The public offer of Indigo Paints, the fifth largest company in the Indian decorative paint industry in terms of revenue, has garnered a strong response from investors.
The public issue has been subscribed 117 times so far on January 22, the final day of bidding, receiving bids for over 64.57 crore equity shares against the IPO size of 55.18 lakh shares (excluding anchor book), the subscription data available on exchanges showed.
The portion set aside for qualified institutional buyers witnessed a subscription of 189.6 times and that of non-institutional investors was subscribed 263 times. The retail investors have put in 15.93 times bids against their reserved portion, and the employees' portion was subscribed 2.49 times.
Indigo Paints on January 19 had raised Rs 348 crore via anchor book at the higher end of the price band of Rs 1,488-1,490 per share. The Rs 1,170-crore public issue comprises of a fresh issue of Rs 300 crore and an offer for sale of 58.40 lakh equity shares by investors (Sequoia Capital India Investments IV and SCI Investments V) and promoter Hemant Jalan.
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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.
"We believe Indigo Paints is an innovative painting solution company pioneer in launching the first-to-market kind differentiated painting products with niche products addressing the fastest-growing market demand in India," said Mehta Equities which also has an optimistic outlook on Indian decorative paint industry
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As on date, Indigo Paints is a relatively small player with a 2 percent market share but its profit has grown significantly at nearly 4x in the last 3 years. Its leadership presence in tier 3-4 cities where brand penetration is easier and dealers have greater ability to influence customer purchase decisions bodes well for the company, Mehta Equities sees it is well placed to tap this opportunity.
Indigo Paints owns and operates three manufacturing facilities located in Jodhpur (Rajasthan), Kochi (Kerala) and Pudukkottai (Tamil Nadu) with an aggregate estimated installed production capacity of 1,01,903 kilolitres per annum (KLPA) for liquid paints and 93,118 metric tonnes per annum (MTPA) for putties and powder paints.
The company will utilise the net proceeds from its fresh issue 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.
"On valuations parse at upper price band (Rs 1,490), the issue is asking for market cap Rs 7,088 crore with PE (annualised FY21) 140x and P/BV at 34x which seems to be aggressively priced when compared to industry players which are trading at an average of around 90-100x price-earnings," the brokerage said.
Geojit Financial Services also said in spite of premium valuations, the company may offer good returns to investors given the fact that it is the fastest-growing paint company in India driven by developing niche products. The brokerage assigned a subscribe rating.