Target: ₹3,150

CMP: ₹2,271.40

JK Cement (JKCE) hosted a conference call to discuss its recently announced foray into the paints business. Here are the key takeaways:

JK Cement plans to invest ₹600 crore in the decorative paints business over the next five years. It aims to be a regional player (focus only on North and Central markets) with an initial capacity of 60,000KL in Uttar Pradesh to start by Apr’24.

The company will spend ₹300 crore on the plant and equipment, and the balance on branding, working capital and funding losses in the initial years. The annual outgo on the paints business will be capped at 8-10 per cent of EBITDA of the existing business.

Subsequent investments will be funded via internal accruals of the paints business.

JKCE targets revenues of ₹100-150 crore in the first year (FY25) and expects to grow at the same run rate each year.

JKCE will set up a new team, which will be led by the current head of the white cement business. We have not incorporated the paints business into our estimates yet. The paint business will still be relatively small portion of the company and constitute less than 5 per cent of revenue, EBITDA and capital employed over next few years.