Indigo Paints doubles on debut, hits upper circuit

Shares of Indigo Paints more than doubled during their stock market debut on Tuesday. The sharp rally in the stock took price-to-earnings (P/E) of the country’s fifth largest paint manufacturer way past bigger peers, such as Asian Paints and Berger Paints.

The stock ended at ~3,129, with a gain of 2.1 times over the issue price of ~1,490. It could have gained more if not for the 20 per cent trading limit over the discovered price.

Market players attributed part of the gains to short-covering.

Indigo’s stellar debut becomes on the back of hugely oversubscribed IPO, that saw 117 times more demand than the shares on offer. However, the stock now trades at a P/E of more than 300 times its FY20 of ~10.1 per share. The median P/E for the paint industry is about 60 times.

At Tuesday’s close, Indigo Paints had a market cap of ~14,835 crore. Some analysts believe the stock could command premium valuations given its high growth potential.

“We forecast FY20-23 EPS CAGR of 48 per cent for Indigo

Paints versus 15 per cent for Asian Paints and Berger,” IIFL had said in an IPO note.

In another note Elara Capital had said the company was on the cusp of margin expansion.

“With scale and rapid growth, we expect ad spend to grow slower than business growth, as it is already on the higher side at 12.7 per cent than peers’ 5.3 per cent and likely lead to better margin,” it said. Indigo Paints already enjoys better gross margins than peers such as Berger Paints and Kansai Nerolac and at par with industry leader Asian Paints.

Indigo Paints raised ~300 crore of fresh equity from the IPO. The company plans, with strong presence in Kerala, plans to expand in newer states and launch new products.