Indigo Paints fixes IPO price band at Rs 1,488-1,490; grey market premium @ 60%

NEW DELHI: Sequoia Capital-backed Indigo Paints on Thursday fixed the price band for its forthcoming Rs 1,000-crore IPO at Rs 1,488-1,490 apiece. According to dealers in the unlisted market, the scrip was commanding a grey market premium of 55-60 per cent at the time of writing this report.

Dealers said the scrip was demanding a premium of Rs 830-850 apiece in the unofficial market earlier on Thursday.

The issue will open for subscription on January 20 and run till January 22. Investors can make a minimum bid of 10 equity shares, and in multiples of 10 thereafter.

The issue would comprise of a fresh issue, aggregating Rs 300 crore, and an offer-for-sale (OFS) of up to 58,40,000 equity shares by its existing shareholders.

The company is engaged in the manufacturing of different types of decorative paints like enamels, emulsions, wood coatings, primers, distempers, putties and cement paints. Indigo Paints had filed its preliminary IPO papers with Sebi in November.

Abhay Doshi, Founder, Unlistedarena.com, said that there is a frenzy in broader markets. Also, the recently-concluded IPOs were heavily subscribed, which adds to the attractiveness of the company.

"Historically, Paint companies enjoy premium valuations. The company is showing robust growth with a strong product portfolio," he added. "Thus the price band might be higher than the ideal range."

Brokerage Angel Broking has a positive outlook on the Indigo Paints IPO.

"Indigo paints is one of the fastest-growing paint companies in India. Listed players have grown in between 5 and 12 per cent, and the company has been able to grow by more than 15.8 per cent in last three years, outperforming listed players. Indigo paints is the 5th largest company in the decorative paint industry," said Yash Gupta, Equity Research Associate at Angel Broking.

"Currently, Asian paints and Berger paints are trading at the price-to-earnings ratios of 111 and 148 respectively, and Indigo Paints reported an EPS of 10.49, valuing the IPO at 149 at the higher price band. We expect Indigo Paints' grey market price premium to consolidate in a couple of days."

The size of the decorative paints industry in 2019 was Rs 40,300 crore, and as per research by Frost & Sullivan, Indigo Paints had a market share of about 2 per cent.

As of 30 September 2020, Indigo Paints generated total revenue of 260.24 crore and PAT of Rs 27.20 crore. The company clocked revenue of Rs 626.43 crore and PAT of Rs 47.81 crore in FY20.

According to dealers, the company is likely to gain demand due to revival of the real estate sector. Narottam Dharawat of Mumbai-based Dharawat Securities said, "The low interest rate and robust demand for the housing sector is a big push for the paint industry."

Proceeds from the fresh issuance of shares would be used for expansion of the existing manufacturing facility at Pudukkottai in Tamil Nadu, purchase of tinting machines and gyro shakers, and repayment/prepayment of borrowings.

The Pune-based company has an extensive distribution network across the country. As of September 30, 2020, the company has three manufacturing facilities located in Rajasthan, Kerala and Tamil Nadu.

Kotak Mahindra Capital Company, Edelweiss Financial Services and ICICI Securities are the book-running lead managers to the issue. Shares of the bank will be listed on BSE and NSE.