Shalimar Paints Q3 FY26: Deepening Losses Signal Structural Crisis

The stock has been under severe pressure, trading at ₹62.51 as of February 12, 2026, down 47.34% over the past year and 52.50% below its 52-week high of ₹131.60. The company's descent into deeper losses comes despite a relatively stable top line, raising serious questions about operational viability and the sustainability of its business model in an increasingly competitive paint industry.

With promoter shareholding at 74.96% and a concerning 70.51% of shares pledged, institutional confidence remains virtually non-existent at just 0.07%. The company's proprietary Mojo score of 9 out of 100 and a "STRONG SELL" rating reflect the dire fundamental and technical outlook facing investors.

Financial Performance: A Spiral of Deterioration

Shalimar Paints' Q3 FY26 results paint a grim picture of a company struggling to maintain even basic operational viability. Net sales declined 1.85% sequentially to ₹131.33 crores, marking the lowest quarterly revenue in the past eight quarters. Year-on-year, the revenue contraction of 11.55% underscores weakening demand and market share erosion in a sector where peers have demonstrated resilience.

The operating performance deteriorated sharply, with operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) registering a loss of ₹10.59 crores, translating to a negative margin of 8.06%. This represents a sequential worsening from the 4.68% negative margin in Q2 FY26, indicating that cost pressures are intensifying faster than the company can adjust its operations.

Interest expenses continued their upward trajectory, reaching ₹7.05 crores in Q3 FY26, up 8.63% sequentially. Over the latest six-month period, interest costs have surged 22.87%, reflecting both increased borrowings and potentially higher borrowing costs due to deteriorating creditworthiness. The company's inability to service debt from operations has created a vicious cycle of mounting financial charges.

The gross profit margin stood at -16.35% in Q3 FY26, a significant deterioration from -7.05% in the previous quarter. This collapse in gross profitability suggests either severe pricing pressure, unfavourable raw material cost dynamics, or operational inefficiencies in manufacturing. The PAT margin of -20.29% represents the worst quarterly performance in recent history, highlighting the company's inability to generate positive returns at any level of the income statement.

On a nine-month basis for FY26, the company has accumulated losses of ₹57.56 crores on revenues of ₹419.70 crores, translating to a negative PAT margin of 13.72%. This compares unfavourably with the full-year FY25 loss of ₹80.00 crores on revenues of ₹599.00 crores, suggesting that the company is on track for another year of substantial losses despite a lower revenue base.

Operational Challenges: The Profitability Crisis

The most alarming aspect of Shalimar Paints' performance is the persistent negative return on equity (ROE) and return on capital employed (ROCE). The latest ROE stands at -22.64%, whilst the five-year average ROE is effectively 0.0%, indicating chronic value destruction for shareholders. This contrasts sharply with industry leaders like Asian Paints (26.01% ROE) and Berger Paints (21.37% ROE), highlighting the massive performance gap.

ROCE, calculated as EBIT minus other income divided by capital employed less cash and current investments, stands at -12.66% for the latest period. The five-year average ROCE of -10.49% demonstrates that this is not a temporary cyclical issue but rather a structural inability to generate returns above the cost of capital. The company has consistently destroyed value over an extended period.

The balance sheet reveals mounting stress. Total debt increased to ₹158.44 crores as of March 2025 (combining long-term debt of ₹20.36 crores with short-term borrowings embedded in current liabilities), whilst shareholder funds declined to ₹314.98 crores from ₹393.18 crores a year earlier due to accumulated losses. The debt-to-equity ratio has climbed to 0.50, with the nine-month period showing the highest debt-equity ratio at 0.67 times.

Working capital management has deteriorated significantly. Trade payables surged to ₹192.13 crores as of March 2025, up from ₹141.92 crores the previous year, suggesting extended payment cycles to suppliers—a classic sign of liquidity stress. Current liabilities of ₹354.91 crores exceed current assets of ₹355.29 crores by a razor-thin margin, leaving virtually no cushion for operational flexibility.

The Debt Trap: Rising Financial Burden

Cash flow analysis reveals the severity of Shalimar Paints' financial predicament. For FY25, the company generated negative operating cash flow of ₹58.00 crores, a dramatic reversal from the positive ₹17.00 crores in FY24. This means the company's core operations consumed cash rather than generating it, necessitating external financing to fund even day-to-day activities.

The company's closing cash position turned negative at ₹23.00 crores as of March 2025, down from a positive ₹21.00 crores the previous year. This ₹44.00 crore swing represents a bank overdraft or similar short-term facility, indicating acute liquidity stress. The company has been forced to rely on debt financing, with cash flow from financing activities contributing ₹27.00 crores in FY25.

Interest coverage remains deeply negative, with EBIT-to-interest averaging -2.88x over the past five years. In practical terms, this means the company has been unable to generate positive operating profits to service its debt, relying instead on asset sales, fresh equity, or additional borrowing to meet interest obligations. This is an unsustainable position that threatens the company's long-term viability.

The pledging of 70.51% of promoter shares raises serious governance and financial stability concerns. Such high levels of pledging typically indicate that promoters have exhausted other financing options and are using their equity stake as collateral for personal or corporate borrowings. Any significant stock price decline could trigger margin calls, potentially leading to forced selling and further price deterioration.

Industry Context: Lagging Far Behind Peers

The Indian paint industry has demonstrated resilience with market leaders posting healthy growth and maintaining strong profitability. Asian Paints, the industry bellwether, commands a ROE of 26.01% and trades at a P/E multiple of 56.57x, reflecting investor confidence in its sustainable competitive advantages. Berger Paints follows with a 21.37% ROE and 47.71x P/E, whilst even smaller players like Indigo Paints maintain positive profitability with 14.20% ROE.

