Indigo Paints offers IPO issue price at a discount to other paint stocks

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The IPO of the country’s 5th largest paint company Indigo Paints is being launched today. To raise Rs 1170 crore, the IPO of Indigo Paints will open today and will close on January 22. In this IPO, the company will issue fresh shares worth Rs 300 crore. At the same time, the company’s promoters and investors are selling 58,40,000 equity shares through Offer for Sale (OFS). For this, Indigo Paints has fixed the issue price of the stock at Rs 1488-1490. However, market experts say that Indigo Paints offered the issue price of the IPO at a discount to other paint stocks, which would attract investors to its stocks. Brokerage firm Anand Rathi Securities Ltd said that on the valuation front, Indigo Paints has offered the upper band of this IPO at a discount.

The brokerage firm said that the valuation of Indigo Paints is only 98.5 times its previous 12-month earnings (TTM earnings). That is, the company has fixed the issue price of its A shares for this IPO at 98.5 times the earnings of the last 12 months. However, compared to Indigo Paints, the company’s rival paint stocks such as Asian Paints Ltd have a valuation of 113.78 times TTM earnings and Berger Paints India Ltd shares are valued at 128.23 times.

Because of this, investors will be attracted

Let us tell you that the prices of paint stocks in the stock market are very high. Despite the high prices of Rs 1488-1490 price bank, this IPO will attract investors towards Indigo Paints, mainly because of its specialized products and the company’s reach in rural India. Elara Capital, another brokerage firm, said that in FY 2020, 28.6 percent of the company’s profit was contributed by the specialized products portfolio, which is very attractive to dealers. For this reason, Indigo has access to the door to door in small towns. 85% of the company’s revenue comes from Tier 2 to Tier 4 cities. At the same time, it gets 28% of revenue from specialized products.

Expected annual growth of 48% in earnings

According to IIFL Securities, Indigo Paints’ earnings per share is expected to grow at a 48% year-on-year growth during FY 2020-23. At the same time, the annual EPS growth of Asian Paints and Berger Paints is estimated to be 14 to 15%. In addition, in the first half of this financial year, the company lost only 5% in revenue due to the Coronavirus pandemic. At the same time, Asian Paints revenue decreased by 18.5% and its profit fell by 22.7%. Elara Capital and Anand Rathi Financial Services have given a subscribe rating to this IPO.

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