Should we apply for Indigo IPO ?

 

Indigo Paints IPO is open for subscriptions starting 20th -22th Jan 2021. 

About the company.

• Started in the year 2000, Indigo Paints operates in the decorative paint segment and it is the 5th largest paint company in India within the decorative paint segment.
• In terms of growth, Indigo paints is the fastest-growing company in the decorative paint segment.
• Indigo paints started the business with low-end paint cement but slowly expanded the range in segments like exterior emulsions, interior emulsions, distempers, primers, putties, etc.
• It is also known for its differentiated and unique products that are never offered before.
• Indigo Paints has endorsed Mahendra Singh Dhoni as its brand ambassador.
• Currently, it has 3 manufacturing facilities in Jodhpur, Kocchi, and Pudukkottai.
• Over the period, Indigo has grown due to its differentiated products, building brand equity for their consumer brands, creating an extensive distribution network, and installing tinting machines across the dealer networks.

Financials.

• Over the past 3 years, Indigo Paints revenues have grown from Rs 4031 Cr in FY18 to Rs 6,264 Cr in FY20. Although, the revenues have fallen down in the 6 months of FY21 due to COVID.
• Profits have grown from Rs 131 Cr in FY18 to Rs 477 Cr in FY20. That's more than 3 times grown in profits.
• ROE and ROCE for FY20 stood at 26.6% and 33.4% respectively which makes it a very profitable company.
• The current debt to equity ratio is 0.09 which is negligible.

IPO DETAILS.

• Indigo Paints IPO opens on 20th Jan 2021 and closes on 22nd Jan 2021.
• The issue price band is Rs 1488-Rs 1490.
• Lot size is 10. It means the minimum investment would be Rs 14,900.
• The current shareholding of Indigo paints is 64% which would reduce to 54% after the IPO.

The money raised from the IPO would be used for the following purpose:

• Expansion of its Pudukkottai manufacturing plant.
• Purchase of tinting machine and gyroshakers.
• To repay some borrowing and other corporate expenses.

Valuation.

• At the price bank of Rs 1490, Indigo paints is available at PE of 149 which is certainly on the higher side. The major reason is due to its strong business and brighter growth prospects.
• Investors can consider applying for the IPO for both the short term and long term.
• It is because in the short term, Indigo Paints is expected to give good listing gains. The grey market price of Indigo paints is already at a 55% premium at Rs 2340. It will certainly receive a good response during the IPO.
• For the long term, Indigo paints can be considered due to its solid business and high growth. Although, the valuations are on the higher side. Investors can also consider buying on dips.

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