Shalimar Paints Limited Q1 FY23 Earnings Conference Call Insights

Key highlights from Shalimar Paints Limited (SHALPAINTS) Q1 FY23 Earnings Concall

Q&A Highlights:

• [0:06:29.9] Darshil Zaveri from Crown Capital asked when does the company see its path back to profitability in terms of operating profit. Ashok Kumar MD said the company saw an EBITDA loss despite significant revenue growth. The loss is due to steep rise in oil prices impacting a lot of raw material prices. As RM prices are easing, SHALPAINTS should be back to profit.

• [0:08:22.1] Darshil Zaveri from Crown Capital enquired about the revenue target for FY23. Ashok Kumar MD replied the company is looking at growth. The aim is to always achieve higher growth from the previous quarter.

• [0:10:13.5] Darshil Zaveri of Crown Capital asked about the capacity utilization levels currently. Ashok Kumar MD answered that it is pretty low, at around 45-50%. The company has significant room to grow. However the basic constraint today is sales. But with efforts on to improve sales, capacity utilization should improve.

• [00:12:51] Mannan Patel enquired about the price hike taken by the company.  Ashok Kumar MD clarified that the company’s market share in the paint industry is about 1%. But price wise, SHALPAINTS is in line with the market leaders. SHALPAINTS added that its ability is limited to the extent of market leaders increasing the prices.

• [00:14:15] Mannan Patel asked how does the company see its RM cost grow from 72% level to the market avg. over a period of time. Ashok Kumar MD answered that the company expects its RMPM going forward closer to 70%. As a first point, SHALPAINTS is looking at decreasing RMPM from 73% to 70%.

• [00:18:39] Mannan Patel asked that by what time does the company see a significant scale up on the topline. Ashok Kumar MD replied that typically it takes around 11-12 months for a person to pick up pace. Since it’s only 3-4 months since it started, the scale up should happen in the 11-12 month timeframe.

• [00:19:39] Fedora Fernandes with Amplify asked if the company has any ad spend the company is planning to go ahead with. Kuldeep Keshari Marketing Director said the company firstly wants to substantially increase its market reach so as to be supported by these market initiatives. With better market penetration, marketing will be taken care.

• [00:19:50] Fedora Fernandes with Amplify also asked that with the crude oil prices subsiding, how it will impact the bottom line. Ashok Gupta MD replied that the impact at this time is around 6-7%. Going forward the company expects it to be reduced to 5% or so.

• [00:29:02] Aditya Deorah from Divisha Investments asked about the amount of capex used for improving efficiency of the plant. Ashok Gupta MD answered that of whatever capex the company does, 50% of it will go to the improvement of efficiency kind of activity so as to keep SHALPAINTS’ plants as efficient as its peers.

• [00:46:25] Mannan Patel asked about current dealer count. Ashok Gupta MD replied that there has been a turnaround in dealers. Out of the 3,500, the company has reduced the number of active dealers who were not performing by around 1,000-1,500. However, SHALPAINTS has also added 500-600 new dealers in 1Q23.

• [00:48:01] Mannan Patel enquired about competitive intensity on ground. Ashok Gupta MD said that with more players the competition will increase but also the market size will increase which is going to benefit all the players.

• [00:50:47] Vaibhav asked about the debt position after the funding infusion. Ashok Gupta MD said that total funding from equity and NCDs has been received in March. 25% of the total warrants were received in April. Of the total funding, SHALPAINTS have parked the amount in FDs. However there are some long terms loans and debentures; the interest is on account of those.