In This Article:
If you are a shareholder in Shalimar Paints Limited’s (NSEI:SHALPAINTS), or are thinking about investing in the company, knowing how it contributes to the risk and reward profile of your portfolio is important. Every stock in the market is exposed to market risk, which arises from macroeconomic factors such as economic growth and geo-political tussles just to name a few. This is measured by its beta. Not every stock is exposed to the same level of market risk, and the market as a whole represents a beta of one. Any stock with a beta of greater than one is considered more volatile than the market, and those with a beta less than one is generally less volatile.
View our latest analysis for Shalimar Paints
What does SHALPAINTS’s beta value mean?
Shalimar Paints’s beta of 0.5 indicates that the stock value will be less variable compared to the whole stock market. This means the stock is more defensive against the ups and downs of a stock market, moving by less than the entire market index in times of change. Based on this beta value, SHALPAINTS appears to be a stock that an investor with a high-beta portfolio would look for to reduce risk exposure to the market.
Does SHALPAINTS’s size and industry impact the expected beta?
With a market cap of ₹2.78B, SHALPAINTS falls within the small-cap spectrum of stocks, which are found to experience higher relative risk compared to larger companies. In addition to size, SHALPAINTS also operates in the chemicals industry, which has commonly demonstrated strong reactions to market-wide shocks. Therefore, investors may expect high beta associated with small companies, as well as those operating in the chemicals industry, relative to those more well-established firms in a more defensive industry. This is an interesting conclusion, since both SHALPAINTS’s size and industry indicates the stock should have a higher beta than it currently has. A potential driver of this variance can be a fundamental factor, which we will take a look at next.
Is SHALPAINTS’s cost structure indicative of a high beta?
During times of economic downturn, low demand may cause companies to readjust production of their goods and services. It is more difficult for companies to lower their cost, if the majority of these costs are generated by fixed assets. Therefore, this is a type of risk which is associated with higher beta. I examine SHALPAINTS’s ratio of fixed assets to total assets to see whether the company is highly exposed to the risk of this type of constraint. With a fixed-assets-to-total-assets ratio of greater than 30%, SHALPAINTS appears to be a company that invests a large amount of capital in assets that are hard to scale down on short-notice. As a result, this aspect of SHALPAINTS indicates a higher beta than a similar size company with a lower portion of fixed assets on their balance sheet. This outcome contradicts SHALPAINTS’s current beta value which indicates a below-average volatility.