Indigo Paints is the fifth-largest company in the Indian decorative paint industry in terms of revenue from operations for Fiscal 2020 and the fastest growing amongst the top five paint companies in India.

They have achieved this position in a highly competitive Indian decorative paint industry on the back of a multi-pronged approach. This includes introducing differentiated products to create a distinct market in the paint industry, building brand equity for their primary consumer brand of “Indigo”, creating an extensive distribution network across 27 states and seven union territories as of September 30, 2020, and installing tinting machines across their network of dealers.

To create demand for their differentiated products, they initially tapped into Tier 3, Tier 4 Cities, and Rural Areas, where brand penetration is easier and dealers have greater ability to influence customer purchase decisions (Source: F&S Report).

As of September 30, 2020, they own and operate three manufacturing facilities in Rajasthan, Kerala and Tamil Nadu with an aggregate estimated installed production capacity of 101,903 KLPA for liquid paints and 93,118 MTPA for putties and powder paints.

As of September 30, 2020, they distributed their products to a network of 10,988 Active Dealers.

In the six months ended September 30, 2020, their overall capacity utilization for liquid paint production was 20.77% and for powder paint production was 57.98%.

Product Portfolio

Issue Details

Dates – January 20 to January 22, 2021

Price – Rs 1488 to Rs 1490

Issue Size – 1176 Cr (300 Cr Fresh issue + 876 Cr Offer for Sale)

Issue Objectives – (i) To meet the capital expenditure requirements for manufacturing facility expansion at Pudukkottai, Tamil Nadu. (ii) To purchase tinting machines and gyroshakers. (iii) To repay all or certain borrowings. (iv) To meet general corporate purposes. OFS money will not be received by the company.

Lot – 10 shares

Lot Value – Rs 14900

Market cap post listing – Rs 7079 Cr (4.55 Cr shares paid up + 0.2013 fresh issue of shares multiplied by 1490)

Fun Fact

Board of Directors

Barriers to Entry


The company is very aggressive in advertising as we can see above. It spends on par with the biggies!

Advertisement and sales promotion expenses in Fiscal 2018, 2019, and 2020 has been relatively high and represented 11.22%, 12.63%, and 12.65% of revenue from operations in such years, respectively. The advertising and promotion spend as a percentage of revenue from operations of the top four paint companies was in the range of 3.8% to 5.8% in Fiscal 2018, 3.1% to 5.0% in Fiscal 2019, and 3.3% to 5.0% in Fiscal 2020


The Indian decorative paint industry has historically been dominated by four major entities that had an aggregate market share of 65% in 2019, as the industry presents significant entry barriers (Source: F&S Report). These market entry barriers include the development of an extensive distribution network through long-term relationships with dealers, the ability to set up tinting machines with dealers, as well as significant marketing costs, and the establishment of a distinct brand to gain product acceptance

The organized market accounts for the top 10 to 12 players, with an aggregate market share of 77% of the decorative market share. The remaining 23% comprises many small, mainly regional or local players

As of March 31, 2020, and September 30, 2020, they distributed its products to a network of 11,230 and 10,988 Active Dealers, respectively. They sell all products through the dealer network.

They presently do not have any long-term or exclusive arrangements with any of their dealers and cannot assure that they will be able to sell the quantities they have historically supplied to such dealers. Their dealers are typically multi-brand and also distribute products of the competitors. (So the high number of dealers is not really a moat)


Balance Sheet MetricsDebt to equity decreasing, the remaining debt will also be retired post IPO. Receivables % also decreasing. Inventory % decreasing too.

P&L MetricsRM % decreasing, employee benefit % stable. Revenue, EBITDA, Net profit increasing. Margins have increased too.

Cash Flow Metrics CFO increasing and so is FCF

Note – One thing investors should know is that management in their press meet said their H2FY21 margins and numbers are better than before because the ad expenditure is not done yet. So that is aiding the numbers more.

Peer Comparison

Business Comparison

Peers Valuation Comparison

NameP/EP/BVP/SMarket Cap (Rs Cr)
Asian Paints110x23.2x13.9x255445
Berger Paints148x26.9x13.5x77160
Kansai Nerolac93.3x9.3x7.97x35342
Akzo Nobel59.4x8.8x4.94x10727
Indigo Paints124.8x30.3x13.61x7079

The expensive valuations are clearly visible.

Valuation & Conclusion

At the upper price band of Rs 1490, the issue is priced at a 124.8x P/E ratio. Even if the earnings double, valuations will still be very expensive undoubtedly for a company of their size.

Some of their competitors have larger business operations, are diversified with operations across India, have greater financial resources than they do, have access to a cheaper cost of capital, and are able to produce paint more efficiently or invest larger amounts of capital into their businesses in terms of strengthening their brands, expanding their distribution networks and expending greater resources to populate tinting machines.

The expensive valuations and the market froth make us wary of this IPO. For the long term, we have an Avoid on the IPO.

For the short term, we request readers to form their own view.

On the JST IPO scorecard system, we rate this IPO a 5 out of 10.

Takeaways from Press Release

Tinting Machine – Internal computer embedded for Indigo Paints, no need of external computer as done by other Paint players

Advertising – won’t be as aggressive as before, the growth rates in advertising spend should cool down a bit

Paint Industry Overview

The industry has a three-stage setup comprising raw material suppliers, manufacturers, and sellers. Most of the raw materials in the paint industry are petroleum-based, supplied by petrochemical companies. A few companies adopt contract manufacturing, while bigger companies have their own manufacturing facilities. The larger chemical companies are vertically integrated in both the raw materials and paint production stages while others are pure-play producers of paint and coatings. For example, Asian Paints and Berger Paints produce their own emulsions that are used in the production of paints.

Most sales are driven through dealer and distributor networks, which sell onwards to local buyers. Hardware stores are usually the retailers in the paint and coating industry, while the other major retailers may have paint and coating segments within their broad range of offerings. Direct sales are a minor component of overall sales.

The Indian decorative paint industry has significant entry barriers. These market entry barriers include the development of an extensive distribution network through long-term relationships with dealers, the ability to set up tinting machines with dealers, as well as significant marketing costs, and the establishment of a distinct brand to gain product acceptance.

Raw Material Analysis

Raw material sourcing comprises more than 60% of the input costs of paint manufacturing. Around 300 to 400 ingredients are used in the manufacturing of decorative paints, of which, Titanium Dioxide (TiO2), a white pigment, constitutes around 20% to 25%. The paint industry has historically been successful in passing on any significant price increases in inputs to the customers.

TiO2 is derived from ilmenite, and while India has significant ilmenite reserves, there is a limited market for its products and derivatives, particularly TiO2, in India. However, companies failed to expand their capacity for TiO2 resulting in end-users relying on imports. As a result, the Indian paint industry has been importing TiO2 fromChina despite it being available in India.

Set forth below is India’s per capita consumption of paints and coatings versus key global economies (in kg), 2019:

The average consumption of paints and coatings for Asia Pacific is 4.7 kg while that of the developed nations in Asia Pacific have an average consumption of 9.7 kg.

Set forth below is per capital consumption if India (in kg), for 2012, 2015 and 2019:

Set forth below is the Indian decorative paints industry, segmented based on sub-product type, in terms of value (₹ billion), for 2014, 2019 and 2024 (forecast):

Product innovation cycle in the Indian paints industry:

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