Indigo Paints IPO: Information Analysis

Incorporated in 2000, Indigo Paints is a fast-growing manufacturer of decorative paints, including emulsions, enamels, wood coatings, distempers, primers, putties and cement paints. It is the fifth-largest company in the Indian decorative paint industry in terms of revenue as of FY20. The company claims to be the first one to manufacture various differentiated products, such as Metallic Emulsion, Tile Coat Emulsion, Bright Ceiling Coat Emulsion, Dirtproof and Waterproof Exterior Laminate and so on. The Indian decorative industry was valued at Rs 403 bn in 2019, wherein the organised sector (10 to 12 players) accounted for 77 per cent. Indigo Paints is a relatively small-sized company, with a market share of 2 per cent. The company owns and operates three manufacturing facilities in India, with a total installed capacity of 101,903 kilolitres per annum (KLA) for liquid paints and 93,118 metric tonnes per annum for putties and powder paints. Apart from this, the company plans to increase its liquid-paint capacity by another 50,000 KLA through the fresh issue from the IPO. Also, the company has been delivering high profitability by increasing its return on equity to 24.3 per cent in FY20 from 10.1 per cent in FY18 on the back of higher sales growth and margin expansion. Strengths: Bottom-up approach: The company started its distribution with tier-3, tier-4 cities and rural areas where brand penetration was easier and gradually, started strengthening its presence across tier-1 and 2 and metro cities, which were already dominated by its large competitors. This strategy has resulted in profitable growth for the company. Differentiated products: Around 28 per cent of the company's revenue comes from its differentiated products, which have high margins due to their low presence among large competitors and less discount offered on these products. Building brand image: The company has been spending aggressively on advertisements and sales promotion, which accounted for 12.6 per cent of its revenues in FY20. On the other hand, the spend of the top four paint companies was in a range of 3.8 to 5.8 per cent. The company has also roped in Mahendra Singh Dhoni, a sportsperson with the pan-India appeal, as its brand ambassador. Extensive distribution network: The company has been expanding its distribution network at a rate of 10.4 per cent per annum since FY18, which has been more than that of Berger Paints and Akzo Nobel. Fast-growing industry: The decorative paint industry is expected to grow at a CAGR of approx. 13 per cent over the next three years (Source: F&S report) on the bac