Shalimar Paints

Shalimar Paints was up in the green yesterday after the management, in a TV interview stated that the company was mulling hiking prices to the tune of 3-5% in this month, to mitigate the impact of its imported raw materials, which are essentially petroleum derivatives. In August prices were hiked 2-3%. Thus the market is happy that the company is taking steps to preserve its margins in the face of this depreciating rupee. This small cap company, 109 years old, per se, is really no great shakes financially when compared with its peers. Typical of a company of this size, the numbers are miniscule. Its equity base is very small at Rs.3.79 crore and it recently split its equity share of Rs. 10/- into 5 equity shares of Rs. 2/- each.  The company has three plants in Kolkata, Delhi and Nasik, with 54 branches and depots.

The company as such has hurting even before this drastic slide of the rupee. It did not have a very good Q1FY14 with net sales dropping 11% (YoY) at Rs.108 crore and net profit coming in at Rs.2 crore, down 33%. Seasonal factors have also played a role as the first half, due to monsoon is not very good for paint companies and business is best during Q3 and then Q4, ahead of the festive seasons.  The buzz around the stock is more on account of its promoters stake sale rumours doing the rounds for some time now. The promoters, Jindals and the Jhunjhunwala Group jointly own 62.36% stake. There has been news that they plan to sell their stake and other paint companies like Kansai Nerolac and Sherwin-Williams of USA had evinced interest. Especially, Sherwin which despite being in India since Dec 2008, needs a base like that of Shalimar to make its presence felt. The promoters have been running the company in a very lackadaisical way which is evident from the numbers. Our Editor, expects the company to show a valuation of anything around Rs.800 crore and if promoters opt to sell their entire stake, the open offer for 26% under the new guidelines, presents a very good buying opportunity. And that explains why the stock price is way ahead of its fundamentals.