ShalimarPaintsLtd.

MarketCap. 52WeekH/L CMP TargetPrice

1 2 144/49 91 124
S a a a ts td
Rs.1727.5 mn Rs.144/49 Rs.91 Rs.124
January06,2014
STOCKDATA
Recommendation BUY
Demand Growth Drivers are in place Indian Paint industry is pegged at Rs. 285bn (FY13) & has grown at a CAGR of ~15% in the last
three years and expected to grow at a CAGR of ~14% to reach Rs. 495bn by FY17E (IPA & AC Nielsen). Decorative paints (~70% of overall
market) has grown at a CAGR of ~16% in the last three years and expected to grow at a CAGR of ~16% to reach Rs. 365bn by FY17E (IPA
& AC Nielsen). Despite the near term concern on demand scenario, consumers shift from unbranded to branded products will aid
volume growth as ~2530% of total market is unorganized. Shortened repainting cycle (from 5 yrs. to 33.5 yrs.) will also aid decorative
ReutersCode
BloombergCode
SHLP.BO
SHPIN
BSECode 509874
FaceValue Rs.2
Shares Outstanding* 18.9mn
volume growth as 25 30% of total market is unorganized. Shortened repainting cycle (from 5 yrs. to 3 3.5 yrs.) will also aid decorative
volumes to grow as repainting constitutes ~7580% of decorative market. Industrial paints (~30% of overall market) is likely to perform
better with expected economic revival going ahead as its fortunes is linked to economic environment. Apart from these, Indias low per
capita consumption of paints (2.6 Kg/annum vs. global average of 15 Kg/annum), economic growth, higher disposable
income, increasing urbanization & changing lifestyles, easy availability of credit and a concurrent growth in construction, auto and
consumer durables segments will continue to act as the driving force behind the rise in consumption of paints going ahead.
One of the top 5 company in Indian Branded Paints market Shalimar Paints Ltd (SPL) is Indias 5
th
largest branded paint company and
SharesOutstanding 8 9
Avg.Daily
Volume(6m)
111,432
shares
PricePerformance(%)
1M 3M 6M
(2) 60 (12)
one of the worlds oldest organized paint company having 111 years of existence with more than 54 branches & depots and 7000
dealers. It has three manufacturing facilities at Howrah, Nashik & Sikandrabad and two R&D Centers one each at Howrah & Nashik.
New Greenfield Plant to help increase its presence in South SPL is likely to commission its Chennai plant in Q1FY15 which will
increase its installed capacity by ~30% to 85800 MTPA. With the commissioning of this plant, SPL will have a manufacturing presence
across India which is likely to kickin operational efficiencies and enhance its market share in South & West because currently both
South & West is being catered by its Nashik plant & this new plant will free up capacity for SPL to cater exclusively to the West market
SeniorLevel Management changes augurs well for SPL On May 25th 2013 SPL has appointed Mr Sameer Nagpal as MD & CEO who
SHAREHOLDING(%)
Promoters 62.4
FII 0.0
200DaysEMARs.88
*OnfullydilutedequityShares
SeniorLevel Management changes augurs well for SPL On May 25th 2013, SPL has appointed Mr. Sameer Nagpal as MD & CEO who
has a good past trackrecord of spearheading India Growth Strategy for Ingersoll Rand International (India) Ltd. According to the SPLs
new CEO, the Indian paint industry is poised to grow 23x GDP and highlighted that the company is looking to grow at 34x the market
growth rate on the back of its huge latent equity and a strong portfolio of brands whose potential is waiting to be unlocked.
Outlook and Valuation SPL is likely to grow at a CAGR of 10.3% on a conservative basis during FY14EFY16E on the back of rising
paints demand, targeting tier II and III cities, expansion of distribution network, introduction of new products, penetration of newer
geographies, focus on value added products, inventory management and capacity addition. It is currently trading at 8.1x its FY16E EPS
Y/EMar. Revenues(Rs.mn) RPAT(Rs.mn) AEPS(Rs.) AEPS(%Chg) P/E(x) ROCE(%) ROE(%) P/BV(x)
FY13 5 301 8 131 4 6 9 (9 2) 13 1 22 8 18 9 2 3
FI/Bank 3.1
BodyCorporate 11.9
Public&Others 22.6
of Rs.11.2. We believe that SPL will be able to maintain its H1FY14 EBITDA margin of 8.5% going ahead on account of stable
rupee, improving product mix, two price hikes & reduction in dealers discounts in H1FY14. Its revenue has grown at a CAGR of 12.9% in
the last four years to Rs.5,301.8 mn in FY13. Considering the past performance & future growth potential, we recommend BUY for the
stock with a price target of Rs.124 (11x its FY16E EPS). We feel that it is a value buy as it is trading at a significant discount to its peers.
