Shalimar Paints

The stock price was on an overdrive yesterday, surging 5%. This 113 years old small cap company has shown no fundamental improvement as such but the rumour mills once again got busy, with news resurfacing that the company is once again close to selling off its stake. The news has been doing the rounds for some time now that the promoters Jindals and the Jhunjhunwala Group, who jointly own 62.36% stake have been on the lookout to sell stake. Rumours have been also been around that 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.

The company ended Q3FY15 with a net loss of Rs.1,38 crore, down from loss of Rs.2.15 crore in Q2. But loss of 9MFY15 is more than 3 times the loss of entire FY14 at Rs.7 crore compared to Rs.3 crore loss in FY14. Falling sales and other income and increased finance outgo continues to push the company into the red. Ideally, the company should have taken advantage of the falling crude price wherein its main raw material, which is a crude derivative has also become cheaper. In fact raw material cost fell 35% (YoY) but with no support from topline, the numbers sunk into red.

The promoters if they 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.