• by Stocktry Expert
• 12th Jan 2021

A New IPO Buzzes in the Stock Market - Indigo Paints Private Limited

One of the fastest-growing paint companies in India, Indigo paint IPO is expected to hit on 20th January 2021. The issue size is expected to be around Rs 1,176 Crores.

Indigo Paints is the fifth-largest company in the Indian decorative paint industry in terms of revenue for FY2020, manufacturing a complete range of decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties, and cement paints.

Understanding the demand, requirement, and customer satisfaction remains their key element. They are 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.

However, the real question is should you invest in Indigo IPO?

IPO issue details:

• IPO Date - 20-Jan-21 to 22-Jan-21
• Face Value - Rs 10 per share
• IPO Price band - Rs 1,480 to Rs 1,500 per share
• Issue Size - Total of Rs 1,176 Crores (approx)
• Fresh issue – Rs 300 Crores
• OFS – Rs 876 Crores
• IPO Lot Size - 10 shares
• Lead Managers - Kotak Mahindra Capital, Edelweiss Financials, and ICICI Securities
• Listing at BSE and NSE

Know the company promoters:

Hemant Jalan, Anita Jalan, Parag Jalan, Kamala Prasad Jalan, Tara Devi Jalan, and Halogen Chemicals Private Limited.

Indigo Paints IPO Promoter Holding – Pre and Post IPO

• Pre-issue shareholding – 94%
• Post issue shareholding – 53%

Reasons for the issue:

• Offer for sale (OFS) of Rs 876 Crores (approx.):

Money received under OFS would go to selling shareholders and the company would not receive any proceeds.

• A fresh issue of Rs 300 Crores: Proceeds would be used for:

a) Funding capital expenditure for expansion of the existing manufacturing facility at Pudukkottai, Tamil Nadu by setting-up an additional unit adjacent to the existing facility

b) Purchase of tinting machines and gyro shakers

c) Repayment/prepayment of all or certain borrowings

d) General corporate purposes.

Company Financial:

Indigo Paints Limited's operating revenues range is Over INR 500 cr for the financial year ending on 31 March 2020. It's EBITDA has increased by 66.23 % over the previous year. At the same time, it's book net worth has increased by 33.63 %.

Its EPS for FY2020 is Rs 10.49 and the last 3 years' average EPS is Rs 7.68. If we annualize 6 months ending Sep-20 EPS, it works out to Rs 11.94.

Key strengths:

• Consistent growth
• Differentiated products leading to expansion into a complete range of decorative paint products
• Focused brand-building initiatives to gradually build brand equity
• Extensive distribution network
• Leveraged brand equity and distribution network
• The well-qualified and professional management team

Strategies:

• Focus on developing differentiated products to grow market share.
• Expand presence in select new territories by populating tinting machines
• Expand its manufacturing capacities
• Further, strengthen its brand to consolidate its position as a leading paint company in India.

Reasons to invest:

• Indigo Paints is the fifth-largest company in the Indian decorative paint industry in terms of revenue for FY2020, manufacturing a complete range of decorative paints.
• It has generated strong revenue growth in the last 3 years (CAGR 25%)
• Its margins have improved in the last 3 years. It was generating 3.2% margins in FY2018 Vs 7.6% in FY2020.

Risk factor:

• The continuing impact of the COVID-19 pandemic on its business and operations is uncertain.
• The company engages in a highly competitive business and any failure to effectively compete could have a material adverse effect.
• The company does not enter into long-term arrangements with its dealers and any failure to continue existing arrangements could negatively affect its business and results of operations.
• Their proposed capacity expansion plans relating to its manufacturing facilities are subject to the risk of unanticipated delays in implementation and cost overruns.
• However, for complete internal and external risk factors, you can refer to the RHP of the company.

IPO Schedule (tentative dates)

• Offer Open - 20-Jan-21
• Offer close - 22-Jan-21
• Finalization of Basis of Allotment - 27-Jan-21
• Unblocking of ABSA and Initiation of Refunds - 28-Jan-21
• The credit of shares to Demat Accounts - 29-Jan-21
• IPO Shares Listing Date - 01-Feb-21

Summary:

• Among the top five fastest-growing paint company in India.
• It has shown strong revenue and margin growth.
• Its issue price is highly-priced. But considering the current bull run, high-risk investors can invest for listing gains as well as for the short term.
• In the medium to long term, it could be a risky proposition compared to its peers.