1
FY13 5,301.8 131.4 6.9 (9.2) 13.1 22.8 18.9 2.3
FY14E 5,344.3 151.6 8.0 15.4 11.4 24.1 18.7 2.0
FY15E 5,892.0 177.4 9.4 17.0 9.7 23.5 18.9 1.7
FY16E 6,496.0 212.5 11.2 19.8 8.1 24.0 19.3 1.4
ThisreportbasedonTechnoFundaResearchandourView/TargetPricehasbeenderivedaccordingly.Pleaserefertothedisclaimeronthelastpage.
ShalimarPaintsLtd.
COMPANYOVERVIEW
Established in 1902, Shalimar Paints Ltd (SPL) bears the distinction of being one of the oldest paint companies of the world and is currently the fifth largest
paint company of India. It is jointly promoted by Mr. Girish Jhunjhnwala and Mr. Ratan Jindal. It has a diversified revenue mix with presence in both decorative
and industrial paints and a wide product range across both segments and across all price points. For industrial segments, it service marquee clients in the
following industries: a) oil & gas b) petrochemicals c) fertilizers d) power e) steel f) engineering g) shipping h) auto ancillaries, etc. It has strong R&D
capabilities with a proven history of developing indigenous products for both the decorative and industrial segments.
Product Range: Its range of decorative paints includes: a) Exterior Walls (Emulsions & Cement Paints) b) Interior Walls (Emulsion & Distemper Paints) c)
Metal, Wood & Floor Surfaces (Enamels, Wood Finishes & Dry Colours) and d) Paint Undercoats (Primers, Putty, Stainers & Colorants) whereas its Industrial
Paints range includes: a) Protective Coating b) Product Finish c) Metal Decorative Coating and d) Marine Paints
Manufacturing Plants and R&D Centers: It has three manufacturing plants across the country with a capacity of 66 000 tonnes per annum A fourth plant in Manufacturing Plants and R&D Centers: It has three manufacturing plants across the country with a capacity of 66,000 tonnes per annum. A fourth plant in
Chennai, Tamil Nadu is expected to start operations in Q1FY15. Howrah and Nashik plants also have resin manufacturing facilities which helps SPL operate
effectively in Industrial paints. It has two R&D Centers: one at Howrah, West Bengal and one at Nashik, Maharashtra set up in 2009 (spread over 10,000 sq.
ft.). Both of them are recognized by Department of Scientific & Industrial Research (DSIR). R&D Center at Howrah was the first inhouse R&D unit to be
recognized by DSIR in 1979.
Distribution Reach: It has a nationwide distribution network with three regional distribution centers (RDCs), more than 54 branches & depots and 7000 g ( ) p
dealers. It also have dedicated sales & marketing teams for decorative and industrial paints. It also has tinting systems under the brand name Color Space
where it offers more than 10,000 shades across all the product lines to its customers.
Decorative Industrial North South East West
Decorativevs.IndustrialMixNo.ofDepots RegionWiseRevenueSplit
RegionWise
Split
No.of
Depots (%)
33%
35%
35%
10%
Split Depots(%)
North 39%
West 21%
East 20%
2 January06,2014
Source:Company,SushilFinance
67%
20%
South 20%
Total 100%
ShalimarPaintsLtd.
