Target: ₹625
CMP:₹506.95
We believe, Sirca Paints Ltd (SIRCA), with its exclusive collaboration with Europe’s wood coating stalwart Sirca SPA, is well-positioned to capitalise on the long runway for growth of premium wood coatings market in India. As of FY25, this market is pegged at ₹10,000 crore and would grow at a CAGR of over 10 per cent the next 5-10 years in our view.
We believe there is a structural shift in wood coatings market, from formaldehyde based Melamine (₹3,000-3,500 crore market size as of FY25) to PU based products which are considered much safer. Transition to PU is also backed by increasing adoption of MDF in the furniture industry as melamine struggles with adhesion on engineered materials. Additionally, once architect driven, PU coatings, are increasingly becoming mainstream retail products.
We expect PU based segment to grow at a faster rate of 25 per cent due to these dynamics. Sirca by virtue of its strong presence in high quality PU based wood coatings, would be a key beneficiary of this shift away from Melamine. Sirca’s recent strategic acquisitions (Welcome, Wembley) expand its product portfolio breadth and customer base.
We use a DCF-based approach to value SIRCA. Our base case scenario TP is ₹625 and upside scenario (20-25 per cent probability event) fair value is ₹800 . Whereas, our downside scenario (15-20 per cent probability event) fair value is ₹360 (Bull-Bear Case).