Indigo Paints makes solid debut, lists at 75% premium over issue price

The IPO of Indigo Paints had garnered 117 times subscription, generating bids worth Rs 96,222 crore

Shares of Indigo Paints made a solid debut on the bourses on Tuesday, listing at Rs 2,607.50, a 75 per cent premium against issue price of Rs 1,490 on the National Stock Exchange (NSE) and BSE. The stock surged to Rs 3,129, up 110 per cent against issue price on the BSE and NSE, exchange data shows.

At close, Indigo Paints was at Rs 3,118.6, up 109 per cent against issue price on the BSE.

The attractive pricing, relative to its peers, along with its higher growth potential had attracted investors towards the issue. The initial public offering (IPO) of Indigo Paints had garnered 117 times subscription, generating bids worth Rs 96,222 crore. The qualified institutional buyer (QIB) portion of the issue was subscribed 190 times, while the high networth individual or HNI segment was subscribed 263 times. The retail and employee portions were subscribed 16 times and 2.5 times, respectively.

Pune-based Indigo Paints is the country’s fifth-largest decorative paints company. The company generates nearly half its sales from southern India, and is ranked third in terms of market share in Kerala. The firm plans to use bulk of the issue proceeds to meet its expansion goals.

Indigo Paints’ product innovation (largely differentiated products), increase in dealers reach (especially in the large cities) and support for products with adequate brand investments will be the key growth levers in the coming years. Though Indigo’s valuations are at premium to peers, strong financial track record, promoters experience and confidence to lead the business coupled with industry par return profile makes it an emerging play in the domestic decorative paint industry, brokerage firm Sharekhan said in IPO note.

According to Angel Broking, Indigo Paints has a track record of consistent growth in a fast growing industry with entry barriers. The company has differentiated products leading to greater brand recognition and enabling expansion into a complete range of decorative paint. It also has leveraged brand equity and distribution network to populate tinting machines. Strategically located manufacturing facilities with proximity to raw materials helps to report better gross margins, the brokerage firm said in a note.

Indigo Paints built upon its position in the high entry barrier industry by developing differentiated products portfolio (29 per cent of sales). Given the early mover advantage in this space, these products yield relatively higher margin for Indigo which is now at par with peers. It also made it easier for the company to build upon its brand, expand its distribution network pan India (11000 dealers) and install ~4,600 tinting machines at dealers which helped push up sales, analyst at Motialal Oswal Securities said in IPO note.

We like Indigo Paints given its differentiated product portfolio and robust expansion plans. We believe it can attain scale and maintain its strong growth over next few years, the brokerage firm said.