DecorativePaints ProductsRange
PRODUCT ECONOMY MIDRANGE PREMIUM
Enamels Mela SuperlacLustre SuperlacHiGloss,SuperlacSatIn
InteriorEmulsions No.1Silk SuperlacAcrylicEmulsion HusainCollection
Exterior Emulsions Shaktiman Xtra Self Clean, Xtra Maxima ExteriorEmulsions Shaktiman Xtra SelfClean,XtraMaxima
Distemper No.1PremiumAcrylicDistemper
Primers Cement&MetalPrimers UniversalWhitePrimer
Aluminium GPAluminium TEAluminium Lustrol
Stainer SuperlacStainer
Putty Shakti,Magic(Exterior) y g ( )
IndustrialPaints ProductsRange
SEGMENTS PRODUCTRANGE
ProtectiveCoating
TuffkoteRangeofproductsinclude ChlorinatedRubber,Epoxy,Polyurethane,InOrganicZincSilicate,GlassFlakeepoxy,High
TemperatureSiliconAluminum,AcrylicPolysiloxane,CoalTarEpoxy,Bituminous,SurfaceTolerant&RapidCurecoatings
ProductFinish
QAD&Nitrocelluloselacquers,AlkydAmino/Epoxy/Acrylics/Vinylbaseproductsforsolidandmetalliccolours,flamboyant& stipple
finishes,Nonyellowingwhiteandwidespectrumofwhetherdurablecolors,Stripcoatingandspecializedcoatingformetallic tapes,
CoatingsforAircrafts,etc.
Packaging
CankoteproductsincludeGold/Pigmented/TubeCoatings,CoatingsforFood,Pesticides&ChemicalProductContainers,Integrated
Necks&PilferproofClosure,Varnishes,BarrelLiningLacquer,SideStripeVarnish,CrownCork,etc.
New Construction Shop Primers Under Water Anticorrosive & Antifouling paints Boot Top & Top Side paints Superstructure Decks
KeyManagementPersonnel
Name Designation
Marine
NewConstructionShopPrimers,UnderWaterAnticorrosive&Antifoulingpaints,BootTop&TopSidepaints,Superstructure,Decks
andAccommodationareacoatings,Potablewatertankcoatings,Tanks&CargoHoldscoatings,etc.
Source: Company,SushilFinance
3 January06,2014
Mr.GirishJhunjhnuwala Chairman
Mr.SameerNagpal ManagingDirector&CEO
Source:Company
ShalimarPaintsLtd.
Demand Growth Drivers are in place
Indian Paint industry is pegged at Rs. 285bn (FY13) and has grown at a CAGR of ~15% in the last three years and expected to grow at a CAGR of ~14% to reach
Rs. 495bn by FY17E (as per IPA & AC Nielsen). Per capita consumption of paint in India is fairly low at 2.57 Kg/annum when compared to the global average of
15 Kg and 20 Kg in the developed markets. The growth has been fuelled by higher income levels of people across urban and rural segments, historically low
consumption of paints which offers potential headroom for growth, rising awareness of branded paints with better quality & longer durability and the desire
by people to remodel and embellish existing homes Per capita paint consumption in India has risen to 2 57 Kg in FY12 from 2 2 Kg in FY08 At the same by people to remodel and embellish existing homes. Per capita paint consumption in India has risen to 2.57 Kg in FY12 from 2.2 Kg in FY08. At the same
time, organized players have expanded their distribution network, reaching out to more cities and towns particularly in semiurban & rural parts, investing
significantly behind new product offerings across price points and creating more customers connect via significant investments in advertising & publicity
(A&P).
Decorative paints (~70% of the overall market) include wall finishes for interior and exterior use, enamels, wood finishes and ancillary products such as
primers, putties, etc. It has grown at a CAGR of ~16% in the last three years and expected to grow at a CAGR of ~16% to reach Rs. 365bn by FY17E (as per IPA p , p , g y p g y ( p
& AC Nielsen). Higher growth is being witnessed in new demand pockets, particularly in Tier 2 and 3 cities. Within decorative paints, the waterbased
products and high margin emulsions segment is growing at a much faster pace thanks to a rising premiumization trend. There is a fair bit of seasonality in
demand for decorative paints as festive and wedding season tend to have higher demand for repainting. Despite the near term concern on demand
scenario, consumers shift from unbranded to branded products will aid volume growth as ~2530% of total market is unorganized. Shortened repainting cycle
(from 5 years to 33.5 years) will also aid decorative volumes to grow as repainting constitutes ~7580% of the total decorative market.
I d t i l i t ( 30% f th ll k t) i l d t ti i t t ti ti GI i t ( l i d t i l) d ti il ti d Industrial paints (~30% of the overall market) include automotive paints, protective coatings, GI paints (general industrial), powder coating, coil coating and
others. It has grown at a CAGR of 10% in the last three years and expected to grow at a CAGR of ~12% to reach Rs. 130bn by FY17E (as per IPA & AC Nielsen).
