The agency has also affirmed the company’s short-term rating at ‘CARE A3’.
CARE Ratings stated that the reaffirmation of ratings assigned to the bank facilities of Shalimar Paints (SPL) continue to derive strength from the strong financial support demonstrated by its promoter, Hella Infra Market Private Limited (Hella) and other two promoter group companies, Virtuous Tradecorp Private Limited (VTPL) and JSL Limited (JSL), as evident from significant equity infusions made in SPL so far, thus boosting its liquidity position and improving overall financial risk profile.
The ratings also continue to derive strength from SPL’s long track record of operations, experienced management, established brand name and dealer network, its presence across different locations and satisfactory capital structure.
The ratings further take cognizance of the volume driven growth in scale of operations in FY24 (refers to the period from April 01, 2023, to March 31, 2024) and H1FY25 (refers to the period from April 01, 2024, to September 30, 2024).
The ratings, however, continue to remain constrained by the continued losses at operating level, weak debt coverage indicators, working capital-intensive nature of operations, vulnerability of margins to volatility in raw material prices derived from crude prices, high competition in paints industry and limited pricing flexibility.
The ratings also take cognizance of the sustained losses at operating level reported in H1FY25. The losses reported were largely on account of the strategic decisions taken by SPL’s management during last fiscal year, for deploying more marketing teams and increasing the number of warehouses and sales depots, to increase the market penetration. This however, resulted in increase in the costs of employees, sales and marketing in FY24 and H1FY25.
Going forward, SPL’s operating margins are expected to improve in near-to-medium term, largely owing to the various cost control measures initiated by the management and also supported by volume led consistent growth in topline.
Shalimar Paints is engaged in the manufacturing of wide range of paints, in both decorative and industrial paints. The decorative paints are generally used for painting of domestic, office and other buildings, while industrial paints and coatings cater to the protective coatings and product finishing sectors.
The scrip had ended flat at Rs 128.05 on the BSE on Friday.