Cement producer JK Cement Ltd on Saturday introduced its entry into the paints enterprise by way of a wholly-owned subsidiary. The corporate is trying to make investments ₹600 crore over the primary 5 years and goals to clock revenues of ₹850 crore throughout the identical interval.
On Monday, shares of the corporate fell almost 6% to hit a 52-week low of ₹2,478.05 on the Nationwide Inventory Trade in opening offers. Whereas India’s paint trade is estimated to be solely 50% penetrated, given the excessive entry boundaries and cut-throat competitors, making a mark might be simpler stated than executed for a brand new entrant.
Other than these, it additionally raises capital allocation considerations for the corporate.
Analysts at ICICI Securities Ltd word that there’s a likelihood of minor Ebitda loss within the preliminary years within the paints enterprise, therefore there might be an general RoCE-dilutive influence. Ebitda is brief for earnings earlier than curiosity, tax, depreciation and amortization. RoCE stands for return on capital employed.
“In FY14, JKCE had invested round ₹800 crore in white cement enterprise outdoors India in Fujairah, UAE, and that enterprise continues to be incurring loss at web stage with the corporate making cumulative impairment provision of round ₹320 crore for FY20-FY21,” stated the ICICI report on 7 March.
What’s extra, analysts at Motilal Oswal Monetary Providers are of view that the corporate could also be required to pump in additional funds to compete with current and new entrants comparable to Grasim Industries, which has dedicated to speculate ₹5,000 crore in its paints enterprise.
“Investments of JK Cement might be at a a lot decrease scale versus Grasim and we consider that its presence might be restricted to north/central areas. Entry on this section at such a decrease scale doesn’t make a lot enterprise sense at a time when competitors is more likely to intensify,” the home brokerage home stated in a report on 7 March. Traders would reckon that Grasim goals to change into the quantity two paint firm when it comes to revenue.
Supply: Live Mint