JK Cement share price tumbles 5% day after company announces to foray into the paints business

JK Cement Share Price: Shares of JK cement cracked nearly 5 per cent today, December 23, a day after the company announced its foray into the paints business. The company informed that it has purchased 60 per cent stake in Rajasthan-based Acro Paints in a Rs 153 crore deal. 

The stock quoted Rs 2874.60 apiece on NSE, down 5 per cent from previous close of Rs 3039.45, tracking weak sentiments in the domestic equity market. 

Brokerage firm Jefferies in its report maintained a buy call on JP Cement even as it noted that the decision to enter into the paint business will be challenging.

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In another report, brokerage firm Citi said that JK cement is in-line with its plan to invest Rs 600 crore over 5 years into the paint business. Further raising concern, the report said that there is elevated and rising competitive intensity is an issue and execution will be key. 

Acquisition details

JK Cement's wholly-owned subsidiary JK Paints and Coatings Ltd has entered into a share purchase agreement with Acro Paints Ltd and its shareholders to acquire a 60 per cent controlling stake in the company.

The remaining 40 per cent shall be acquired over a period of 12 months as per the definitive agreement entered between the parties, a joint statement said.

Acro Paints has two manufacturing facilities, which are currently going through capacity expansion and are expected to be completed by Q2 FY24. Post-expansion, it will have a capacity of 60,000 KL in decorative and textured paints and 6,700 KL in construction chemicals, it said.

Acro's promoters Charanjeet Gaind and Ashok Gaind would continue for the next one year, which will provide an opportunity to gain from their experience, the statement said.

According to a report from Statista, a provider of market and consumer data, Asian Paints was the leading company in 2020, with a market share of about 39 per cent. In the organised sector, Asian Paints led the decorative market segment, while the industrial segment was led by Kansai Nerolac.

In 2019, JSW Group announced its entry into the paints business. Aditya Birla Group firm Grasim Industries is also entering the space by investing around Rs 10,000 crore.

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