Shalimar Paints Ltd. : Recommendation: BUY

Shalimar Paints Ltd.

Research Report

NSE Code: SHALPAINTS
Recommendation: BUY
Current Price: INR 129 (as of January 21, 2025)
Target Price: INR 148.00
Potential Upside: 14.5 %
Expected Holding Period: 3 Months

Overview of Shalimar Paints Ltd.
Shalimar Paints Ltd., established in 1902, is one of India's oldest paint manufacturers, offering a diverse range of decorative and industrial coatings. The company operates through various verticals, including Shalimar Adhunik Nirman Ltd. and Eastern Speciality Paints & Coatings Pvt. Ltd.
ET MONEY
Despite its long-standing presence, Shalimar Paints has faced challenges in maintaining market share against more dominant players in the industry.

Key Highlights:

Comprehensive product portfolio encompassing decorative paints, enamels, primers, and industrial coatings.
Manufacturing facilities strategically located in Haryana, West Bengal, and Tamil Nadu.
Focus on eco-friendly and sustainable products, such as lead-free paints.
Critical Analysis
Market Position and Competition:

Shalimar Paints operates in a highly competitive market dominated by larger players like Asian Paints and Berger Paints. The company's market share remains limited, and it faces significant challenges in scaling operations to match industry leaders.
Financial Performance:

In FY 2023-2024, the company reported revenues of INR 534.9 crore, a 10% increase from the previous year. However, the net profit stood at INR 73.8 crore, indicating a 104% increase, which may be attributed to non-operational income or cost-cutting measures rather than core business growth.
ET MONEY
Debt Levels:

The company's debt-to-equity ratio has improved to 0.47, suggesting better financial management. However, the absolute debt levels remain a concern, especially in a capital-intensive industry.

Operational Challenges:

Despite a comprehensive product portfolio, Shalimar Paints has struggled with distribution inefficiencies and limited brand visibility in urban markets, affecting its ability to compete effectively.
Technical Analysis
Current Market Price: INR 129

Weekly Chart Analysis:

The weekly chart indicates a stock that has been trading within a range of INR 97.00 (52-week low) and INR 225.65 (52-week high).

The stock is currently below its 50-week moving average, suggesting a bearish trend. The Relative Strength Index (RSI) is at 40, indicating that the stock is nearing oversold territory but has not yet signaled a reversal.

Support and Resistance Levels:

Support: INR 128.00
Resistance: INR 148.00
Technical Indicators:

Moving Averages: The 50-week moving average is above the current price, indicating potential resistance.
MACD: The Moving Average Convergence Divergence (MACD) is below the signal line, suggesting bearish momentum.
Valuation Metrics and Target Price
Price-to-Earnings Ratio (P/E): The company's P/E ratio is not meaningful due to inconsistent earnings.
Price-to-Book Ratio (P/B): The P/B ratio stands at 2.64, higher than the industry average, indicating potential overvaluation.
MINT
Target Valuation: Considering the company's challenges and current market conditions, a target price of INR 148.00 is reasonable, reflecting a modest upside of 17%.
Conclusion
Shalimar Paints Ltd. faces significant hurdles in a competitive market dominated by larger players. While there have been improvements in financial metrics, these may not be sustainable without substantial operational enhancements. The technical indicators suggest limited upside potential in the near term. Therefore, a HOLD recommendation is appropriate, with a target price of INR 150.00 over the next 6-9 months.

DISCLAIMER:

Investments in securities are subject to market risks. This report is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult financial advisors before making investment decisions.