In an interview to CNBC-TV18, Surender Bhatia, MD of Shalimar Paints said that the promoters neither have any plans to divest or sell stake in the company nor are in talks for any acquisitions. Below is the verbatim transcript of Surender Bhatia’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy. Anuj: First thing first your stock has rallied a lot. In market there was some buzz of some kind of potential takeover. Is there something there in which there is some bit of truth that the promoters of Shalimar Paints might be looking for a bit of an exit?
A: Let me clarify that promoters are very much with Shalimar Paints and there is no plan to divest any of the equity of the promoters. I want to make it clear, so there is no plan of selling or divesting, so they are very much with the company and they will support more and more.
Sonia: You all are not in any conversation with any potential investors either, no talks happening currently?
A: Not at all.
Sonia: Can you tell us a little bit about the growth picture for the company because in the quarter gone by your growth has matched some of your larger peers like Asian Paints. In quarter one (Q1) itself you have seen a growth of around 12.50 percent in your revenues while other companies like Asian Paints have grown about 10-11 percent. Is this a growth that is sustainable though the year and what do you think is leading to that?
A: The Q1 for Shalimar was little slow. However, in coming quarters we should have better growth than this.
Latha: How would you expect the margins to perform? Is the best of raw material reductions behind us or do you think that you can still improve on both gross and operating margins?
A: If you see margin for us depends on three things – one is crude prices, second is INR to US dollar because we import some of the raw materials. So, if rupee is weakening, our import prices will be up and third, we are with the market so whenever crude reduces, we pass on some of the price reduction to the market. So, it is not totally dependent on crude; crude is the major impact but we pass on and also INR versus USD impacts our margins. Latha: Your guidance for margins this year would be 35 percent maintainable?
A: Yes. Right now it looks very positive.
Latha: I wanted to hear a little bit about your product mix as well. You have a lot in terms of distemper but other value added products are also there. Can you give us your breakup and how it might look say in the second half when the big Diwali demand starts?
A: We have introduced four new products in decorative segments and most of these were introduced in March 2016. The impact will start coming. Our products are placed with our channel partners and then it is going to the secondary market. Therefore, for Diwali season it will help us a lot. Now we have full range from luxury, mid market to commodity. So, all these three segments will help us and it will help us to grow our sale.
Anuj: Let me get back to the question that Sonia asked you because that question was pertinent because over the last five or ten years you have underperformed your peers by quite a margin in terms of your topline, CAGR or compounded annual growth rate. However, this quarter has looked good. Could this be start of something bigger for a company like Shalimar Paints?
A: We realised where we are lacking in respect to the market, so one was the product range; the second was the brand equities. If you see last year we started advertising on FM and radios and this year we are with TVC and radio again.
Shalimar is well-known brand but we realised that we need more promotion, so that is why we are investing a lot on the brand equity.
Sonia: If you have to give us an estimate for what the growth could look like for the next couple of years. In FY16 you are sitting on a base of around Rs 400 crore of revenues. How much do you think it could grow to say over the next two to three years?
A: If you see like normally we don’t discuss the figures but mid double digit CAGR for next four to five looks feasible.
Sonia: Are we looking at about Rs 550 to 600 crore? Even if we take mid double digits, suppose you take 13 percent growth next year then that would mean about Rs 550 to 600 crore of revenues? Is that something that is doable?
A: I am saying mid double digit is between 10 and 20. So, I am saying around 15 percent CAGR.
Latha: I have two quick questions – First what is your market share and your actual capacity and capacity utilisation?
A: If you see we are right now operating at around 80-85 percent capacity. However, we have come up with new plant in Chennai which was under testing so now we will be fully operational in that and it will increase our presence in south and we will supply from there to east also.
Latha: I have a slightly troubled question to ask you; well not troubled may be it is even positive. There repeatedly are rumours that the promoters will look to sell out? Can you give us any idea of what is on the promoter mind? Jindal’s have the maximum, right - 30 percent?
A: Yes, around 33 percent; I think this was the first question also and I have already replied. The promoters want to be invested in Shalimar Paints and they are very enthusiastic about Shalimar and it will continue.
Sonia: I wanted to get back to what the demand situation is looking like, not so much in the tier I cities but in tier II and tier III cities? Where are you seeing the maximum pick up and how does it look for the next say three to six months?
A: This year looks very positive because normally if you see paint industry grows one-and-a-half to two time of gross domestic product (GDP). This year looks more balanced like if you see in urban area the disposable income with households is increasing with 7th pay commission and other thing and at rural area or mid cities, we can see like monsoon is very good this year and economy is upbeat, so I am very positive about this year and future years.
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