INVESTENT

MANAGEMENT

Submitted
Submitted By:
To:
Arti Narwariya
(PGP14065)
Prof. K N Badhani
Jaideep Poonia (PGP14074)
Yogit Nayyar (PGP14107)

Project Report
On

PAINT INDUSTRY

Abstract
Investment management introduce about the various terminologies in the market. Investment
management is the professional asset management of various securities (shares, bonds and
other securities) and other assets (e.g., real estate) in order to meet specified investment goals
for the benefit of the investors. Learning cannot be achieved by theory, to learn it better we
need to apply the concepts in real life. As a learning from classes we have done analysis of
Paint Industry. We have included Technical and fundamental analysis of the companies. We
have used Top down approach to the valuation. Where we first analyze the economy then
Industry and then finally company. We have taken three companies for the analysis, Berger
Paint, Asian Paint and Shalimar Paints.

INDUSTRY ANALYSIS:
We are analyzing the Indian economy as we have taken the Indian Paint Industry. To analyse
the industry we need to see what all factors are affecting the Indian economy, Indian GDP and
World Bank Forecast.

Factors Affecting Indian Economy

Fall in Oil Prices- Game Changer for Indian Economy:
Crude oil prices have corrected by close to 48% since hitting a peak in June 2014, driven by a
structural supply glut and political gridlock. Crude oil prices are currently at a 5 year low.
Unlike the past, the oil price drop is not linked to a crash in oil demand or risk- off in global
equities. OPECs decision to move away from being the sole manager of the demand- supply
gap is unprecedented and could lead to low oil prices for the next few years.

The current correction in oil prices is hugely positive for India as highlighted below:
Every USD 10/bb. fall in crude oil price improves Indias current Account Deficit by
around USD 9 billion or 0.5% of GDP.
Every USD 10/bb. fall in oil price can boost GDP growth by around 10 bps and reduce
fiscal deficit by 0.10%.
Every USD 10/bbl. Fall in crude oil prices lowers CPI inflation by 20 bps and WPI
inflation by 50 bps.
(source: Asian Economic Outlook, Nomura, 24th November, 2014)

FII & Domestic Flow:

FIIs continue to be positive on India, with highest flows amongst emerging markets.
However FII flows into equity were modest compared to last couple of years. A key reason
could be that FIIs also purchased 26 billion USD of Indian Fixed Income securities this
calendar year. In the past six years( FY 10-FY15) Indian households will have invested an

estimated US $ 40 billion into equities at an average annual rate of $ 6.7 billion (includes
direct equity purchase, purchase through mutual fund and life insurance). During the same
period, FII inflows amounted to US $ 106 billion at an average annual rate of close to $18
billion.

Economic Reforms and Earnings Growth:

The central and progressive state governments are expected to implement more meaningful
reforms in 2015. Fiscal reforms are underway with the gocernment focusing on
implementation of GST; Direct cash transfer schemes, etc. Introduction of GST and DTC will
have a huge impact as it will remove the tax anomalies and will increase GDP by over 1% and
will help in generating better revenues which is the need of the hour. Investment reforms in
areas related to labor, land and power reforms may erase the business conditions.
India continues to tank poorly in the World Banks Ease of Doing Business survey at no. 134
of 180 countries. Government Make in India initiative should over time help improve the
ranking as it creates congenial environment which facilitates investments.
Businesses will benefit from the likely reduction in interest rates, margin expansion owing to
fall in commodity prices, and reforms like GST, etc. Among the key overweight positions in
portfolio will be private sector banks, consumer discretionary( like Autos, Auto ancillaries,

Building materials, etc.), and businesses which will benefit from the revival in the
manufacturing sector.

Indian Equity Market

With a population of more than a billion, a mere 1% of the population participates in capital
markets, and of that only a fraction in active. Indian households have traditionally preferred
safety of bank deposits and government saving schemes and much less than 10% of their
investments in financial assets is in shares, debentures and mutual funds.
Over the years, private equity investors have primarily remained minority, less than 25%
stakeholders in investee companies. In addition to it being part of the Indian promoters
cultural mindset towards external investors, PE investors also understand that promoters know
the business and industry best and the business control is of keen interest to Indian promoters.
Investors have started accommodating their investment outlook from merely backing the
business to backing the entrepreneur or promoter. So in instances where the promoter has
strong industry credentials or a successful track record of growing a business, PE investors are
open to backing such ventures.

