At Motilal Oswal Private Equity, we are very excited about the companies built around the overall retail consumption theme and this led us to evaluate multiple investment opportunities in the paints segment. One such company that we evaluated was Pune-based Indigo Paints.

Indigo Paints fit into three (out of four) parameters of our investment framework of quality, growth, longevity and price (QGLP) perfectly well:

Quality: A high-quality business managed by a highly passionate and competent promoter—Hemant Jalan—and a strong and stable management team. The company was challenging the established players (in an industry otherwise dominated by four very large players) not on price but through innovative and niche products and managing distribution channel effectively with focus on margins and return ratios.

Growth: The company was growing at very high growth rates and was projected to continue at high growth rate for the next several years.

Longevity: The industry growth rate was expected to benefit from new housing stock, shortening of repainting cycle and upgrade of consumer towards high-quality, branded products.

Price: Ask of the promoter was bit expensive relative to our comfort zone and we did not perceive sufficient “margin of safety".

While we were still assessing the growth prospects of the company and the right valuation, some other PE fund issued a term sheet and closed the transaction. We realized that we have missed on a great investment opportunity and subsequent outperformance of the company reinforces one major learning: A high-quality company, especially where the current size is very small compared to the size of the industry it operates in, managed by a high-quality promoter will surprise positively in its future growth.