As of 2.15 pm, the IPO of Sequoia Capital-backed Indigo Paints, which opened today, was approved 1.26 times. Indigo Paints mopped up Rs.348 crore from anchor investors at Rs.1,490 apiece before the initial public offering. The anchor investors include Singapore Investment Corporation Government, Fidelity, Goldman Sachs, Nomura, and HDFC MF. Indigo Paints, based in Pune, manufactures a range of decorative paints and has an extensive nationwide distribution network. Meanwhile, the IPO of IRFC closes today while the public issue Home First Finance opens later this week.
The Indigo Paints IPO price band was set at 1,488-1,490 a share for the initial share-sale, while the size of the lot is 10. On January 22, the problem will end.
The share allocation in the IPO of Indigo Paints is expected to be finalized on January 28, while the listing will take place on February 2, brokerages said.
Post issue, the shareholding of promoters will fall to 54% from 60%.
Kotak Mahindra Capital Firm, Edelweiss Financial Services, and ICICI Securities are the leading managers of the book on the issue.
Despite the COVID-related disruptions Indigo has been able to maintain a double-digit growth rate in FY20, with an improvement in gross margins which is commendable. The company has focused on niche opportunities in highly differentiated categories and advertised those products rather than plain vanilla products as a strategy.
Despite having A&P in line with other incumbent players, Indigo has been able to maintain EBITDA margins of 14.6% and gross margins of 48.5% in FY20 (compared to 44.7% of Asian Paints) which shows the cost focus and premiumization benefits (given relatively lower discounts).
Indigo has a ROCE of 27.5% as compared with 33.1% of Asian Paints and 30% of Berger Paints, which can improve as growth and operating leverage kick into the margins. Given the focus on identifying differentiated products, and the ability to cater to that demand gives Indigo a first mover and pricing advantage. We recommend a SUBSCRIBE rating to the issue as a long term investment opportunity.
The offer is priced at a price to book of ~30x as of September 2020.
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