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Please refer to important disclosures at the end of this report
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Fastest Growing Paint Player
Indigo Paints is the fastest growing amongst the top five paint companies in India.
Company manufacture a complete range of decorative paints including emulsions,
enamels, wood coatings, distempers, primers, putties and cement paints.
Positives: (a) Track record of consistent growth in a fast growing industry with entry
barriers (b) Differentiated products leading to greater brand recognition and
enabling expansion into a complete range of decorative paint (c) Leveraged brand
equity and distribution network to populate tinting machines (d) Strategically
located manufacturing facilities with proximity to raw materials (e) Well-qualified
and professional management team with a committed employee base.
Investment concerns: (a) An inability to protect, strengthen and enhance their
existing brand could adversely affect their business prospects and financial
performance (b) Any adverse changes in their relationships with their dealers and
the community of painters or their inability to enter into new relationships
(c) Increase in the competition intensity.
Outlook & Valuation: Company has been gaining market share, we believe it will
continue to gain market share in the upcoming years also due to the strong
management team, strategies planned by the company and smaller base
compared to top four players. Company’s revenue from operations have grown at
a CAGR of 41.9% between Fiscal 2010 and Fiscal 2019, compared to the range of
12.1% to 13.1% recorded by the top four paint companies in India. There is further
scope left for the company to improve EBIDTA margins due to operating leverage
especially in the cost of advertisement expense. Issue is priced at 98.4x PE on a
trailing basis in terms of fully diluted EPS, which we believe is quite reasonable by
looking at the future growth prospects of the company. We are positive on the long
term prospects of the industry as well the company, we recommend "SUBSCRIBE" to
the Indigo Paints IPO for long term as well as for listing gains.
Y/E March (` cr)
FY18
FY19
FY20
Net Sales
401
536
625
% chg
33.4
16.6
Net Profit
13
27
48
% chg
108.9
77.9
EBITDA (%)
6.4
10.1
14.6
EPS (Rs)
2.8
5.9
10.5
P/E (on FDEPS)
528.4
252.5
142.0
ROE (%)
10.1
18.2
24.3
RoCE (%)
17.3
28.0
39.2
EV/EBITDA
263.7
126.0
74.8
EV/Sales
16.9
12.7
10.9
Subscribe
Issue Open: January 20, 2020
Issue Close: January 22, 2020
Offer for Sale:0.58 cr share
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters 54.0%
Others 46.0%
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: Rs 47.6 cr
Issue size (amount): Rs 1170 cr
Price Band: Rs 1488-1490
Lot Size: 10 shares and in multiple thereafter
Post-issue implied mkt. cap: *Rs 7,079 cr - **Rs 7,088 cr
Promoters holding Pre-Issue: 60.1%
Promoters holding Post-Issue: 54.0%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Fresh issue: Rs 300 cr
Face Value: Rs 10
Present Eq. Paid up Capital: Rs 45.6 cr
Keshav Lahoti
+022 39357600, Extn: 6363
keshav.lahoti@angelbroking.com
Indigo Paints Ltd
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IPO Note | Paint
January 19, 2021
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Indigo Paints Ltd | IPO Note
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Company background
Company is the fifth largest company in the Indian decorative paint industry in
terms of the revenue from operations for Fiscal 2020. Company has achieved this
position in a highly competitive Indian decorative paint industry on the back of
their multi-pronged approach. This includes introducing differentiated products to
create a distinct market in the paint industry, building brand equity for the primary
consumer brand of “Indigo”, creating an extensive distribution network and
installing tinting machines across the network of dealers.
To create demand for the differentiated products, company initially tapped into
tier 3, tier 4 cities, and rural areas, where brand penetration is easier and dealers
have greater ability to influence customer purchase decisions. Company
subsequently leveraged this network to engage with dealers in tier 1 and tier 2
cities and metros as well. Company engaged Mr. Mahendra Singh Dhoni, a
sportsperson with pan-India appeal, as their brand ambassador, to enhance their
brand image amongst end-customers.
Hemant Jalan is the Managing Director and Chairman of the company. He holds
a bachelor’s of technology degree in chemical engineering from the Indian
Institute of Technology, Kanpur (Uttar Pradesh), a master’s degree in science from
Stanford University and a master’s degree in business administration from the
University of Chicago. He has over 20 years of experience in the paint industry.
Previously, he was associated with AF Ferguson & Co. as a consultant. Presently,
he is associated with Halogen Chemicals Private Limited as a director. He is a
director on the board since March 28, 2000.
