Upcoming IPO of 2021: In this IPO review on Indigo Paints, we have spoken about the Indigo Paints IPO Date, Price, Price Band, Lot Size, the Business model of Indigo Paints and its Financials.
Indigo Paints IPO Details
Hey friends! After IRFC one more IPO is coming. It is Indigo Paints IPO. This company belongs to the paint industry. Following this, a question might have popped into your mind.
We will talk about Indigo Paints company, the industry, industry's growth, the company’s financials, and pros and cons in a detailed manner.
While investing in a share two things are important.
First is the company's business. You should know about the business of the company in which you are investing. Also, you should know about the company's growth and target segment.
After this, the second most important thing before investing is the industry outlook where the company operates. Understanding both these things is quite important. Hence we will first do a discussion on these two things.
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Business model of Indigo Paints and its Financials
First, I will tell you about the company and its business.
Let's talk about the five biggest companies in the decorative paints segment in terms of revenue. Indigo is the fifth-largest company in this regard. Besides this, the most interesting fact is that it is the fastest-growing company out of all these 5 companies in the past one year. Over here one thing is important for you to understand. If any company wants to succeed in the paint industry then it must have a wide-spread distribution network. Assume that you live in a small town. When you go to buy paint then you will prefer a shop which is near your house. If you don't find that brand, then that company will not be able to generate sales there. That’s why it is said that companies in the paint segment must have an extensive distribution network like the bigger companies in the paint segment: Asian paints and Berger paints.
In recent times Indigo has shown tremendous growth. The reason behind this is the creation of a wide distribution network besides the creation of their brand. Its distribution network is spread across 27 states and 7 union territories. The business of the company was started with plain vanilla cement paints. After seeing opportunities in the decorative paints segment they shifted their business over there.
Growth of Indigo Paints
Now let's talk about their growth.
They kept their target segment in Tier 3 and 4 cities as penetration was easy over there as compared to Tier 1 and 2 cities (as established brands were already there) They targeted and penetrated into Tier 3 and 4 cities. After this, they also started introducing their brand into Tier 1 and 2 cities.
In the paints segment marketing and brand building is quite important. This company has also focussed on brand building. Following this, they made Mahendra Singh Dhoni as their brand ambassador to increase their reach. Now let's talk about the company's product range.
The company's major products are decorative paints segment emulsions, enamels, wood coatings, distemper, primers, putties, and cement paints. These are the products made by the company under their brand.
Production Plants Of Indigo Paints
Now let's talk about the company's production. It has three production plants in Jodhpur, Kochi, and Pudhukadai.
They have chosen their locations strategically as the raw material used in paints is easily available in these places. Because of this, the company saves freight costs This leads to cost-saving for the company. So this was discussion regarding company's business. Now I will talk about the paint industry. I told you that after understanding the company knowing the industry is important.
In the paint industry barriers to entry are high. Barriers to entry mean that no new player can enter the industry and capture the market share as capital expenditure (set up costs) is really high. Besides this distribution network needs to be remarkable for sale of products. The barriers to entry are high because a lot of companies offer a plain white color. They set up a machine at the paint dealer shop that adds color to it. Normally there is only one machine of one brand at the dealers' shops. It is slightly difficult for other brands to penetrate. Hence it is said that barriers to entry are really high for this industry.
Capita paint
Now I will talk about per capita paint and coating consumption.
This tells us about how many kgs of paint is consumed per person. In India, this number is only 4.1 kg. But as compared with any developed country like the USA this number is above 15 kg.
Over here you can understand that the per capita consumption of paints is quite low as compared to developed countries. This number in South-Asia countries like Malaysia is 9 kg. This is almost more than double the current number in India. From here you can understand that paint consumption in per capita terms is quite high in other countries as compared to India.
CAGR growth
I will take you to my screen and discuss the recent CAGR growth in the decorative paints segment. As you can see on my screen. We have shown a breakup of decorative paint segment products like putties, wood coatings, distempers, primers, etc. From 2014-2019 the growth in the market was 11.5% CAGR.
But from 2019-2024 the forecasted growth is 13% CAGR. A lot of growth is expected over here. But we will know about the exact growth in the coming time.
Market Shares
Now let's talk about the market share of the players in the entire industry so that you get an idea about the big players.
Asian Paints is the market leader with a market share of 42%. After this Berger Paints, Nerolac, and Akzo Nobel have a market share of 12%, 7%, and 5% respectively.
Till now Indigo Paints has a market share of 2%. The most interesting fact over here is that 33% market share is held by other small players. Over here the unorganized sector can also be there. Here there is a big opportunity for Indigo paints where it can acquire market share. But we will know in the upcoming time how these numbers will emerge.
