Scripscan:Shalimar Paints Ltd
code:509874
cmp:160
Story:If you see the paints sector, there are five major players there. The largest, of course, is Asian Paints ,which does a turnover of close to Rs 4080 crore and commands a marketcap of Rs 7500 crore. Then comes Nerolac Paints, Berger Paints, ICI and Shalimar Paints. If you see the valuation of these companies, there is a huge valuation gap between the fourth and the fifth largest player, even though there may not be such huge differences in the size of their business. Berger does a turnover of Rs 1500 crore and has a marketcap of Rs 1200 crore, while ICI does a turnover of close to Rs 1160 crore and has got a marketcap of Rs 1700 crore.Shalimar does a turnover of close to Rs 350 crore and has a marketcap of just Rs 60 crore. There is a huge valuation gap between the fourth and the fifth largest player in the sector, which I believe should narrow down.Not many people are aware of the fact that this is a company, which belongs to the Delhi-based Jindal group. This is a 100-year-old company, which was acquired by the Jindals along with an NRI investor in 1989. Since the company is 100 years old, it is sitting on assets, which are valued at historical cost.The replacement value of the assets would be many times more than the marketcap of the stock, which is at the number one position. Secondly, the huge differential in the marketcap, which is there between the fourth and the fifth largest player will narrow down.The main concern in this stock is that this company has got low profit margins compared to the industry. If compared, ICI does a profit margin of close to 11%, whereas Shalimar is just half of that. The main reason for the low profit margin is the scale of operations, but the fact is that there has been an increased realization in the company and it is doing everything to increase the profit margins, of course, without sacrificing the market share.As the profit margins increase,the valuation gap is going to narrow down. At the current price of Rs 160, one does not have much to lose in this stock, but if one hopes that the profit margins will improve in the near future, which the management is confident of, then one can see a much higher marketcap for this stock.
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Saturday, April 11, 2009
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