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Indigo Paints IPO : Should You Subscribe?

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In this new IPO season, Indigo Paints is set to hit the streets this week. It was founded in 2000 to manufacture cement paints. Currently it’s the fastest growing paint company and ranked 5th in terms of revenue among Indian decorative paint industry.

 

Product portfolio of the company include decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties and cement paints.

 

 

About IPO

 

IPO Starts ​​20 Jan

IPO closes ​​22 Jan

Price Band ​​1488-1490

Lot Size   ​​10

Listing Date ​​2 Feb

 

 

Financials

 

In last 4 years, income of the company has grown at 21% CAGR. Profit after tax growth stands at 55% CAGR whereas total assets grew at 14% CAGR. The company has a small debt of 25 crores which should not be of big concern.

 

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- The TradeLog

 

Peer Comparison

 

Peer listed companies include Asian Paints, Berger Paints, Nerolac and Azko Nobel. Operating margin of Indigo Paints stands at 11% as compared to 22% of Asian Paints. ROE and ROA of indigo paints are as strong as its peers.

 

Asian Paints and Berger Paints trade at P/E of 119 and 150 respectively. At an EPS of 16.5, Indigo Paints is valued at a P/E of 141 per share at its IPO offer price.

 

 

Grey Market Price

 

The unlisted shares are trading at a strong premium of 810 per share which translates to 60% above offer price.

 

Should You Subscribe

 

Given that the GMP is very strong, the IPO is likely to witness huge subscription by QIB and HNI. This would result inattractive listing gains. I will be subscribing to the issue due to these factors:

1. High Listing gain expected due to high GMP
2. Paints Sector: Indian paints industry have rewarded its shareholders and will continue to do so. Per capita pains consumption around world stands at 13-15 kgs. For India, it stands at only 4.1 kgs. Looks like the paint industry has a big upside in upcoming years!

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