The paints in this segment are largely solventbased. It is currently witnessing subdued growth rates led by poor automotive and infrastructurerelated
demand. We believe that the industrial paints demand is likely to perform better with expected economic revival going ahead as its fortunes is linked to the
economic environment and capex cycle. In addition, organized manufacturers efforts to enter into tieups with large industrial painting contractors and take
up turnkey contracts called Apply Supply Contracts for both maintenance jobs and new projects will drive volume growth.
We believe that Indias low per capita consumption of paints, economic growth, higher disposable income, increasing urbanization & changing
lifestyles, consumer uptrading, easy availability of credit and a concurrent growth in construction, automobiles and consumer durables segments will continue
to act as the driving force behind the rise in consumption of paints going ahead.
Apart from the above factors, organized manufacturers efforts to enhance its distribution network & product offerings, move closer to the customer by
setting up flagship stores and improve service levels will help the industry in its drive to make consumers shift from unbranded products to branded products.
4
In the nearterm, we believe that good monsoon will increase the demand for decorative paints esp. in the rural market. We also believe that good monsoon
augurs well for automobiles and consumer durables segment which is likely to increase the demand for industrial paints going ahead.
January06,2014
ShalimarPaintsLtd.
One of the top 5 players in Indian branded paints market
Shalimar Paints Ltd (SPL) is Indias 5th largest branded paint company having 111 years of existence with three manufacturing facilities. It has a market share of
2.6% and 1.8% in Indias organized paints segment and overall paints industry respectively. It is one of the leading player in High Performance coatings (HPC) in
India and also have a significant presence in packaging coatings and general industrial coatings. It is also a major player in product Finish paints used in the utility
service segment such as ceiling fans, light fixtures, luminaries, pumps, motors, material handle equipment, textile machinery, tractors & tillers, barrel, LPG
Cylinders and auto ancillaries industry. It is the only leading coating manufacturer & supplier in the Indian organized paint industry to the metal packaging Cylinders and auto ancillaries industry. It is the only leading coating manufacturer & supplier in the Indian organized paint industry to the metal packaging
industry in India. It has a strong presence in tier II and III cities. It derives more than 2/3rd of its revenue from the economy and midtier segments.
Existing Manufacturing Facilities:
PARAMETER HOWRAH NASHIK SIKANDRABAD
Establishment Year 1902 1993 2003
Location West Bengal Maharashtra Uttar Pradesh
Total Area (Sq. m) 145000 50000 41243
Covered Area (Sq. m) 25500 10970 7102
Installed Capacity 66000Tonnesperannum
Sales Region Catered Mostly East West & South Mostly North
Architectural Coatings interior &
exterior High Performance Coatings Can
Enamels finishes, primers, water
base finishes, industrial & marine
Enamels finishes, primers, water
base finishes, industrial & marine
Source:CompanyPresentation,SushilFinance
Product Portfolio
exterior, High Performance Coatings, Can
Coatings, Stoving Systems, Marine
Coatings along with new generation
products like Water Based & High Solid
Industrial Paints, Wood Finishes, Solvent
borne Paints and Aviation Coatings
paints, distemper, etc. paints, distemper, cycle black, etc.
p y ,
A fourth plant in Chennai, Tamil Nadu with a capacity of ~18000 MTPA is expected to start operations in Q1FY15 which will increase its capacity by ~30%.
Forged Technical Association/Partnerships to remain competitive in both Industrial and Decorative segments
Tied up with Degussa Coatings and Colorants, a world leader in POS colorants, for supply of colorants for its Color Space tinting systems. Color Space uses
stateoftheart dispensing systems manufactured by Fluid Management Inc. (unit of IDEX Corporation).
Has existing long association with multinational giants like Pinchin Johnson Co. & International Paints PLC of the U.K. and IP (Courtaulds).
5 January06,2014
g g g ( )
In July 2010, entered into a tieup with Rudolf Hensel, a leading manufacturer of fire intumescent coatings. Under the arrangement, SPL have exclusive
rights to promote Rudolf Hensel products in India which would be used as intermediate coatings with the primer and top coat of the company. This product
is expected to have significant growth potential as regulations requiring fire intumescent coatings in places like airports, malls, metro stations etc. are fast
coming into place.
