Paint is one of the fastest-growing segments in India. And the major reason is increasing demand from the traditional whitewash to high-quality paint categories like emulsions and enamels.
This premiumization trend is expected to continue and provide stability & growth of the Indian paint industry. Over the past few years, Paint companies have given great returns. For example, Asian paints has given almost 10 times returns in last 10 years.
Recently Indigo paints has opened up for the IPO which is available for subscription starting 20th Jan 2021. So, In this article, we will do a quick analysis of Indigo Paints and see if it is worth applying for the IPO.
We will 1st start with analyzing the Paint sector in India, then we will discuss the company and its financials. Finally, we will discuss the IPO details and conclude the video with a yes or no for IPO subscription.
Paint Sector in India
- The decorative paints segment represents around 74% of the overall paint market in India and includes wall finishes for interior and exterior use, enamels, wood finishes and ancillary products such as primers and putties.
- From 2014 to 2019, the decorative segment has grown at a CAGR of 11.5%, driven by the increase in consumption of paints in Tier 2 – 4 Cities, that account for nearly half the total sales.
- The Indian decorative paints market is expected to grow at a CAGR of approximately 13% in terms of value and 10.2% in terms of volume through 2024.
- Key players in this sector include Asian Paints which is the leader and others include Kensai Nerola and Berger Paints.
- The major growth drivers for increase in paint demand includes growth in the housing and construction segment.
- In the longer run, the paints industry is expected to grow on account of an increase in disposable income, rising urbanization, rising rural economy, increasing trend of nuclear families, and increase in disposable income and improving lifestyles.
- Indigo paints is engaged in the business of manufacturing paints and it is the fifth largest company in the Indian decorative paint industry in terms of revenue for Fiscal 2020.
- In terms of growth, it is the fastest growing paint company amongst the top five paint companies in India.
- Indigo paints has achieved this position in a highly competitive Indian decorative paint industry.
- So basically, they introduced differentiated products to create a distinct market in the paint industry, building brand equity for their primary consumer brand, creating an extensive distribution network, and installing tinting machines across their dealer network.
- Indigo Paints has a strong market network with dealers in Tier 1, Tier 2, and Metro cities[. It has 3 manufacturing facilities situated in Jodhpur (Rajasthan), Kochi (Kerala), and Pudukkottai (Tamil Nadu). It is further looking to expand its manufacturing capacities at Pudukkottai to manufacture water-based paints.
Since 2018, its revenues have grown at a CAGR of 24.6% and profits have grown at CAGR of 90.8% which is simply amazing! Please note that we have ignored the Sep 20 numbers in CAGR calculation because this was an exception due to COVID.
Both ROE and ROCE are well above 20% (before COVID). Clearly, Indigo paints is a highly profitable company.
Debt to equity: Current debt to equity is just 0.09 which is negligible. Hence, it is a debt free company.
Hence, overall, considering the business of Indigo paints, its competitive strength, its growth and its profitability, it looks like a fundamentally superstrong company.IPO Details
Reason for IPO:
- IPO Opening date is 20th Jan 2021 and the closing date is 22nd Jan 2021.
- Issue price bank is Rs 1488- Rs 1490 per share.
- It is available at a lot of 10 shares. It means the minimum investment would Rs 14,900.
- Current shareholding of promoters stood at 64% and after the IPO, it would be 54%.
- To meet the capital expenditure requirements for manufacturing facility expansion at Pudukkottai, Tamil Nadu
- To purchase tinting machines and gyroshakers.
- To repay all or certain borrowings.
- To meet general corporate purposes.
At a price band of Rs 1490, Indigo is priced at a PE of 149. The valuations are certainly on the higher side. But the major reason for high valuation is due to its strong and fastest growing business along with very bright future growth prospects.
Now the biggest question - Is it worth investing in the IPO of the company?
Well, you can consider investing in Indigo Paints for both short term and long term perspective. The reason for short term is due to its higher price in grey market. Indigo paints grey market premium stands at 55% at Rs 2340 and considering the strong business of the company, it will receive very good response with multifold subscription. With this, it is expected that Indigo Paints would give very good listing gains.
For long-term investors, although the valuations are on the higher side, but looking at the growth prospects you can consider investing in the company. Because of its strong fundamentals and solid performance with bright growth prospects, this is one company that can be accumulated more on correction.
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Disclaimer: This article is only for education purpose. Consult your financial Advisor before investing your money.