Shalimar Paints' effective 0.0% average ROE and persistent losses place it in a completely different category—a distressed asset struggling for survival rather than a viable competitor. The company's market capitalisation of ₹529.00 crores represents a tiny fraction of Asian Paints' dominance, and the valuation gap is justified by fundamentals rather than market inefficiency.

The paint industry has faced headwinds from volatile raw material prices, particularly crude oil derivatives, titanium dioxide, and various resins. However, larger players have successfully passed through costs and maintained margins through pricing power, brand strength, and operational efficiency. Shalimar Paints' inability to do so suggests fundamental weaknesses in its competitive position, distribution network, or cost structure.

The company operates three manufacturing facilities in Chennai, Nashik, and Sikandrabad, with 48 sales depots across India. Whilst this represents reasonable geographic coverage, the infrastructure has failed to translate into profitable growth. The company's export presence in Nepal, UAE, Bhutan, and Seychelles remains marginal and has not provided meaningful revenue diversification.

Valuation Analysis: A Value Trap, Not a Value Buy

At first glance, Shalimar Paints' price-to-book value of 1.84x might appear reasonable compared to industry peers trading at 4.47x to 11.80x. However, this represents a classic value trap—the low valuation multiple reflects deteriorating fundamentals and value destruction rather than an attractive entry point. The company's book value itself is eroding rapidly due to accumulated losses, making even the current P/BV ratio potentially expensive.

The company's enterprise value-to-EBITDA multiple of -18.17x and EV-to-EBIT of -12.32x are meaningless metrics given negative profitability. These negative multiples simply underscore that traditional valuation frameworks break down for loss-making entities. The EV-to-sales ratio of 1.08x might seem modest, but it provides no insight into the company's ability to convert sales into profits.

The stock's 52-week range of ₹54.10 to ₹131.60 illustrates the dramatic loss of investor confidence. Currently trading at ₹62.51, the stock sits just 15.55% above its 52-week low and 52.50% below its high. The downward trajectory reflects deteriorating fundamentals rather than temporary market pessimism, with the technical trend classified as "Mildly Bearish" and showing no signs of reversal.

The company's overall valuation grade of "RISKY" accurately captures the investment proposition. This is not a turnaround candidate trading at distressed valuations but rather a structurally challenged business with no clear path to profitability. The absence of dividend payments since 2012 (last dividend of ₹2.00 per share) further illustrates the company's inability to generate shareholder returns.

Shareholding: Institutional Exodus Complete

The shareholding pattern reveals a complete absence of institutional confidence in Shalimar Paints. Promoter holding stands at 74.96% as of December 2025, unchanged over the past three quarters but down marginally from 75.73% in December 2024. The stability in promoter holding masks the concerning fact that 70.51% of these shares are pledged, indicating severe financial stress at the promoter level.

Foreign institutional investors (FIIs) hold a negligible 0.04% stake, up marginally from 0.01% in the previous quarter. Mutual funds have zero exposure to the stock, as do domestic institutional investors (DIIs) excluding insurance companies. Insurance companies maintain a token 0.03% holding, unchanged across quarters. The total institutional holding of just 0.07% represents one of the lowest levels in the listed universe.

Non-institutional investors (retail and non-institutional entities) hold 24.97%, essentially unchanged over recent quarters. This stable retail base likely includes long-term holders who are either unable or unwilling to exit at current depressed valuations. The absence of any meaningful institutional participation speaks volumes about professional investors' assessment of the company's prospects.

Stock Performance: Relentless Downtrend

Shalimar Paints' stock performance has been catastrophic across all timeframes, dramatically underperforming both the Sensex and the broader paint sector. Over the past year, the stock has plummeted 47.34% whilst the Sensex gained 9.85%, resulting in a negative alpha of 57.19 percentage points. The paint sector itself delivered positive returns of 3.19%, meaning Shalimar underperformed its industry by 50.53 percentage points.

The longer-term picture is even more dire. Over three years, the stock has declined 56.95% compared to the Sensex's 37.89% gain, producing a staggering negative alpha of 94.84 percentage points. The five-year return of -36.18% against the Sensex's 62.34% gain translates to 98.52 percentage points of underperformance. This represents near-total value destruction for long-term shareholders.

Recent performance shows no signs of stabilisation. The stock is down 9.08% over the past month, 19.00% over three months, and 14.95% over six months. Year-to-date returns of 1.31% provide no comfort, as this merely reflects the stock's position near multi-year lows. The stock trades below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—a technical configuration that typically signals sustained downtrend.

With a beta of 1.05, the stock is slightly more volatile than the market but has delivered consistently negative returns. The risk-adjusted return over one year stands at -1.00, with volatility of 47.31% compared to the Sensex's 11.44%. This high-risk, negative-return profile makes the stock unsuitable for any investor category—neither growth-oriented nor value-focused investors can justify exposure.

Investment Thesis: All Signals Point to Exit

The investment thesis for Shalimar Paints is unequivocally negative across all key parameters. The company's Mojo score of 9 out of 100 places it in the "STRONG SELL" category, with the proprietary algorithm identifying multiple red flags that collectively paint a picture of a company in severe distress with no clear path to recovery.

From a valuation perspective, the "RISKY" grade reflects not just expensive multiples but fundamental concerns about the sustainability of the business model. The quality assessment of "BELOW AVERAGE" is generous given the persistent negative profitability, with the company demonstrating weak long-term fundamental strength characterised by operating losses and chronic value destruction.

The financial trend is classified as "NEGATIVE" as of Q3 FY26, with key negative factors including quarterly PAT falling 35.70% versus the previous four-quarter average, interest expenses growing 22.87% over the latest six months, and debt-equity ratio hitting a high of 0.67 times. The technical trend remains "MILDLY BEARISH" with no signs of reversal, as the stock trades below all major moving averages.

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