Indian GDP Growth

World Bank Forecast

Raw Materials:
Key raw materials for the paint industry include pigments (TiO2), solvents, resins, chemicals
and various crude derivatives. TiO2 typically accounts for 25-30% of total COGS. Nearly 7580% of raw materials are sourced locally and the remaining 20-25% are imported. Much of
the raw material prices (whether domestically sourced or imported) (~60-65%) are influenced
by crude oil and TiO2 movements, which are susceptible to global demand supply dynamics
and thus make the linkage to exchange rate fluctuations meaningful. While TiO2 prices have
been benign in the past few quarters (aided by increased global supply and weak demand), it
is the starting of an uptick there and recent sharp rupee depreciation further limits gross
margin expansion potential for the paint manufacturers.

Industry Analysis
Segments
Decoratives: This segment includes include exterior wall paints, interior wall paints, wood
finishes and enamel and ancillary products such as primers, putties etc. Decorative paints
account for over 77% of the overall paint market in India. Asian Paints is the market leader in
this segment. Demand for decorative paints arises from household painting, architectural and
other display purposes. Demand in the festive season (September-December) is significant, as
compared to other periods. This segment is price sensitive and is a higher margin business as
compared to industrial segment.
Industrial: Three main segments of the industrial sector include automotive coatings, powder
coatings and protective coatings. User industries for industrial paints include automobiles
engineering and consumer durables. The industrial paints segment is far more technology
intensive than the decorative segment. It consists of powder coatings, floor coatings and other
protective coatings catering to the automobile, marine and other industries.

Working of the paint industry

Porters five force analysis

Bargaining power of suppliers: Medium
Paints industry is raw material intensive with over 300 raw materials. Different categories are
pigments (almost 1/3rd of raw materials), additives, solvents and binders. Titanium dioxide is
one of the major raw materials used and price change has a high impact on the cost of
production. Since most of the raw materials come from petroleum, the costs are directly
related to crude oil prices. Another raw material is resins and its prices have been rising in the
past few years. Governmental regulations against paints containing volatile organic
compounds (VOC) is also a major factor.
Bargaining power of customers

: High

Due to availability of wide choice and buyers strong price sensitivity, the bargaining power of
customers is high. The paints are sold through direct sales as well through distributors.
Competitive Rivalry: Low to Medium
In both categories, companies in the organised sector focus on brand building. Higher pricing
through product differentiation is also followed as a competitive strategy.
Threat of Substitutes: Low
The substitutes are low at present and expected to remain at a low level. Colourful patterned
wallpapers and wall panelling are being preferred by some. In industrial use, the equipment

suppliers prefer to use metallic finishes and oxidation process. Also, these metallic options are
considered more hassle-free as there are no issues of paint chipping, re-painting etc. in rural
areas, people may go for lime as a substitute.
Threat of new entrants: Low to medium
Paint market in India is dominated by few big players, making it difficult for anyone new
entering the industry to compete. Big players have high brand image & quality products &
good promotional activities to attract customers, which makes it even more difficult for new
entrants. Foreign players with superior technology may pose a threat in the future but cost
sensitive nature of the Indian market will make it difficult for even them.

Drivers for Growth

Since the per capita consumption of paints per annum is very low in India (1 kg) as
compared to China (6.4 kgs), the USA (15 kgs) & to a global average of 10-13 kgs
there is a lot of potential for growth in this industry
The economy is improving under the current government. Demand in case of
Industrial segment is also expected to increase going forward. The construction boom
post recession and the growth of the automotive and consumer durable industry will
help the paints industry.
Decorative paints segment is also expected to have higher growth. The incentives
being given by the government for housing sector (It is priority lending for banks) will
boost the growth.
Increasing levels of income and education, increasing urbanization, increasing
penetration in the rural markets is also helping the industry
Paint being a discretionary expenditure, is low during periods of high inflation and
poor monsoons. As the inflation is already under control, good monsoons will boost
the growth
Increasing level of income and education
If the demand due to any reason is low & the new capacity remains unutilxzed the
companies margins will go down.

The market for paints in India is expected to grow at 1.5 times to 2 times GDP in the next five
years. With GDP growth expected to be around 7% levels, the paint industry is expected to
grow at 12-13% annually over the next five years. The top companies will have an even
higher growth rates.

COMPANY ANALYSIS
Berger Paint
Asian Paint
Shalimar Paint
Berger Paint
Berger paint is one of the leading paint industry in the world and 2 nd largest paint company in
India.

