Grasim’s foray into paints fails to dampen Indigo’s listing prospects


NEW DELHI: Grasim Industries‘ announcement that it’s foraying into the paints trade has failed to harm Indigo Paints‘ gray market premium, as analysts stated organising capability and commanding a big market share would take a substantial time for Aditya Birla Group’s flagship. Besides, they famous that the trade nonetheless has scope for organised gamers consuming into the market share of unorganised gamers, suggesting progress prospects for the present gamers are cheap.

Abhay Doshi, a Gujarat-based vendor of unlisted shares, who additionally tracks gray market premiums, stated there was no change within the premiums the gray market is assigning to Indigo Paints to date.

“Premiums are largely stable at Rs 895. No change has been seen whatsoever after Grasim’s foray news,” he stated.

Mumbai-based Narottam Dharawat of Dharawat Securities stated: “For now, it’s an investment proposal. They’ll have to set up plants. It is not a one-day affair,” he stated, suggesting no influence of the information on Indigo’s listing prospects.

Dharawat stated that the Indigo Paints IPO had a horny 117-times robust subscription and even when the continuing promoting within the secondary market have been to proceed, he sees gray market premiums for the inventory impacting solely marginally.

Investors, particularly the leveraged HNIs, could be keenly awaiting listing positive aspects because the quota for non-institutional buyers (NIIs) was subscribed 263.05 instances throughout the IPO and a low listing premium might or might not make up for the leveraged positions.

In the previous, many new entrants tried their luck within the trade. JSW Paints entered the market in 2019 with an preliminary funding of Rs 600 crore with a dedication to enhance it to Rs 1,000 crore. Nippon Paints entered the market in 2006. It is globally the quantity 4 participant. Sherwin-Williams Paints entered the home market in 2006. Globally, it’s quantity 2. Also, Norwegian Jotun entered the Indian market in 2005; it’s on the tenth spot globally.

“They all have made little headway in the Indian paints market, given its strong moats such as distribution, placing of tinting machines, and brand trust. However, such a large capex commitment from a marquee business group is largely unprecedented,” Nomura India stated.

As per Indigo’s personal draft pink herring prospectus, 33 per cent of the paints trade remains to be catered by unorganised gamers. Emkay stated it offers a possibility for the entry of a critical branded participant. The ornamental paints trade is pegged at Rs 40,000 crore.

Grasim already has an inherent presence in a associated section by means of Birla White below Ultratech Cement. The firm plans to leverage that model fairness and distribution community in current channels, which may present a big head begin to the corporate.

“Birla White is the market leader in White/Putty segment and has access to the same influencers as are for Paints. Grasim plans to enter into formal agreement with Ultratech to discuss ways to generate synergies from existing distribution networks on an arms-length basis. Management targets to have multi-location plants and already are in discussion with state governments,” stated Antique Stock Broking.

Emkay Global stated that the capability commissioning doesn’t assure immediate acceptance of a brand new model and there have been cases when few gamers, equivalent to Akzo Nobel and Nippon Paints, discovered it troublesome to obtain an affordable market share initially.

That stated, the brokerage stated that the robust model identification of the Birla group and UltraTech’s presence within the white cement/wall putty would assist Grasim set up cheap market share before later.

“Birla White division of UltraTech has a dealer network of 54,000 and there exists a 70 per cent overlap between the distributors of paints and white cement/putty, which may help Grasim create a distribution network,” Emkay Global stated.

Indigo has a community of 11,230 lively sellers. Asian Paints has a vendor community of over 70,000 sellers.

Emkay stated that UltraTech Cement additionally has a Building Solutions division with a community of two,300 retailers and plans to double it over subsequent 3-4 years, which may assist Grasim initially.

Nomura stated incremental provide capacities of this magnitude can support in increasing the addressable organised paints market and may very well be unfavorable for established gamers if Grasim begins to wrest some market share or demand progress falls behind the extra provide, creating downward stress on trade pricing and margin constructions.

“We believe industry margin trajectory will need to be closely watched over the next couple of years as Grasim scales up operations, as any pressure on margins could act as aP/E de-rating event for decorative paint players,” Nomura stated.

The allotment of Indigo Paints’ IPO is probably going to be finalised on Thursday. The firm, whose IPO ran from January 20 to January 22 within the value vary of Rs 1,488-1,490, is probably going to record on Tuesday.

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