The public issue of Indigo Paints, one of the fastest-growing paint companies in India, has been subscribed 6.97 times so far on January 21, the second day of bidding.
Investors including employees have put in bids for 3.84 crore equity shares against offer size of over 55.18 lakh equity shares, the subscription data available on the exchanges showed.
The reserved portion of retail investors has seen subscription of 9.6 times and that of employees is 1.8 times. The portion set aside for qualified institutional buyers has been subscribed 3.8 times and non-institutional investors have put in 5.4 times bids against their reserved portion.
The public issue was subscribed 1.9 times on January 20, the opening day. The three-day offer will close on January 22.
The IPO comprises fresh issue of Rs 300 crore, and an offer for sale of 58,40,000 equity shares by promoter (Hemant Jalan) and investors (Investors Sequoia Capital India Investments IV and SCI Investments V).
The company has reserved 70,000 equity shares for its employees and the eligible employees will get these shares a discount of Rs 148 per share.
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Indigo Paints has rapidly scaled up to become the fifth-largest player in a competitive, oligopolistic decorative-paints industry in India, delivering an organic revenue CAGR of 29 percent in the past five years. Growth has been driven by differentiated products backed by heavy advertising, an incentivised workforce and a focus on smaller towns, said IIFL. The sales from these differentiated products grew at 28.6 percent YoY in FY20.
At the upper band of issue price (of Rs 1,488-1,490 per share), "Indigo Paints will trade at a Price/EPS multiple of 65.1x of its annualized H1FY21 revenue, which is at a discount to its listed peer like Asian Paints (88.6x), Berger Paints (113x), Kansai Nerolac (65.7x) and at a premium to Akzo Noble (42.6x). We believe that the current price band is undervalued, looking at the growth potential in the company we anticipate listing gains and give a subscribe rating to Indigo Paints IPO," KR Choksey said.
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"We expect the growth rate for Indigo Paints to outperform other players. Indigo's growth is not constrained by industry growth or structure. Currently, at 2 percent market share, it will still be at a low 4.4 percent market share 10 years down the line, if it grows at double the rate of the industry (18 percent for Indigo versus 9 percent for the industry)," the brokerage said.
With smaller players (i.e., players other than the top-4) comprising around 25 percent of the decorative paints market, Indigo's growth is therefore unlikely to hurt growth of the top-4 players, KR Choksey feels.
Indigo Paints has a strong market network with dealers in Tier 1/2, and Metros as well. It has 3 manufacturing facilities situated in Jodhpur (Rajasthan), Kochi (Kerala), and Pudukkottai (Tamil Nadu), with aggregate production capacity of 1,01,903 KLPA of liquid paint and 93,118 MTPA of putties and powder paints.
The company will utilise the net fresh issue funds for expansion of the existing manufacturing facility at Pudukkottai, Tamil Nadu by setting up an additional unit adjacent to the existing facility (Rs 150 crore); purchase of tinting machines and gyroshakers (Rs 50 crore); repayment certain of borrowings (Rs 25 crore); and general corporate purposes.
Its revenue from operations grew at a CAGR of 24.7 percent, EBITDA 87.8 percent and profit 92.8 percent between FY18-FY20. Spark Wealth assigned a subscribe rating for the issue.