By 10:15 am, the issue received bids for 4,17,240 shares, representing 8 per cent of the issue size of 55,18,402 shares. The Sequoia Capital-backed paints maker had on Tuesday raised Rs 348 crore from 25 anchor investors at Rs 1,490 per share.
Shares under the Indigo Paints IPO are being offered in the price band of Rs 1,488-1,490. The public offer comprises a fresh issuance of stocks aggregating to Rs 300 crore, and an offer for sale (OFS) of up to 58,40,000 equity shares.
Analysts said that while the asking valuations look demanding, one can subscribe to the issue, citing the paint maker’s improving performance and scope for market share expansion.
The company was least impacted by Covid-19 compared with its peers due to its presence in small towns, they said, suggesting that the paints maker’s ad spends as a percentage of revenues may fall going ahead, further driving its profitability.
YES Securities said that the company has a good execution record in a difficult industry, but one needs to be wary of frenzied valuations at listing.
The company is targeting a market cap of Rs 7,100 crore at the issue price which, YES Securities said, implies a price to earnings (P/E) multiple of 66 times its FY22 earnings and and 44 times its FY23 earnings, assuming an earnings CAGR of 50 per cent over FY20-23E. Those earnings assumptions look good, given the low base and improving distribution for the company, the brokerage said.
“With Asian Paints and Berger trading at 62 times and 73 times FY23 earnings, Indigo can also command a multiple of 60 times, translating into a fair value of Rs 2,050 against the IPO price of Rs 1,490, implying a 37 per cent upside. As current GMPs are implying an even higher upside on the listing day, we would suggest booking profits on listing day if the stock opens significantly above our fair value as we are capturing in three times earnings growth in 3 years, apart from ascribing a multiple similar to the sector leader,” it said.
GMP stands for grey market premium.
Antique Stock Broking said that Indigo Paints may continue to gain market share and outperform its larger peers in the short to medium term. This, it said, will be through scale up of operations in recently entered markets and increasing presence in larger cities of its existing mainstay geographies.
The paints maker had a distribution network in 27 states at the end of September quarter.