Company Background:
Indigo Paints is the fastest growing amongst the top five paint companies in India. The company manufactures a complete range of decorative paints including emulsions, enamels, wood coatings, distempers, primers, putties and cement paints.
Investment Rationale:
Positives: (a) Track record of consistent growth in a fast growing industry with entry barriers
(b) Differentiated products leading to greater brand recognition and enabling expansion into a complete range of decorative paint
(c) Strategically located manufacturing facilities with proximity to raw materials.
Investment concerns:
(a) An inability to protect, strengthen and enhance their existing brand could adversely affect their business prospects and financial performance
(b) Increase in the competition intensity.
Outlook & Valuation:
Company has been gaining market share, we believe it will continue to gain market share in the upcoming years also due to the strong management team, strategies planned by the company and smaller base compared to top four players. Company’s revenue from operations have grown at a CAGR of 41.9% between Fiscal 2010 and Fiscal 2019, compared to the range of 12.1% to 13.1% recorded by the top four paint companies in India.
There is further scope left for the company to improve EBIDTA margins due to operating leverage especially in the cost of advertisement expense. Issue is priced at 98.4x PE on a trailing basis in terms of fully diluted EPS, which we believe is quite reasonable by looking at the future growth prospects of the company.
We are positive on the long term prospects of the industry as well the company, we recommend "SUBSCRIBE" to the Indigo Paints IPO for long term as well as for listing gains.
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