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Below are Views On IRFC and Indigo Paints IPO Comment by Ms. Nirali Shah, Senior Research Analyst, Samco Securities

IRFC is the first IPO to hit Dalal Street in the calendar year 2021 which is a direct play on the growth of Indian railways. The Company’s leases and loans are backed by MOR and that’s why it has reported nil NPAs for the quarter ended September, 2020. Fundamentally, the company is stable and has diversified sources of funding. IRFC’s AUM has also grown at a 20% CAGR from 2018 to 2020. However, despite being the primary lender to the Indian Railways the company comes with its own set of risks. Firstly, it is highly dependent on the MOR for its margins and any adverse determination of the margin will also impact its profitability.

Additionally, there is a possibility that its cost of funds may rise in the future. Keeping these inherent risks in mind, we feel investors should assess their own risk appetite and then decide to go for the IPO. Also, Indigo Paints which is also expected to come out with an IPO this week seems to be safer opportunity. As far as Indigo Paints is concerned, it is the fastest growing paints company in India in terms of revenues, in a highly oligopolistic paint market. The Company has introduced differentiated product categories such as Metallic and Tile coat emulsions. It has made its brand name despite strong entry barriers due to experienced players such as Asian Paints.

Indigo Paints has roped in MS Dhoni as its brand ambassador and the Company is actively present in the public eye due to their aggressive A&P spends accounting to around 12.7% of their revenue vis-à-vis peers who spend close to 4-5%. Financials have been extremely strong for this paints player with minimal debt on its books. There are a few challenges in terms of setting up a wide distribution presence amidst well established players, its skewed market presence in South India especially Kerala and rich valuations at a PE of 140x compared to sector average of 95x. Therefore, investors can subscribe to Indigo Paints for listing gains only at the moment.  

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