INDIGO PAINTS IPO : Subscribe or NOT?

The data has been compiled from various sources and might have small difference but overall theme is to subscribe or not — we will focus on that

Indigo Paints IPO– Among top 5 in Decorative Paint Industry in India with growing over 40% CAGR in terms of sales since inception.

Business — In the Decorative paints industry with high share of differentiated products with high barriers of entry,

~28% business comes from differentiated products

Offer purpose — Offer for sale (1169cr) including fresh issue of 300 cr. for expansion and general purposes

Key Service domains – Repainting constitutes >70% demand and Tier 2, Tier 3, Tier 4 regions are major targets for company

Risks —

Consistently need to spend on Ads to remain in limelight. Currently they spend 12-13% of revenue on ad spends as compared to 3-5% for other big players

As they are expanding to big cities, competition from other 4 large players will pose serious challenge as retail outlets space is limited

Strength

Paint Industry has relatively high entry barriers and need a technologically advanced Manufacturing and distribution network

Company provides low discount on gross sales due to differentiated products

Have low operating expenses as compared to peers and high margins which sustain higher ad spends

Manufacturing locations are close to raw materials keeping costs low

Future

Various government initiatives such as housing for all, smart-cities, industrial corridors and Atmanirbhar Bharat amongst others are likely to offer exciting growth opportunities in the coming years.

As per capita income increases in India, re-painting cycles will be shortened possibly to 5-6 years. Also that will help people to upgrade to premium paints

GST, COVID-19 has shifted the paint market towards organised one and that will help this company in coming years

Valuations

Profit making company with improving ROE, ROCE but seeking very high valuations in IPO (~140X PE)

Asian Paints At 9X Capacity, 500 bps higher margin at 32X Higher Sales than Indigo currently trades at 70X FY22e

Should we apply?

People can subscribe looking at IPO frenzy and possible listing gains only

Recommended to sell if getting 10-30% gains on listing day

One can wait to enter at low prices for investment purposes and review holdings with each quarter earnings

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Angel Broking IPO crisp summary –Listed with loss as shared

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