Louis Steigenberger sold Prussian blue color in London, which he made by using his own
formula. Berger was selling more than 19 different pigments by 1870. These Pigments include
black lead, sealing wax, sulphur and mustard.
After his death, his son took over the business. In 1900s, American company Sherwin-Williams
bought control of company.
On 17th Dec 1923, Mr. Hadfield set up Hadfields Ltd in Calcutta, a small paint company.
British Paints acquired Hadfield's (India) Ltd towards the end of 1947. In 1969 Berger, Jenson
Nicholson Limited, UK bought the British Paints (India) Ltd. This marked the beginning of Lewis
Bergers legacy in India - which the company would later take forward to enviable heights.
The 80s and the 90s saw the launch of many new products such as emulsions and distempers. The
COLOR BANK tinting system was launched through which the consumer can select from a range
of over 5000 colors.
Subir Bose has been the Managing Director since 1994, under whom Berger's team currently runs.
Mr. Kuldip Singh Dhingra is the Chairman of the Board of Directors. He has been a Director of
the Company since 1991.
Company has Headquarter in Kolkata, India and it has international presence in Russia, Nepal and
Cyprus. Company has 25000+ employees. Currently the company is having more than 15000+
dealers countrywide

From the above Distribution of income graph we can see that 58.09% is Material Cost which clearly
shows that it is capital incentive industry and its profits are highly affected by raw material cost. Thus
when the prices of crude oil fall, its profits start increasing due to decreased cost. Company has incresed
its dividend upto 125%.

Market share of Berger Paint is 17.8%. It is second largest in terms of Market share in India.KNP and
Akzo are the closest competitor of Berger Paint. Asian Paint is Market Leader in the industry with a
market share of 53.6%.

Company having 7 fully owned Paint Manufacturing units in India, 2 Toll Processor units and 2
container processor unit. As we can see in the above image. Currently company has announced 2
new plants in Assam on 3rd August 2015. Below chart shows the impact of the announcement on
share prices of Berger Paint.
Event analysis:
As news was declared on 3rd Aug 2015, so in graph we can see the 2.6% abnormal returns which
shows that after the announcement, shareholders are expecting the growth in the company that's
why they are valuing the company high. But we can see from the graph that after 2 days the
abnormal return went negative that shows the price adjustment and again on 7th Aug, stock has
about 2% negative abnormal return which balance out the situation. If we see todays price the
stock again has abnormal return and this time higher than the event day's abnormal return. The
reason for the same could be the event confirmation from the BOD of the company, i.e. some
people might have the insider information about the approval of new plants in the meeting so the
abnormal return has been increased. The factors that will affect the company returns could be oil
prices, as oil prices are lower right now so investors are optimistic about the paint industry.

Considerations for the event study1. Estimate Window- 2/02/2015 to 10/08/2015

2. Event Window- 20/07/2015 to 10/08/2015
3. Pre event window- 20/07/2015 to 31/07/2015
4. Post event window- 03/08/2015 to 10/08/2015
Diversified Business Segments
Company is broadly in four segments, Retail, GI & Auto, Protection and Powder. Retail segment
caters to households and other decorative solutions through Dealers and Specifiers. GI & Auto
segment consist of process industry, General industry and Automobile industry. Protection
segment talks about the protective coating and infrastructure. Powder industry includes, coating
for white goods, consumer durables and household appliances & fittings.
Fundamental Valuation
Assumptions for Growth: According to various analyst and by seeing the growth of industry we
have assumed that company will grow at 15% for the first five year (New investment is taking
place), then growth of 10% for further three years after that we are considering that growth will
be same as the country GDP and will be around 7% forever. So we are using 3 step model for the
calculation of company valuation.
All the data like balance sheet, income statement, cash flow statements are downloaded from the
Bloomberg terminal. From there we figured out the capital investment, working capital and
depreciation for the company. We have solved for beta by using available beta for the other
companies in the paint sector. Calculation is there in attached excel in sheet Fundamental Beta.

Risk free rate is considered 7.8%, Market risk premium is 9.05%, Equity beta is 0.951, and cost
of debt is 7.11%.
Below table shows the fundamental valuation of the company which shows the shares are
undervalued so we recommend to buy and hold the shares. In near future prices will rise.
Moreover company is going to have new investment in near future which higher the valuation of
the company. According to news available, in near future oil prices will be lower and thus raw
material cost will be decreased which contributes about 58% of the total cost incurred to the
company. Thus company has higher growth potential in the market. Detailed fundamental
analysis is done in attached excel sheet1.