ShalimarPaintsLtd.
New Greenfield Plant to help increase its presence in South
SPL is likely to commission its Chennai plant in Q1FY15 which will increase its installed capacity by ~30% to ~85800 MTPA.
With the commissioning of this new plant, SPL will have a manufacturing presence across India which is likely to kickin operational efficiencies like
transportation cost savings, etc. and enhance its market share in South & West because currently both South and West is being catered by its Nashik plant
hi h i ti t ~80 90 % it tili ti which is operating at ~8090 % capacity utilization.
The new plant will free up muchneeded capacity for SPL to cater exclusively to the West market.
Currently, SPL generates ~70% of its revenues from North & East India while the Industry generates ~60% of its revenues from South & West India.
We believe that the additional capacity at Nashik and Chennai plants will drive the volume growth for SPL as the company will be able to penetrate the South We believe that the additional capacity at Nashik and Chennai plants will drive the volume growth for SPL as the company will be able to penetrate the South
& West India more aggressively.
Existing Manufacturing Facilities offer significant operating Leverage
Significant scope for capacity expansion without any additional land cost as the existing plants are built only on ~1/3
rd
of the available land.
High levels of flexibility in switching between manufacture of industrial or decorative paints at each of the facilities. 80% of the capacity can be altered in
favour of either segment and thereby maximize its capacity utilization. Remaining 20% is dedicated to decorative paints only.
Currently, it is operating at a capacity utilization of ~8090% across its existing three plants.
6 January06,2014
ShalimarPaintsLtd.
SeniorLevel Management Changes augurs well for SPL
On May 25th 2013, SPL has appointed Mr. Sameer Nagpal as Managing Director & CEO . Prior to joining SPL, he worked as a Vice President Strategy &
Business Creation (India) with Ingersoll Rand International (India) Ltd and has led businesses through rapid growth and transformation cycles. He is credited
with stitching a number of international tieups for product sourcing, contract manufacturing and research/collaborative development in his earlier
assignments.
SPLs board of Directors cited that Mr. Sameer Nagpal is well equipped to guide the company through the transformation of emerging as a strong contender
in the Indian paints industry on account of its experience of multinational and Indian organizations, both in residential and commercial businesses.
According to the SPLs new CEO, the Indian paint industry is poised to grow 23x GDP and highlighted that the company is looking to grow at 34x the
market rate on the back of its huge latent equity and a strong portfolio of brands whose potential is waiting to be unlocked.
Under the new leadership, the company has already started focusing on volume growth, product mix and margins.
In H1FY14, the company has taken two price hikes to pass on the adverse impact of rupee depreciation on raw materials costs to the consumers. The
benefit of this price hike will be visible from Q3FY14.
In H1FY14, the company also reduce the dealers discount which was high compared to the industry.
From Q2FY14, the company is also trying to shift product mix from low margin protection paints towards high margin decorative paints.
7 January06,2014
ShalimarPaintsLtd.
Decent Financial Performance over the last three years
FY11 FY12 FY13 FY14E FY15E FY16E
Production(KL) 43503 45314 46305 46114 48420 50841
NetSalesGrowth(%) 10.6 19.6 9.0 0.8 10.3 10.3 ( )
OPM(%) 7.2 8.3 7.2 8.5 8.6 8.6
PBTMargin(%) 4.1 4.3 3.4 4.0 4.3 4.7
PATMargin(%) 2.9 3.0 2.5 2.8 3.0 3.3
ROCE (%) 24 5 28 7 22 8 24 1 23 5 24 0 ROCE(%) 24.5 28.7 22.8 24.1 23.5 24.0
ROE(%) 23.5 24.6 18.9 18.7 18.9 19.3
OperatingCF(Rs.Mn) (3.8) 12.5 (70.6) 134.0 130.0 144.6
DebtEquity(x) 1.1 1.1 1.2 1.2 1.0 0.8
N Fi d A ( ) 12 0 14 7 13 3 11 5 12 5 14 0
In FY13, SPLs sales and margin was impacted a bit due to a major fire incident on 4
th
January 2013 at its Nashik plant.
