Indigo Paints received green signal from SEBI to raise Rs. 1,000 crores

As quick as fads and fashion get orthodox in the fast-changing environment it would be ‘fit and proper’ to say that home décor items get faded quickly but painting on walls can never go out of fashion. The paint industry is a growth-oriented industry in Indian economy keeping in mind that people are much serious about their status symbol, growth of real estate sector due to falling interest rates and reduction in stamp duty. After the success stories of Asian Paints, Berger Paints, Akzo Nobel and Kansai Nerolac in the Indian secondary market, Indigo Paints is standing on the doors of primary market with fresh issue and Offer for Sale.  The issue size of Rs. 300 crores and 5.84 million equity shares by Sequoia Capital is a mix of fresh issue and offer for sale respectively. According to Draft Red Herring Prospectus, the issue comprises of Rs. 300 crores to be raised from issuance of fresh equity which will be utilized for expansion plans at manufacturing facility in Tamil Nadu. Funds from new issue will also be utilized for purchase of tinting machines and gyro shakers and payout of borrowings while rest will be utilized for other general corporate purpose.

About the Company

Founded in 2000, Indigo Paints is one of the largest paint manufacturing company in India. Backed by Sequoia Capital, Indigo started its business with lower end cement paints but extend its portfolio later by inculcating water-based paints like Exterior Emulsions, Interior Emulsions, Distempers, Primers, etc. The company claims a vision of continuous innovation by churning out bright new ideas for painting solutions. Indigo is among five largest paint companies in India after creating an extensive distribution network across 27 states and seven union territories as of September 30, 2020, and installing tinting machines across our network of dealers. The company has engaged Mr. Mahendra Singh Dhoni to enhance brand image pan-India. The company has its own manufacturing capacities which have helped them in achieving higher productivity and efficiency in length of production cycle.

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Industry Overview

The water-based paint market has gained traction in last decade as a shift in traditional pattern of Indian families spending pattern which is more towards maintaining their status symbol. The decorative industry has a three-stage setup comprising raw material suppliers, manufacturers and sellers in which most of the raw materials in  the  paint  industry  are  petroleum  based,  supplied  by  petrochemical  companies. Their input cost is highly affected by crude oil prices and pricing of other companies due to their oligopolistic industry. There are strong barriers for other players to enter in the market in terms of replacement cost and science behind the paint manufacturing. The  consumption  of  water-based  paints  is  rising  globally,  and  the  demand  is  expected  to  remain  high  as  Indian  paint manufactures are shifting from solvent-based to water-based paint.

Financials

On the financial front, the company had reported 478.15 crores net profit for the year ending FY20. The company do not claims the tag of debt-free as a whooping amount of Rs. 339 crores in the form of non-current liability is occupied in balance sheet. Gross revenue from operations are increasing at a CAGR of 24.74%.  In the listed space, the company will face tough competition from Asian Paints, Berger Paints, Akzo Nobel and Kansai Nerolac. Paints companies occupy healthy premium in the market due to their short cash conversion cycle and FMCG attribute.

Book Runners

Kotak Mahindra Capital Company, Edelweiss Financial Services and ICICI Securities are the book running lead managers to the issue while registrar to the issue is Link Intime India Private Limited.

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