JK Cement slips 9% on board nod for Rs 600 cr investments in paint venture

In the past one month, the stock price of JK Cement has tanked 28 per cent on concerns of earnings downgrade due to rising energy cost.

Shares of JK Cement slipped 9 per cent to Rs 2,395, also its fresh 52-week low, on the BSE in Monday’s intra-day trade after the company said its board approved an investment of Rs 600 crore into the paint venture, which will be infused over a five-year period.

The board has considered/ approved entering into Paint business through a wholly-owned subsidiary, formation of new wholly owned subsidiary and investment in the said wholly-owned subsidiary (WOS), JK Cement said in an exchange filing on Saturday, March 5, 2022.

The WOS would undertake manufacturing, selling, trading, importing and exporting and otherwise dealing in all types of paints and allied products and services, the company said.

While the magnitude of investment is not so large to have a meaningful impact either on the balance sheet or in revenues at least for the next two to three years, this new line of business would certainly help diversify its product portfolio and expand its revenue stream in the long term with the help of its existing distribution network, ICICI Securities said in a note.

Meanwhile, in past one month, the stock price of JK Cement has tanked 28 per cent on concerns of earnings downgrade due to rising energy cost. In comparison, the S&P BSE Sensex was down 8 per cent during the same period.

Apart from higher coal/ petcoke prices, the recent increase in crude prices/ ocean freight rates may further put pressure on operating cost for the cement industry. Higher crude prices may lead to a rise in diesel price, which will lead to higher freight costs (a 5 per cent change in diesel price to impact opex by around Rs 20/t), analyst at Motilal Oswal Financial Services said in cement sector update. In the current scenario, the brokerage firm expects companies with stronger balance sheets to perform better than leveraged companies.