Buy Shalimar Paints; target of Rs 800: Sunidhi Securities

Sunidhi Securities is bullish on Shalimar Paints (SPL) and has recommended buy rating on the stock with a target of Rs 800 in its August 28, 2012 research report.

“Shalimar Paints (SPL) is the oldest most well-known paint manufacturing company in India having an experience of over 100 years. Its first manufacturing plant was set up way back in 1902, which was the first large-scale paint manufacturing unit not only in India but also in the whole of South East Asia. Today, SPL is the 5th largest paint company in India after the likes of Asian, Berger, Nerolac & AkzoNobel. SPL is promoted Ratan Jindal Group and the Jhunjhunwala Group-who jointly own 62.8% in the company. Mr. Ratan Jindal is the promoter director on the Board representing the Jindal Group. His flagship company is JSL Stainless, which is India's largest integrated manufacturer of quality stainless steel and caters to more than 40% of the total demand for stainless steel in the country.”

“SPL has three manufacturing plants spread across Howrah (West Bengal), Nashik (Maharashtra) & Sikandrabad (UP). The multi-location facilities help the company to serve the entire length and breadth of the country efficiently.  As of today, the company has the capacity to manufacture 57,000 tpa. More importantly it has flexible manufacturing capabilities under which 80% capacity can be utilized either to manufacture decorative or industrial paints depending upon the market demand. The rest 20% capacity has rigid capability to produce only decorative paints. SPL’s growth in both the Decorative and Industrial segments has been in line with industry growth. It has launched a new premium exterior emulsion and there has been a good response from the market for this product. In the Industrial segment strong growth has come from the Protective Coatings segment where SPL continues to be one of the leading suppliers in the country.”

“SPL has entered into tie-ups with large industrial painting contractors and are taking up turnkey contracts, called Apply Supply Contracts, for both maintenance jobs and new projects. With a large range of products in the mass-market or economy category, Shalimar Paints is now moving up the ladder to premium and super premium categories.  The brand will focus now on the premium segment with new the launch of new product and will expand its presence in the high-growth markets such as south India. The manufacturing capacity will also be increased by over 50% by 2013-14, with a new facility in Chennai and expansion of the existing facilities.  At the CMP of Rs 558, the share is trading at a P/E of 11.3 xs on FY13E and 9.2 xs on FY14E. We recommend BUY with a target price of Rs 800 in the medium-to-long term,” says Sunidhi Securities research report.

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