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Indigo Paints trades at over 55% premium in grey market after IPO price announcement

The grey market premium has increased significantly from Rs 400-500 on January 11 to Rs 840-850 on January 15.

Indigo Paints, one of the fastest-growing paint companies in India, was trading at more than 50 percent premium over its higher issue price band of Rs 1,490 per share in the grey market after the announcement of IPO details.

The premium in the grey market as of January 15 was at around Rs 840-850 per share, which means the grey market trading price stood at Rs 2,340-2,330 against the issue price of Rs 1,490, as per the data available on IPO Watch. The premium increased significantly from Rs 400-500 on January 11 to Rs 840-850 today.

The grey market is an unofficial trading platform where shares get traded well before the allotment in an initial public offering and till the shares get listed on bourses. It generally estimates the expected listing price of a stock.

"Currently Asian paints and Berger paints are trading at a PE of 111 and 148, respectively, while Indigo Paints reported an EPS of Rs 10.49 valuing IPO at 149 at higher price band. We expect the GMP premium of Indigo Paints to consolidate in a couple of days. We have a positive outlook towards the IPO," Yash Gupta, Equity Research Associate at Angel Broking told Moneycontrol.

Indigo Paints will open its maiden public offer for subscription on January 20 with a price band of Rs 1,488-1,490 per share. The public issue consists a fresh issue of Rs 300 crore and an offer for sale of 58,40,000 equity shares by investors Sequoia Capital India Investments IV and SCI Investments V, and the promoters Hemant Jalan.



The offer includes a reservation of up to 70,000 equity shares for subscription by eligible employees of the company. Eligible employees will get these shares at a discount of Rs 148 per share to the offer price.

The company will utilise the fresh issue proceeds for expansion of its manufacturing facility at Pudukkottai, Tamil Nadu by setting-up another unit adjacent to the existing facility (Rs 150 crore), purchase tinting machines and gyroshakers (Rs 50 crore; repayment of borrowings (Rs 25 crore) and general corporate purposes.

Headquartered in Pune, Indigo Paints offers a complete range of decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties and cement paints. The company owns and operates three manufacturing facilities in Jodhpur (Rajasthan), Kochi (Kerala), Pudukkottai.

These facilities had an aggregate installed production capacity of 1,01,903 kilo litres per annum (KLPA) for liquid paints and 93,118 metric tonnes per annum (MTPA) for putties and powder paints as of September 2020. The company has an extensive distribution network across 27 states and 7 union territories.

In FY2020, "Indigo Paints reported sales growth of 16.6 percent and peers reported sales growth of 3-5 percent, some of the peers have also reported negative sales growth. Indigo paints reported ROE of 24.3 percent in FY20, which is slightly lower than the Asian Paints and Berger Paints but better than Kansai Nerolac and Akzonobel," Yash Gupta said.

Indigo Paints doubled its PAT margin from 3.2 percent in FY2018 to 7.7 percent in FY20, while peers like Asian Paints and Berger Paints were able to increase margins by 2.5 percent and 3.4 percent, respectively, he added.

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