Why Subscribe to Indigo Paints IPO?

Incorporated in March 2000, Indigo Paints (Indigo) has rapidly scaled up to become the fifth largest player in a competitive, oligopolistic decorative-paints industry in India, delivering 29% organic revenue CAGR in the past five years.

Indigo Paints derives ~46% of its sales from southern India and commands the #3 position in the state of Kerala. It has built a network of ~11,000 dealers and ~4,600 tinting machines.

Indigo Paints has been able to stand out in an industry with a cluttered tail, via development of differentiated products (29% of sales) catering to specific consumer needs, supported by ad spends similar to that of major players (except Asian Paints) on an absolute basis, despite its smaller size.

As of March 2020, Indigo has three manufacturing facilities, one each at Jodhpur, Kochi, Pudukkotai, with a combined capacity utilization of ~48%.

Indigo has been consistent in seeking first to market products by identifying niche product opportunities. It has been a pioneer of certain category creator products such as metallic emulsions, title coat emulsions, bright ceiling coat emulsions and floor coat emulsions.

As per our estimates, Indigo Paints would yield a valuation of 46x FY23E EPS (on upper price band) vs. 63x for Asian Paints and 77x for Berger Paints. A combination of higher growth and lower valuations makes for an exciting investment opportunity. We recommend Subscribe to the IPO, given favorable growth-valuation equation.

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