 pandemic.
  • Inability to identify or effectively respond to evolving preferences.
  • Inability to enter into new relationships with dealers and painters.
  • Not being able to enter into long-term arrangements with dealers.
  • Under-utilisation of its manufacturing capacities.
  • A significant portion of its sales are derived from Kerala, and any adverse development in this market could adversely affect business.
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Suggestion: Apply for only ‘one lot’ and Subscribe this issue for big listing gains as well as for long term investment.

How to Apply for it?

This link will explain a step by step process to apply for the IPOs in India.

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Note: Data has been taken from Mrs. Bectors’ Red Herring Prospectus, Bloombergquint, ET, financialexpress and BusinessLine

Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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Akshay Seth is a SEBI Registered Research Analyst. Has taken sessions on 'Equity Analysis' in IIT Madras, IIT Delhi, IIT Guwahati, IIT Mandi, NMIMS Mumbai. Can be contacted for Stock Advice and Learning Stock Analysis (Fundamental & Technical). +91 8826423141 | info@equityboxx.com
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