Bumper listing for Indigo Paints; shares climb 75% over IPO price on stock market debut

Indigo Paints shares made a stellar debut on the bourses today as the stock surged to list at a hefty premium over the issue price. Indigo Paints shares began trading at Rs 2,607 apiece on Tuesday morning, a 75% bonus over the upper band of the IPO price. Indigo Paints was commanding a market capitalization of Rs 12,403 crore on listing. The recently concluded IPO of the firm was subscribed a massive 117 times, making it one of the most subscribed recent public issues. Minutes into the trading session, stocks added to gains and zoomed 4% over the listing price.

Check live price here: Indigo Paints

The fifth-largest decorative paints manufacturer in India, Indigo Paints, has grown at a 42% CAGR over the financial year 2010 to 2019. This growth rate trumps other paints manufacturers who have grown at 12-13% CAGR over the same time period, brokerage firm Motilal Oswal. “Even in FY20 (impacted due to Covid-19), Indigo grew at 17% YoY vs -9% to 5% for other players,” the brokerage firm added. Indigo Paints is a late entrant in the paints industry but still commands a 2% market share across India.

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Compared to peers, Indigo Paints spends nearly 12.7% of its revenue on advertising and sales promotion compared to 3- 5% for top 4 players. “Indigo paints consistently seek to launch first-to-market products by identifying niche product opportunities and introducing products that address these requirements. IPL is the first company to introduce certain category-creator products, including metallic emulsions, tile coat emulsions, bright ceiling coat emulsions and floor coat emulsions in the decorative paint market in India,” said analysts at Geojit Financial Services. 

In terms of valuations, Motilal Oswal Financial Services values the issue at 11.3x FY20 Mcap/sales which is comparable to peers. Asian Paints is at 12.3x; while Berger is at 11.8x. The brokerage firm had a subscribe rating with a long term view on the IPO. Geojit values Indigo Paints at P/E of 130x (annualized basis on FY21E EPS of Rs.11.4) on the upper end of the price band, a premium to other listed companies in the paints segment.