Source:Company,SushilFinance
NetFixedAssets(x) 12.0 14.7 13.3 11.5 12.5 14.0
We have taken the conservative approach in forecasting the financials considering the fact that India is facing one of the major slowdown in industrial We have taken the conservative approach in forecasting the financials considering the fact that India is facing one of the major slowdown in industrial
activity which could hamper SPLs industrial paints sales growth. India is also witnessing visible slowdown in consumer discretionary spending which could
again limit its growth in decorative paints sales.
We believe that this is a shortterm pain for the paints industry and the mediumtolong term outlook for the industry is very positive.
We expect the paints industry to report better numbers going ahead on account of rural opportunity combined with easing prices of key raw material i.e.
8 January06,2014
rutile.
Cos.
Rev.
from
Ops.
(5 Y
EBITDA
(5Yrs
CAGR)
Adj.
PAT
(5Yrs
Gross
Margin
(FY13)#
EBIDTA
Margin
(FY13)
Adj.
PAT
Margin
Debt/
Equity
(FY13)
Gross
Block
(5Yrs
Working
Capital
(excl.
Cash)
% f
RoNW
(5Yrs
A )
RoCE
(5Yrs
A )
Installed
Capacity
(FY13)
No.of
Mfg.
units
(d
Product
Mix
Deco/
I d
Overall
Market
Share
Mkt
Sharein
Organ
ized
Deco
Market
Share
No.
of
D l
PEERCOMPARISON
(5Yrs
CAGR)
CAGR)
(
CAGR)
(FY13)# (FY13)
g
(FY13)
(FY13)
(
CAGR)
as%of
Sales
(FY13)
Avg) Avg) (FY13) (do
mestic)
Indus
trial
(%) Segment
(%)
(%)
Dealers
AsianPaints 20.2 21.4 21.6 51.3 14.9 9.4 0.1 22.3 3.4 42.4 50.9
944000
KL
10 80/20 39 55 55 35000
340000
/ BergerPaints 19.2 22.1 18.6 44.8 10.9 6.4 0.6 25.9 14.7 23.9 24.5
340000
Tons
7 75/25 11 16 18 ~16000
KansaiNerolac 15.8 12.6 13.5 41.3 10.9 6.7 0.1 17.5 12.8 20.3 24.3
300000
Tons
5 55/45 10 15 15 ~15000
AkzoNobel 18.7 19.6 16.0 42.2 8.5 6.2 0.0 17.9 17.8 10.5 12.5
150000
KL
5 NA 8 11 10 ~8500
ShalimarPaints 13.0 11.2 5.4 33.9 6.5 2.3 1.2 8.3 20.7 22.5 24.5
66000
Tons
3 67/33 2 3 2 ~7000
Source:Company,SushilFinance#GrossMargin=NetSaleslessRawMaterialsCost(incl.TradedGoods)
From the above table, we can conclude that the performance of SPL in the last 5 years has been decent visvis its peers.
SPL has grown at a decent CAGR in the last five years on topline visvis peers. But lower margins and higher D/E lead to lesser bottomline growth.
However, despite of lower scale of business, margins are expected to improve going ahead as the company has already started focusing on margin
expansion by rationalizing dealer discounts and product mix .
Its return ratios are also on par to its peers except Asian paints.
9
SPL has lesser market share mainly due to single plant (Nashik) catering both West & South markets (60% of industrys sales). But upcoming Chennai plant
will help in addressing this concern.
We believe that the current management focus on cost and operational efficiencies may help in improving working capital (excl. cash) efficiencies.
January06,2014
ShalimarPaintsLtd.
PeerComparison(asperFY13Financials)
Company
EV/
Sales
EV/
EBITDA
MCAP/
Sales
Price/
Earnings
Price/
Book
AsianPaints 4.0 26.8 4.0 43.0 13.9
SPLsDiscount(%)toitspeers(asperFY13Financials)
Company
EV/
Sales
EV/
EBITDA
MCAP/
Sales
Price/
Earnings
Price/
Book
AsianPaints 87.5 76.1 92.3 69.5 83.4
BergerPaints 2.4 21.9 2.3 35.8 8.2
KansaiNerolac 2.0 18.3 2.0 29.8 4.8
AkzoNobel 1.8 21.5 1.9 30.1 3.7
ShalimarPaints
(SPL)
0.5 6.4 0.3 13.1 2.3
BergerPaints 79.1 70.7 86.4 63.4 71.8
KansaiNerolac 75.1 65.0 84.4 56.0 51.8
AkzoNobel 72.6 70.3 83.3 56.5 38.5
Average 78.6 70.5 86.6 61.4 61.4
SPL is currently trading at par to its total value of Tangible Fixed Assets plus Net current assets (as on FY13) and at a significant average discount of 61.4%
on trailing PE basis to its peers.
