Shalimar Paints Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Shalimar Paints Limited (SHALPAINTS) Q3 FY22 Earnings Concall

Management Update:

• The company said it has been able to enter into an agreement with an investor who has agreed to invest some funds in the organization by way of equity and debentures. With this fund, SHALPAINTS expects working capital problem to be over, with increased sales revenue and reduced cost.

Q&A Highlights:

• Abhishek Jain from Arian Capital asked when the company will be EBITDA positive. Ashok Kumar Gupta MD replied that as far as EBITDA is concerned, the company expects the fund flow to happen by Feb end and from March, the company will try to be EBITDA positive.

• Abhishek Jain from Arian Capital also asked about larger players entering its markets and SHALPAINTS position relative to it. Ashok Kumar Gupta MD said that SHALPAINTS has a market share of 0.5% and is only looking for a share of 1-1.5% in the market going forward. Therefore, with larger players coming in, the impact on the company will be limited.

• Venkat of 3Sigma Financials enquired about the earlier rights issue and the additional funds not really helping scale the business. Ashok Kumar Gupta MD replied that on the first rights issue, the company was looking for more funds, and were able to hardly collect INR200 crore. Before COVID, the company was EBITDA positive but when COVID struck, there was no revenue and expenses continued. Also, raw material prices went up 40-50%.

• Venkat of 3Sigma Financials asked about the role of partner in the new transaction. Ashok Kumar Gupta MD answered that the partner is taking part in equity; they’re becoming a equity partner. In addition, they’re also a large distributor of construction materials. So they are supplying today to over maybe 700, 800 projects. They have a big customer base and one of the leading players in ready-mix, concrete and steel and cement. The partner has also shown interest in keeping the company’s products in their showrooms.

• Venkat of 3Sigma Financials also asked if they will be asking for a Board seat or be part of management. Ashok Kumar Gupta MD said that they asked for one board seat, which the company has agreed. And secondly, they have asked for a change of auditors in years to come. And they want one of the top 6 auditor firms to be appointed as auditors.

• Aditya Deora from Divisha Investments asked about the company’s priority with respect to capital allocation. Ashok Kumar Gupta MD replied that its plan is of about INR40-50 crores in capex, but still working on it. The company will be spending some amount on the tinting machine, also spending some money on R&D and marketing. So it’s a small amount of money in different essential pockets. The rest of the money will be taken for the working capital purposes. And from the profit, expand further.

• Aditya Deora from Divisha Investments asked how many stores does Infra.Market has in retail right now. Ashok Kumar Gupta MD said that currently they have limited stores. Owned stores are limited to 15-20 but there are large numbers of dealers, probably in thousands. The owned stores, Infra.Market is trying to increase to 100 stores.

• Aditya Deora from Divisha Investments asked about the revenue share from this new channel of Infra.Market. Ashok Kumar Gupta MD commented that in days to come it will gradually increase. But in the initial year the company expects it to be limited to 5-10% and second year 20-25%.

• Sourabh Jain with Exchange4solar enquired if the company has started some sales to Infra.Market. Ashok Kumar Gupta MD said the company has done some concept testing but sales per say will start to happen once the funds come, which is expected in few days. Post that, the company will be doing sales in a formal manner.

• Abhishek Jain with Arian Capital asked how much price hike the company has taken on a YoY basis. Ashok Kumar Gupta MD replied that the company has already taken a price hike of 13-14% on a YoY basis.

• Abhishek Jain with Arian Capital also asked that three years down the line what kind of topline and EBITDA the company is looking at. Ashok Kumar Gupta MD answered that with the infusion of the recent capital and partnership with Infra.Market, the company expects to touch the number of INR1,500 crore in 3-years time. And EBITDA of around 8-10%.