Shares of Indigo Paints more than doubled on 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 maker way past bigger peers such as Asian Paints and Berger Paints.
The stock ended at Rs 3,129, with a gain of 2.1 times over the issue price of Rs 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 Rs 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 Rs 14,835 crore.
Some analysts believe the stock could command premium valuations given its high growth potential.
“We forecast FY20-23ii 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 Rs 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.