Issue details
No of shares
(Pre-issue)
%
(Post-issue)
%
Promoter
27,356,615
60.1
25,686,615
54.0
Others
18,198,960
39.9
21,882,383
46.0
Total
45,555,575
100.0
47,568,998
100.0
Objectives of the Offer
Funding capital expenditure for expansion of the existing manufacturing
facility at Pudukkottai, Tamil Nadu (the “Proposed Expansion”) by setting-
up an additional unit (the “Additional Unit”) adjacent to the existing
facility.
Purchase of tinting machines and gyroshakers.
Repayment/prepayment of all or certain of the borrowing
General corporate purposes.
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Y/E March (` cr)
FY18
FY19
FY20
H1FY20
H1FY21
Total operating income
401
536
625
273
259
% chg
33.4
16.6
-4.8
Total Expenditure
376
482
534
249
211
EBITDA
26
54
91
23
48
% chg
109.6
68.2
105.0
(% of Net Sales)
6.4
10.1
14.6
8.6
18.5
Depreciation & Amortization
9
17
20
10
11
EBIT
17
37
71
14
37
% chg
120.8
92.7
167.0
(% of Net Sales)
4.2
6.9
11.4
5.1
14.2
Interest & other Charges
5
5
6
3
2
Other Income
2
2
2
1
1
(% of Sales)
0.4
0.3
0.3
0.3
0.3
Recurring PBT
14
34
67
12
35
% chg
145.2
98.2
198.3
Exceptional item
1
0
0
0
0
Tax
0
7
20
6
8
PAT (reported)
13
27
48
6
27
% chg
108.9
77.9
353.9
(% of Net Sales)
3.2
5.0
7.7
2.2
10.5
Basic & Fully Diluted EPS (Rs)
2.8
5.9
10.5
1.3
6.0
% chg
109.2
77.8
352.3
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Y/E March (` cr)
FY18
FY19
FY20
H1FY20
H1FY21
SOURCES OF FUNDS
Equity Share Capital
29
29
29
29
29
Instruments in nature of equity
18
18
18
18
18
Other Equity
81
100
150
108
177
Shareholders Funds
127
147
197
155
224
Borrowings
39
61
46
60
25
Other liabilities
2
5
12
10
12
Total Liabilities
169
214
255
226
261
APPLICATION OF FUNDS
Property, plant and equipment
61
86
142
90
140
Right-of-use Assets
10
31
28
29
27
Capital work-in-progress
2
4
1
31
3
Intangible assets
0
0
0
0
0
Goodwill
41
31
31
31
31
Inventories
55
69
77
71
67
Trade receivable
97
104
104
80
86
Investments
18
20
21
20
31
Cash & Bank Balance
5
14
6
4
12
Other Assets
2
3
3
2
3
Current Assets
177
210
211
179
198
Current liabilities
129
159
167
151
150
Net Current Assets
48
51
44
28
49
Other Non Current Asset
5
10
9
17
12
Total Assets
169
214
255
226
261
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Y/E March (` cr)
FY18
FY19
FY20
H1FY20
H1FY21
Loss before tax
13
34
67
12
35
Depreciation
9
17
20
10
11
Change in Working Capital
-2
0
-7
10
13
Interest Expense
5
5
6
0
2
Direct Tax Paid
0
-4
-12
-7
-9
Others
0
0
-1
2
0
Cash Flow from Operations
24
52
72
27
53
(Inc.)/ Dec. in Fixed Assets
-18
-63
-61
-35
-13
Changes in investment
1
0
0
0
-9
Interest income received
1
0
0
0
0
Cash Flow from Investing
-17
-63
-61
-35
-23
Changes in Borrowings
-1
24
-10
3
-20
Interest paid
-4
-4
-5
-2
-2
Others
-2
-2
-2
0
-2
Cash Flow from Financing
-7
19
-17
0
-24
Inc./(Dec.) in Cash
0
7
-6
-8
6
Opening Cash balances
5
5
12
12
6
Closing Cash balances
5
12
6
4
12
Y/E March
FY18
FY19
FY20
Valuation Ratio (x)
P/E (on FDEPS)
528.4
252.5
142.0
P/CEPS
310.1
147.8
93.9
P/BV
53.3
46.0
34.4
EV/Sales
16.9
12.7
10.9
EV/EBITDA
263.7
126.0
74.8
Per Share Data (Rs)
EPS (Basic)
2.9
6.0
10.6
EPS (fully diluted)
2.8
5.9
10.5
Cash EPS
4.8
10.1
15.9
Book Value
28.0
32.4
43.3
Returns (%)
Angel ROIC (Pre tax)
27.8
41.5
51.1
ROE
10.1
18.2
24.3
ROCE
17.3
28.0
39.2
Turnover ratios (x)
Receivables (days)
88.0
70.8
61.0
Inventory (days)
50.2
47.2
44.8
Payables (days)
98.7
92.8
81.0
Working capital cycle (days)
39.5
25.2
24.9
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Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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