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Paint peels off, grim picture emerges
Shalimar cries lack of cash

Calcutta, July 17: Available financial data of Shalimar Paints and the funds requirements cited by the company suggest the suspension of work at the Howrah plant may have partly been caused by Bengal’s inability to project itself as the first choice for investments.

The company said today that it required Rs 60 crore to rebuild the Howrah unit, but it neither had the internal resources nor the borrowing power to arrange such an amount.

Although Shalimar, which commands only 2.01 per cent of the paint market, posted a Rs 2.8-crore loss last year, it had made a Rs 11.01-crore profit the year before. Even though the eastern region contributes only 10-12 per cent of the Indian paint mart, Shalimar has a bigger pie in this base, generating 30 per cent or nearly one-third of its business from here.

As long as Shalimar was making profits, it appeared to have stayed under the radar of the latest owners — Hong Kong-based Girish Jhunjhunwala and Delhi-based Ratan Jindal. Paint is not the core business of either of the promoters. While Jhunjhunwala’s mainstay is real estate, Jindal, brother to Sajjan and Navin Jindal, owns Jindal Stainless Ltd that manufactures steel.

However, once the loss kicked in and a fire earlier this year demanded fresh investments, the company appears to have taken a hard look at the options.

Industry sources unrelated to the company suggested — on the basis of the Rs 60-crore requirement mentioned by Shalimar — that it might have felt that places outside Bengal could be a better option for the investments if the promoters managed to raise the money. However, company officials rubbished such suggestions and said they remained committed to Bengal.

The sources said the Howrah plant had not been a loss-making unit although it had been plagued by high costs and outdated technology. Forty per cent of its production used to be the high-margin specialised industrial paints.

Shalimar has now started producing the same paint at its other two plants at Sikandrabad, Uttar Pradesh, and Nashik, Maharashtra, where the overall cost is lower than Howrah, mainly because they are relatively modern.

As a consequence, there may not be a big incentive for the company to restart operations in Howrah where cost is also high, especially when working on a shoe-string budget.

However, the company said closure of the Howrah unit had impacted its business not only in Bengal but across India. “The Howrah plant was supplying products across India and not just to the eastern region. This has impacted our sales across India, putting further strain on our resources,” said a company spokesperson.

Industry observers said the chances of reviving the Howrah factory were bleak unless the promoters pumped in fresh funds.

“The estimated funds requirement to rebuild the plant at Howrah is around Rs 60 crore. Last year, the company suffered a loss of Rs 2.8 crore and it does not have the funds to invest in re-building the plant. We have reached our borrowing limits with banks and the company does not have further capacity to borrow,” the Shalimar Paints spokesperson said.

Shalimar’s balance sheet reveals that its long-term borrowing shot up to Rs 13.45 crore in 2013-14 from Rs 7.05 crore in 2012-13. Short-term borrowing (working capital) increased to Rs 96.50 crore in the last fiscal from Rs 81.05 crore in 2012-13.

Although the balance sheet shows that its reserves and surplus were Rs 73.31 crore, a Shalimar official said: “There is no free reserve. The reserve is deployed in the working capital of the company and fixed assets such as plant and machinery.”

The finance cost (mostly interest paid on borrowings) of the company was Rs 20.97 crore in the last financial year against Rs 16.58 crore in 2012-13, putting additional burden on the already stretched balance sheet. Revenues dipped from Rs 501.67 crore in 2012-13 to Rs 483.05 crore in the last financial year.