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ICICI Securities Report
JK Cement Ltd. announced its plan to diversify into paint business and invest up to Rs 6 billion in it over the next five years. It plans to leverage its strong -
JK white cement / putty brand,
50,000 plus distribution network of white cement / putty dealers (large portion of which also sells paints), and
longstanding relationship with real estate developers.
While the company's diversification into paint business may raise capital allocation concerns (given many entry barriers, heightened competition and probability of minor Ebitda loss in the initial years), it may provide steady-state growth / stable income over the medium term, in our view.
Besides, paint is still likely to remain a relatively small business for JK Cement and constitute less than 5% of capital employed, revenue and Ebitda over the next five years.
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