Now I will talk about another interesting thing. Whenever any new player enters the market, it has to spend a lot on advertisements to penetrate the market.
Indigo paints’ advertisement expenses is more than 10% of the total revenue. But when compared to the industry big players, they spend 3-4% of the revenue. From here we get an idea that this company is extensively spending money on advertisements to acquire a good market share.
Over here I will tell you about an interesting fact.
Material Cost
The material cost in making a product i.e. raw material expense is 51% for Indigo Paints. But as compared to other players this number is quite low. Asian Paints has a material cost of 55%. Berger Paints has 59% material cost.
In comparison to this Indigo Paints has a low material cost for 2020. This can be a positive factor for this company.
Indigo Paints Financials
Now, let's move towards the company's financials. Let's talk about the company's revenue, assets, and profit.
As you can see on my screen, I have first taken the numbers of 2018. Here you can see that company's revenue was Rs.403 cr while its profit was around Rs.12 crore. But in 2019 the company's revenue increased from Rs.403 cr to Rs.537 cr. Its profit almost doubled and reached Rs.26 cr.
The revenue of the company (in 2020) reached Rs.626 cr and its profit rose 1.45 times to Rs.47 cr. The half-yearly numbers of this company for this year show that the company has booked Rs.260 cr revenue and Rs.27 cr profit. On the assets side also this company has shown an increase in the last few years.
Profit Margin of Indigo Paints
Now let's talk about operating profit margin i.e. deducting important expenses out of revenue. The company's net operating margin is 18%. While the net profit margin is around 10%.
The slight difference between the two is that in net operating margin only those expenses that are incurred while making the end product are deducted. While in net operating margin all other expenses are also deducted. The return on Equity of the company is around 24.8%. This can be considered a remarkable number.
Now let's talk about the P/E ratio.
It is surely important. The P/E ratio of Indigo paints is 141. While the paint industry's P/E ratio is normally high. The average number is around 75. In comparison to the industry, Indigo paints has a high P/E ratio. The debt to equity ratio of the company is 0.08.
From here you can understand that the company has negligible debt. The profit CAGR growth of the last 2 years is around 94%. While the sales CAGR growth is 24.66%. This shows that the company has given a great financial performance in recent times to its investors.
Now let's talk about the pros and cons.
Pros and Cons Indigo Paints
The first pro for the company is that its financial performance has been remarkable in recent times. Its ROE numbers and other financial parameters have also been great. Its P/E ratio in comparison to the industry is quite high.
The second important factor is the barrier to entry related to the industry. Here the barriers to entry are really high. It is not possible that a new player enters the market and disrupts the industry. There are low chances of this when we see the past data. But it is difficult to speculate about the future.
The third pro is that the company has created a brilliant brand in recent times and it is spending heavily on advertisements to penetrate better and make it's brand stronger in future.
The next advantage is that the per capita consumption number (4.1kg) has a high chance of growth. As compared to developed/developing countries this number is quite low right now.
If this number grows then all companies operating in the paint sector will get a direct benefit. But the growth of this number will be known in the future. The other great point noticed in this industry is low price competition. There is no such price war impact on this industry. This can be considered a positive thing for the industry. Hence all the companies operating in this sector have healthy margins.
Now let's talk about the cons.
The first con is that if any company is not able to establish its brand and increase its reach to people then its market share will start falling. Indigo Paint has performed well till now. But how well it maintains its brand recall will be known in the future.
The second con is that even though price wars are rare, the industry still has stiff competition. The competition is quite severe as established brands are there in this industry. People have utmost trust in these brands and recall them as well.
Their normal tendency is loyalty towards these brands. Over here establishing a new brand and retaining people for a long time is quite difficult. It will be known in the future as to how Indigo Paints performs over here. The third con is valuations.
A lot of people view the P/E ratio quite closely and consider it as an important parameter. (price as compared to earnings) The past numbers of the company show that the P/E ratio of the company is above 100. As compared to the industry it is quite high.
Indigo Paints IPO Date
Now let's talk about important dates of this IPO that need to be kept in mind if you want/don't want to bid.
Here are the IPO details of this company. The IPO of the company is open from Jan 20, 2021, to Jan 22, 2021.
You can bid for this company's IPO during this time frame. The total IPO size is Rs.1,176 cr.
The fresh equity (new money raised through new shares) will be only Rs. 300 cr. The remaining Rs. 876 cr is money for the Offer for sale. The price of its IPO is kept between Rs.1,488 to Rs.1490. You will have to bid for a minimum of 10 shares to get one lot.
Comment below- Should one subscribe for this IPO or not?
Happy investing!
We make all article for educational purposes. We don't give any buy/sell recommendations. Before investing in any stock do your own research and then invest in the long term.
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