If we take into consideration the value of intangible assets of the company which is in the form of multiyear financial as well as many years of investment
Source:Company,SushilFinance
( )
If we take into consideration the value of intangible assets of the company which is in the form of multi year financial as well as many years of investment
in setting up of distribution network, branding, clientrelationships, etc., then we feel that the current market price offers value to the investors.
We feel that the companys current discount of 86.6% to its peers on trailing Mcap/Sales basis is too high which should come down to atleast 78.5% i.e.
SPL should trade at 0.5x its FY13 Sales. Currently, the market is valuing SPL at 0.5x its FY13 decorative sales (2/3
rd
of its FY13 overall sales) and not valuing
its industrial sales.
We feel that any investors who can hold the stock for 1218 months, it is worth buying this 5th largest paints player in India at the current market price.
There is also possibility that the market may rerate the company going ahead if the Chennai plant starts contributing to the volume growth in a significant
way and the new management starts delivering consistent financial performance.
10 January06,2014
ShalimarPaintsLtd.
RISKS
Any further slowdown in economic growth may hamper its growth as the volume growth of paints industry in India is being consistent with the GDP growth
over the years (~1.52.0x of real GDP Growth).
Any further delay in investments (public as well as private) will impact the demand for Industrial coatings which in turn will impact SPLs growth.
Petroleum based raw material and crude oil is the backbone of the paints business Excessive volatility in the raw material prices and exchange rate may
have an impact on its operating margins (9% of its raw material requirements was imported directly by SPL in FY13).
Cash generation by SPL may be impacted due to further increase in net working capital (excl. cash) as percentage of sales. Over the last three years (FY10
FY13), SPLs operating cash flows was impacted due to increase in net working capital (excl. cash) as percentage of sales from 15.1% in FY10 to 20.% in FY13.
Increase in working capital was largely due to higher inventory as percentage of sales which increased from 17.2% in FY10 to 25% in FY13.
11 January06,2014
ShalimarPaintsLtd.
OUTLOOKANDVALUATION
SPL is likely to grow at a CAGR of 10.3% on a conservative basis during FY14EFY16E on the back of rising paints demand, targeting
tier II and III cities, expansion of distribution network, introduction of new products, penetration of newer geographies, focus on
value added products, inventory management and capacity addition. It is currently trading at 8.1x its FY16E EPS of Rs.11.2. We
believe that SPL will be able to maintain its H1FY14 EBITDA margin of 8.5% going ahead on account of stable rupee, improving g g g p p g
product mix, two price hikes and reduction in dealers discounts in H1FY14. Its revenue has grown at a CAGR of 12.9% in the last four
years to Rs.5,301.8 mn in FY13. Considering the past performance & future growth potential, sufficient installed capacity and no
major capex going ahead, we recommend BUY for the stock with a price target of Rs.124 (11x its FY16E EPS). We feel that it is a
value buy as it is trading at a significant discount to all its peers. There is upside risk to our estimates if the new management become
successful in achieving higher utilization for the South plant and thereby able to achieve aggressive sales growth from the West and
S h I di South India.
300
350
PE Band 5 Years and 3 Years Average of 1Year Forward PE is: 11.1 & 12.7 respectively.
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Close -Unit Curr 10.0 X 15.0 X 20.0 X 25.0 X 30.0 X
Source:Company,SushilFinance
ShalimarPaintsLtd.