Technical Valuation
As we can see the upward trend of share market prices of Berger paint thus Trend line is drawn
by joining two lower points on the graph. In below graph we can see that in 1 st quarter of 2015
there is a sudden drop in the share price. There is stock split on 8th jan 2015.

If we draw resistance and support level then we can make multiple. Here we draw two resistance
and support level where maximum share prices are lying. R2 clearly more of a resistance line
and after few days it break the resistance level and breakout happened. This breakout is
supported by the high volume which further proves that the breakout is not just for a while. After
breakout happened the same resistance level worked as support level for the next stage. The
same goes with R1, where it acted as resistance level for some time and then breakout happened
and it acted as support level. In between traders remorse and bear traps were identified in the
curve. In figure, T represents traders remorse.

To see, whether the market is bullish or bearish, we draw the MACD (Moving Average
Convergence Divergence) graph. To draw MACD, We first calculated the 26 days simple moving
averages and then 12 days moving averages. After computing both we find the difference
between two and plotted on the graph. Graph moves below and above the zero line. If it is above
the zero line then the share is in bullish phase and if it is below zero line then it shows bearish
phase. Currently the Berger paint is in bullish phase as it is above zero line as shown in figure.

Recommendation:
As the trend shows the bullish phase so we should buy or hold the shares of Berger paint.
Moreover current investments are also supporting the high valuation of the company and oil
prices will reduce the raw material cost thus one should buy or hold the stocks.
Conclusion:
Both fundamental and Technical analysis support the buy and hold position of the stock so one
should do the same. During our analysis we have seen that company is making good investment
in near future and economy is in support of paint industry. Market is bullish and showing upward
trend. Also raw material cost has been reduced. Monsoon this year in favor of the company.
Which is a positive indicator for the investors.

Asian Paints

Distribution channel: ~35,000 active dealers out of ~48,000 active dealers all over
India.
Adds 1,200-1,500 dealers a year, which leads to ~3.5-4.5% growth per annum on
account of increased penetration.
The company also has warehousing facilities in 125 cities in India and thus it can
deliver a product to a dealer on the same day the demand order is raised.
The company is the second-largest player in the auto segment and services all the
OEMs in India (except Maruti).
International subsidiaries: Asian Paints operates in 16 countries and is amongst the
top-3 players in the paints industry in these geographies.
Home improvement/ dcor segment: Recent acquisitions in this segment include
Sleek (modular kitchens) and Ess Ess (bathroom fittings). The management
believes that these products are complementary to the paints products and can be
sold through the existing channel of dealers and hardware stores.

SWOT Analysis

Strengths
1) Well entrenched and widest distribution network in the industry
2) Wide product portfolio across price points
3) Fairly high pricing power amidst rational competition
4) Best in class supply chain
5) Consistent market share gains
Opportunity
1) Low per capita consumption of paints offers significant potential for growth over the long
term
2) Consumer shift towards organized national players from unbranded/local players
3) Premiumisation trend to aid margin expansion over time
4) Foray into home dcor segment recent acquisition of Sleek
Weakness
1. Limited bargaining power with raw material suppliers
2. Limited presence in industrial paints segment
3. Low margin profile for overseas operations
Threats
1. Raw material inflation
2. Exposure to currency fluctuations given significant part of raw materials are
directly/indirectly exposed to currency movements
3. Significant slowdown in economic (GDP) growth poses downside risk to paints
consumption particularly for industrial segment
4. Slowdown in new real estate demand
5. Rising competition
6. ROE/ROCE dilution if company goes for aggressive investments in earnings/return dilutive
diversification forays

Valuation

Growth Rate Expectations: Asian Paints has posted industry-leading growth rates in the
domestic decorative paints segment (~80% revenue share) led by market share gains and the
companys focus on maintaining leadership on the product portfolio, supply chain and
distribution front (addition of more dealers). While the medium-to-long-term case for high
growth for decorative paints remains valid in a country like India where per-capita
consumption levels remain low, the urbanization trend is picking up and consumers are
incrementally trading up to premium products, in the near term the weak macro will weigh on
consumer spend on discretionary products such as paints. Being best in class in the paints
category, Asian Paints can expect growth rate of 15% in the coming two years.

Price of share

9509.9
461
966.067
4

Recommenda
tion

Buy

Firm Value

Market
Price

895.45

FCFF:

APV :

Recommendation:
The best in class quality product and strong distributor network will help Asian Paints in
growing at a very fast rate. Being a market leader, it can take advantage of economies of scale
and can capitalize on its strong brand value. And further, based on the FCFE Valuation, the
stock is undervalued and thus, the recommendation is BUY the stock.

