Shalimar Paints is likely to grow at a CAGR of 10.3 percent on a conservative basis during FY14E-FY16E on the back of rising paints demand, targeting tier II and III cities, expansion of distribution network, introduction of new products, penetration of newer geographies, focus on value added products, inventory management and capacity addition. It is currently trading at 8.1x its FY16E EPS of Rs 11.2. We believe that Shalimar Paints will be able to maintain its H1FY14 EBITDA margin of 8.5 percent going ahead on account of stable rupee, improving product mix, two price hikes & reduction in dealers discounts in H1FY14. Its revenue has grown at a CAGR of 12.9 percent in the last four years to Rs.5,301.8 mn in FY13. Considering the past performance & future growth potential, we recommend ‘BUY’ for the stock with a price target of Rs.124 (11x its FY16E EPS). We feel that it is a value buy as it is trading at a significant discount to its peers.
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