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JK Cement To Enter Paint Business; Shares Tank Over 11%

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JK Cement plunged as much as 12.32 per cent to hit a 52-week low of Rs 2,313.20.New Delhi: Cement manufacturer JK Cement has announced its foray into the paint business.

The company's board had met on Saturday and cleared the proposal to enter the paint sector with an investment of Rs 600 crore infused over a period of five years.JK Cement will enter the paint business through a wholly-owned subsidiary.The share of the cement manufacturer plunged as much as 12.32 per cent to hit a 52-week low of Rs 2,313.20 during intraday deals on Monday.

Though, the stock settled 11.50 per cent lower at Rs 2,334.90 on the BSE index.JK Cement cracked 11.31 per cent to close at Rs 2,341.20 on NSE.Here's What Brokerages Said:Kotak Institutional Equities: "Strong volume-led growth potential, pricing power, improving return ratios (notwithstanding near-term inflationary pressures), and high valuations of the decorative paints industry have attracted three new players (JSW group, Grasim and now JK Cement) in recent years.

The company has some access to the paints dealer network through putty distribution; however, it won't be easy to establish itself in decorative paints in view of rising competition and inherent challenges.

Consumers' trust in existing brands and an infrequent purchase cycle makes it difficult for new entrants to gain share in mid-to-premium emulsions that command the bulk of the profit pool.

We expect JK Cement to scale up gradually at best."Emkay Global Financial Services: "The paint business via wholly-owned subsidiary would undertake manufacturing, selling, trading, importing - exporting, and otherwise dealing in all types of paints and allied products and services.

The creation of a subsidiary should enable a singular focus on the paint business.

JK Cement is aiming to produce various products (including value-added) and targets revenues of Rs 850 crore in the next five years.

We believe that the establishment of a management team, the creation of stronger brand equity and investment in tinting machines remain key challenges.

We have a 'Hold' rating on the stock with a target price of Rs 3,150.

We have not incorporated the paints business into our estimates."




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