Company Analysis - Shalimar Paints

Introduction & History - With a century-old legacy and rich heritage, Shalimar Paints is Indias
iconic paint-maker. Shalimar Paint Colour & Varnish Company was established in 1902 in
Howrah, West Bengal by two Britishers - A N Turner and A N Wright. In 1972 Shalimar went
public and in 1989, the company was acquired by the O.P. Jindal Group and the Hong-Kong
based S.S. Jhunjhnuwala Group.
Indias iconic structures like Rashtrapati Bhavan, Howrah Bridge, Vidyasagar Setu, Salt Lake
Stadium, continue to use Shalimar Paints. With access to high-end technology in the industrial
coatings segment, Shalimar Paints pioneered aviation coatings, marine paints and the painting of
thermal power plants.
In April 2013, Mr. Sameer Nagpal was appointed as the Chief Executive Officer of the company
and in August 2013, and he is helping the company get into the consumer segment like its rivals
Nerolac and Asian Paints. The reason is simple: the enterprise business is not growing while the
consumer business is booming.
Distribution Network - Shalimar Paints has a pan-India sales and distribution network. With 54
branches and depots, the company services more than 8,000 dealers across the country. Shalimar
believes that service is the key in paints business. For greater distribution efficiency and
improved customer service, the company has 5 distribution centres - in East (Howrah), West
(Bhiwandi and Ahmedabad), North (Ghaziabad) and South (Coimbatore) zones of the country.
With more regional distribution centres in the pipeline, Shalimar Paints is poised to provide
superior customer service all over India.
The tinting brand "Color Space", Shalimar offers more than 1,000 shades (The company has tie
up with the Degussa Coatings and colorants for supply of colorants). This will help the company
in increasing its retail customer segment base.
Manufacturing Facilities - Shalimar Paints set up South-East Asias first ever large-scale
manufacturing plant in 1902 in Howrah, West Bengal. As the company expanded its footprint
across India, it established its second manufacturing unit in Nashik, Maharashtra in 1992 to cater
to the Western region.With the growing demand from the Northern region, Shalimar Paints set up
its third manufacturing facility in Sikandrabad, U.P. in 2002. Both, decorative and industrial
paint products are manufactured at the plants.To serve the Southern market and strengthen its
decorative product portfolio, the company is setting up a greenfield plant in Chennai that will be
commissioned in 2015.
Products

Exterior Emulsion - Self Clean, Shaktiman Exterior Emulsion.

Interior Emulsion - Husain Premium Acrylic Emulsion

Enamel - Superlac Satin Enamel, Superlac Luster

Distemper - Premium Acrylic Distemper

Primers, Metal Primers, Putty, Cement Paints

Others

R&D R&D is of utmost importance if Shalimar Paints has to compete with the leaders such as
Asian Paints and the company is investing in a big way in R&D. Recognizing the importance of
R&D, the company set up its first R&D centre in Howrah, West Bengal in 1902. This centre
holds the distinction of being the first Indian in-house R&D unit to get recognized by the
Department of Scientific & Industrial Research (DSIR), Govt of India, in 1979. The company
pioneered industrial coatings technology in India with several industry firsts such as high build
zinc coatings, radiation resistant coatings for nuclear power plants, polyurethane paint for fighter
aircraft and railway coaches, among others.
To keep pace with the companys growth and expansion, it set up its second R&D centre spread
over 10,000 ft, in Nashik, Maharashtra in 2009. Equipped with world-class infrastructure and
manned by skilled talent, the R&D centres focus on:

Product and process innovations

Development and prototyping of innovative, environment friendly technologies

Creating new business opportunities by bridging technology and product gaps faster

Customization of Industrial Coatings products as per customer requirement

These R&D centers will help the company beat any existing or new competitors and also in
increasing its market share and margins.
Clients The Company has respected clients such as ONGC, Gammon, L&T, RIL, Punj LlOyd,
BHEL, Hyundai, Tata Steel and Indian Oil
Strategy The Company plans to expand to mid and premium range (of decorative paint) over
next 9-12 months. It is targeting to launch a new product every 3-4 months for next 2 years.
Shalimar is setting up a new decorative paint plant at Gummidipoondi near Chennai, when
completed would compensate for the lost the capacity at its Howrah plant due to fire.
The product introduction strategy is focused around water based products opposed to solvent
based and the introduction will be done in a phased manner. This is because solvent based
products are based on petroleum products and have low margins. It is beginning with entry level
as they have much wider reach and help build new connect with customers, dealers and painters.
The next change in line is related to the dealer and painter network. Dealer engagement affects
trade by 13 per cent, but painters are a paint company's mainstay. So firm is organising special
training for painters and carpenters and is trying to convince them through workshops that
Shalimar Paints is also worth considering for interiors. It is also working on a scholarship
programme for painters' children almost 51 per cent of people chose a particular company if it
is suggested by the painter.

