Indigo Paints grey market premium still strong; will Union Budget dash hopes of listing gains?

Even though Dalal Street witnessed a rout in the last six trading session with Nifty 50 index coming down 7% from its highs, the soon to debut Indigo Paints is still going strong in the unlisted space. The decorative paints manufacturer will list on the bourses in the coming week just a day after Nirmala Sitharman opens her bahi-khata and reveals what her Union Budget for 2021-22 will be. Indigo Paints is so far the most subscribed initial public offering (IPO) of 2021 after it garnered bids 117 times the issue.

“Currently, Indigo Paints is trading at a premium of Rs 750-800 per share in the grey market,” Narottam Dharawat, founder, Dharawat Securities told The Outlooker Online. He added that there has only been a marginal downward movement in Indigo Paints despite the bearish sentiment on Dalal Street. “Overall, the listing of Indigo Paints should be good. The company profile is good and it has good growth potential. Such stocks with high growth visibility usually go good,” he added while not ruling out some risks as the stock lists a day after the Union Budget. 

Indigo Paints is the fifth largest decorative paints manufacturer in India. Indigo Paints has grown at a 42% CAGR over the financial year 2010 to 2019 against a 12-13% CAGR recorded by top four players. The decorative Paints industry is a Rs 40,300 crore industry, according to brokerage and research firm Motilal Oswal. The brokerage firm added that the industry is expected to grow at CAGR 13% between the Financial year 2019 and 2024. When compared to peers such as Asian Paints, Berger Paints, Nerolac, and Akzo, Indigo Paints displayed highest revenue CAGR over the fiscal years 2018-2020.

Key risks aligned with the company primarily stem from the highly competitive industry that it operates in. Indigo Paints’ 46% revenue came from southern states which shows its high dependency on the region. Another risk that is associated with the stock is its association with crude oil. Fluctuations in Crude Oil could impact the firm.

“The issue is valued at 11.3x FY20 Mcap/sales which is comparable to peers (APNT 12.3x; BRGR 11.8x). Hence we recommend Subscribe to the IPO from Long Term perspective,” analysts at Motilal Oswal said. Further Indigo Paints’ differentiated product portfolio and robust expansion plans are attractive from an investor point of view. 

(The stock recommendations in this story are by the respective research and brokerage firms. The Outlooker Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)