PROFIT&LOSSSTATEMENT (Rs.mn)
BALANCESHEETSTATEMENT (Rs.mn)
Y/EMar. FY13 FY14E FY15E FY16E
NetSales 5,302 5,344 5,892 6,496
Ason31
st
Mar. FY13 FY14E FY15E FY16E
ShareCapital 38 38 38 38
R & S l 712 831 975 1154
RawmaterialConsumption 3,540 3,676 4,051 4,464
StaffCost 287 390 424 468
OtherExpenses 1,094 824 909 1,003
Reserves&Surplus 712 831 975 1154
NetWorth 750 868 1013 1192
SecuredLoans 781 912 912 912
UnsecuredLoans 100 100 100 100
Total Loan funds 881 1012 1012 1012
TotalExpenditure 4,921 4,890 5,385 5,935
PBIDT 380 454 507 561
Interest 166 214 214 214
TotalLoanfunds 881 1012 1012 1012
DeferredTax 26 29 32 37
CapitalEmployed 1657 1909 2057 2240
NetBlock 319 326 412 460
Cap WIP 79 138 58 3
Depreciation 38 43 52 58
OtherIncome 2 19 12 13
PBTinclOI 178 216 253 303
Cap.WIP 79 138 58 3
Investments 8 8 8 8
SundryDebtors 1545 1557 1717 1893
Cash&BankBal 152 274 313 373
Loans & Advances 132 133 147 162
Tax 46 65 76 90
APAT 131 152 177 213
ExtraordinaryItems 21
Loans&Advances 132 133 147 162
Inventory 1320 1330 1467 1617
OtherCurrAssets 113 114 126 139
CurrLiab&Prov 2010 1971 2190 2414
NetCurrentAssets 1251 1437 1579 1769
13
RPAT 110 152 177 213
TotalAssets 1657 1909 2057 2240
Source:Company,SushilFinanceResearchEstimates
January06,2014
ShalimarPaintsLtd.
CASHFLOWSTATEMENT (Rs.mn) FINANCIALRATIOSTATEMENT
Y/E Mar. FY13 FY14E FY15E FY16E
ProfitAftertax 110 152 177 213
Y/EMar. FY13 FY14E FY15E FY16E
Growth(%)
NetSales 9.0 0.8 10.3 10.3
Depreciation&Amortization 38 43 52 58
Chg.inWorkingCapital (217) (63) (103) (130)
Chg.inDeferredTaxLiability (2) 3 4 4
CashFlowfromOperating (71) 134 130 145
EBITDA (5.8) 19.3 11.7 10.7
AdjustedNetProfit (9.2) 15.4 17.0 19.8
Profitability(%)
EBIDTAMargin(%) 7.2 8.5 8.6 8.6
NetProfitMargin(%) 2.5 2.8 3.0 3.3
(Incr)/DecrinGrossPP&E (35) (50) (138) (106)
(Incr)/DecrInWorkin
Progress
(70) (59) 80 55
ROCE(%) 22.8 24.1 23.5 24.0
ROE(%) 18.9 18.7 18.9 19.3
PerShareData(Rs.)
EPS(Rs.) 6.9 8.0 9.4 11.2
CEPS(Rs.) 7.7 10.4 12.3 14.5
(Incr)/DecrInInvestments (0)
CashFlowfromInvesting (105) (109) (58) (51)
(Decr)/IncrinDebt 192 131 (0) (0)
BVPS(Rs) 39.6 45.9 53.5 63.0
Valuation
PER(x) 13.1 11.4 9.7 8.1
PEG(x) (9.9) 5.9 5.3 4.6
P/BV(x) 2.3 2.0 1.7 1.4
(Decr)/IncrinNetworth 3
Dividend (33) (33) (33)
CashFlowfromFinancing 195 98 (33) (33)
EV/EBITDA(x) 6.4 5.4 4.8 4.2
EV/NetSales(x) 0.5 0.5 0.4 0.4
Turnover
DebtorDays 106 106 106 106
CreditorDays 132 129 130 130
14
CashattheEndoftheYear 152 274 313 373
Source:Company,SushilFinanceResearchEstimates
GearingRatio
D/E 1.2 1.2 1.0 0.8
January06,2014
ShalimarPaintsLtd.
SALES
DevangShah|+912240936060/62
ANALYST
BhaveshkumarJain|+912240935098 e a g S a | /
devang.shah@sushilfinance.com
|
bhaveshkumar.jain@sushilfinance.com
Stock Review Reports:
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may not necessarily be based on management meeting but may be based on the publicly available information and/or attending Company AGMs. Hence Stock Reviews may
be just onetime coverages with an occasional Update, wherever possible.
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January06,2014