The other thing that firm is working on is the distribution model as the competitive wars, these
days, are fought on supply chain front. Shalimar Paints through its dealers is present in 2000
towns, and right now sell directly to each and every dealer. It is creating a hub-and-spoke model
where for every city there will be one dealer and others will be sub-dealers.

Technical Analysis

The above figures show the latest information as on 14th august 2015 from yahoo finance.
The trend line shows a Primary down trend and since the volume is also not increasing, the
share price is expected to move a little lower before again turning up.
As MACD is also currently positive, the stock prices are expected to go a little lower before it
crosses its resistance levels.
Therefore the advice for very short term investors is to sell.

Fundamental Valuation of Shalimar Paints

Summary - At present the share is trading very near to its share price that I have calculated in
the most likely scenario. The company has huge amount of debt as compared to its peers. As a
result the interest cost is very high which results in a very high WACC. I can expect the company
to reduce its debt and interest payments in the future If it is successful in doing so and reduces its
WACC by 2020, the sensitivity analysis shows that the intrinsic per share value of the company
in that case can go up to Rs. 276.26.
Current Market Price 131.45 in NSE on 14th august 2015
This is the reason that I have given the hold advice for medium term investors and long term
investors.
Calculation of WACC Initially beta was calculated by using regression over the historical
prices. But as the R square value was low and as Damodaran recommends using fundamental
approach the beta was calculated using comparable firms. The company has huge amount of debt
as compared to its peers. As a result the interest cost is very high which results in a very high
WACC. As a result the WACC calculated is 15.32%.
Assumptions used for valuation
Assumptions used in calculating WACC 1. Tax Rate - 33%
2. Risk free rate 7.8% - taken from RBI
3. Risk premium- 9.05%
(http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html)
Growth Rate - The market for paints in India is expected to grow at 1.5 times to 2 times GDP in
the next five years. With GDP growth expected to be around 7% levels, the paint industry is
expected to grow at 12-13% annually over the next five years. The company is trying to
reposition itself, shifting its focus towards decoratives segment from the industrial segment. As a
result I expect that sales of the company will grow at higher rate than the industry and the
assumption taken is 14 % for next 5 years. From the 6th year the growth rate is expected to reduce
by 1% per annum to the terminal growth rate of 5.5% which is a little higher than the expected
GDP growth rate.
Operating expenses - As the decorative segment has more margins and company is expected to
reduce its costs by improving the processes also because of its increased bargaining power as its
size grows, the operating costs which are 93% are expected to reduce from fy2021 to 90% by
fy2027.
Depreciation & Amortization Based on the historical trend it is calculated as .88% and the
same figure is used for forecasts too.

Capital expenditure The capex on the basis of historical average comes out to be 1.75% and
the same has been assumed in the forecasts too as capex is required for high growth.
Working Capital The historical trend is very unstable with respect to change in working
capital. It has decreased in most of the previous years. I have assumed that Working Capital will
increase by 5 million per annum. Since the company is expected to grow at a high rate in the
future is almost certain that company will have to increase working capital to support the
expansion.
Relative Valuation There are various methods for relative valuation but I have used
EV/EBITDA and in the base scenario the share price comes out to be Rs. 136, which is very near
to the current price. This is another reason for giving the hold advice.

Recommendations summary
Long term investors - HOLD
Medium term investors - HOLD
Short term investors - SELL

Sources www.in.finance.yahoo.com
Bloomberg
www.asianpaints.com
www.bergerpaints.com
http://www.shalimarpaints.com/
www.indiainfoline.com
www.marketresearch.com
http://www.equitymaster.com
http://stockshastra.moneyworks4me.com/paints-indian-paint-industry-analysis-and-research-report2011/
http://www.dnaindia.com/money/report-shalimar-paints-plans-rs-100-crore-pe-fund-infusion-forturnaround-2026760
http://www.businesstoday.in/current/corporate/sameer-nagpal-to-change-shalimar-paints-into-moreconsumer-oriented-brand/story/205295.html