Indigo Paints IPO: Playing the long game

In May 2014 we heard about this 14-year-old bootstrapped paint company that was on fire, charting spectacular year-on-year revenue growth by focussing squarely on India’s tier 3 and tier 4 cities as well as smaller villages and towns.

India’s paint sector, which has an extremely large addressable market and long-term growth potential, had already given rise to several publicly-listed giants. It’s a sector we tracked and regarded as strategic, and we were immediately intrigued.

A few of us piled into a car early the next morning and drove from Mumbai to Pune to meet Hemant Jalan, an IIT, Stanford and Chicago Booth graduate who’d spent over 20 years in the chemicals and natural resources industries before starting up Indigo Paints.

When we walked into the office, we were struck by how incredibly modest it was. It felt a little bit empty too; less than 10 people worked in the headquarters at that point in time. Then we met Hemant – a proponent of lean, nimble organizations who empowers his team to drive faster decision-making.

Hemant had already spent over a decade methodically laying down the foundation of the business by investing early on in the product, brand, people and processes. He explained to us how he had implemented ERP when they were under INR 35 Crores in annual revenue, because he believed in investing ahead of the curve. He talked at length about team and culture, telling us stories of employees who had transitioned from inexperienced freshers to seasoned sales professionals, winning the respect of their families and communities. We were struck by the fact that the company had practically no attrition, despite a strong performance-oriented culture.

It was clear that Hemant was a strategic and passionate founder who believed in playing the long game. Intrigue turned into conviction – and in August 2014, Sequoia Capital India backed Indigo Paints in the company’s first-ever external equity capital raise.

Decorative paints is a growth-oriented industry in India, where sales have snowballed over the last two decades on the back of India’s housing boom. In the months before he started Indigo Paints, Hemant observed that the four large paint businesses that dominated the sector were all comfortably making money, but doing very little to innovate and differentiate their businesses. Their products, pricing and even their advertising were incredibly similar. That was his ‘aha!’ moment. Where others saw something that resembled an oligopoly, Hemant saw room for a challenger brand.

As a seasoned professional with a strong background in operations and execution, Hemant knew that disrupting an organized, profitable industry was no easy task. He made thoughtful choices early on that set Indigo Paints on a road to long-term success, designing a business model to withstand time and a dynamic consumer landscape.

The first design choice was to focus on markets which were less crowded because they were either more difficult to serve logistically, or seemed less attractive from a size perspective. Indigo started “outside in” by serving tier 3 and 4 cities and the more remote corners of India before extending its reach into larger metros. Another key design choice was to focus on innovation – Indigo Paints was the first company to launch unique functional products, like ceiling paint, metallic roof paint and floor tile coats, and the sleekest tinting machine in the market, which was designed with India’s small, space constrained dealer shops in mind.

When Sequoia India joined the board in 2014 we backed Hemant’s decision to double down on brand building at the expense of foregoing short-term profitability for longer term benefits – as well as the selection of cricket star MS Dhoni, who embodies the brand values and has national appeal, as Indigo’s brand ambassador. We also supported his efforts to do even more to empower his team. At Indigo Paints’ annual sales conference in 2015, Hemant celebrated his top performers by offering employee stock options – becoming the first paint company in India to offer ESOP. He continues to award stock options each year, and has also completed two rounds of employee ESOP monetisation, creating many rupee millionaires.

Hemant’s clarity of thought and decisiveness have served Indigo Paints well during crucible moments in the company’s journey. In 2016, Sequoia India brought forward an acquisition opportunity for a company that was almost the same size in terms of revenue. Hemant was able to make the decision to proceed overnight, and we had a handshake within 72 hours. This M&A was game-changing, helping propel Indigo to the number five spot in the industry. An M&A is never truly complete without team and cultural integration, and this became Hemant’s biggest mission. As part of that exercise, he ensured the founder of the acquired company, Nayaranan Kutty, and its management team had equity and senior roles in Indigo Paints, creating a strong leadership team united by a shared long-term vision for the company.

It takes a resilient founder to build an enduring company. Hemant, now 63, spent 21 years turning Indigo Paints from a challenger brand into a formidable player. This is the fruit of a series of important decisions, big and small, that compounded over a period of time, spanning brand, relationships, strategy and innovation. Hemant has always described the company’s journey as a marathon versus a sprint.

Today’s IPO marks a massive milestone in that journey – which we believe is just getting started.

On behalf of the entire team at Sequoia India, congratulations to Hemant and the rest of the Indigo Paints team. We feel privileged to be your partner, and we’re confident the brand you’ve built will endure for decades to come.