IPO - Indigo Paints Ltd - ICICI Direct

Indigo Paints ("Indigo") is the fifth largest decorative paint company in India. It manufactures decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties and cement paints. The company has over the years introduced unique paints products which has helped it to expand its dealers reach into domestic markets which is otherwise dominated by top four players. The premium product category contributes 28.6% in topline while rest comes from the other paint products categories. The company has pan India reach with its 11,230 dealer networks and it is growing 10% annually. For FY18-20, company reported sales, PAT CAGR of 26%, 104% respectively, supported by EBITDA margin expansion of ~800 bps during the same period. Indigo has lean balance sheet with D/E 0.2x and RoE, RoCE of ~24%, ~29% respectively.

Investment Rationale

Continue to focus on developing differentiated products to grow market share

Indigo Paints was the first company to launch various new product categories which is known as premium category products. Those products are Metallic Emulsions, Tile Coat Emulsions, Bright Ceiling Coat Emulsions, Floor Coat Emulsions, Dirtproof & Waterproof Exterior Laminate, Exterior & Interior Acrylic Laminate and PU Super Gloss Enamel. The revenue from premium products categories have registered CAGR of 30% in FY18-20, while the revenue contribution from the same has increased from 27% in FY18 to 29% by FY20. Further, these products command superior EBITDA margin (~10 percent points higher than normal products). The company has further planned to increase revenue contribution of premium products through dealer additions across newly entered geographies

Priced at PE of 148x FY20 (post issue) on upper band

At the higher end of price band, the stock is available at a P/E of 148x FY20 earnings & ~11x FY20 Mcap/sales..

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_IndigoPaints_IPOReview.pdf

Source : Equity Bulls

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