JK Lakshmi Cement stock has tanked nearly 9 per cent in the last one month, and 26.22 per cent so far in 2022. Going ahead, Axis Securities sees 35% upside potential on the stock.
JK Lakshmi Cement share price fell nearly 3 per cent on Wednesday after the company shared its plans to foray into business. It is setting up a plant to manufacture decorative paint with a total capital investment of Rs 600 crore to be invested over a period of 5 years. Since the company has a very good presence in Wall Putty business in its core market, it would not go for price discounting to clinch market share. “The paint business would also support the putty business moving ahead,” said Axis Securities. Domestic brokerage firm also added that the company’s foray into the paint business should be viewed from a long-term perspective.
JK Lakshmi Cement stock has tanked nearly 9 per cent in the last one month, and 26.22 per cent so far in 2022. Going ahead, Axis Securities sees 35% upside potential on the stock. The shares of JK Cement were trading at Rs 430, up 2.6 per cent on the Bombay Stock Exchange.
Paint biz first-year revenue expected at Rs 100-150 crore
JK Lakshmi Cement’s paint business would be commissioned in April 2024 with the first-year revenue expected in the range of Rs 100-150 crore. Initially, the company will focus on developing the paint business in its core market of North and Central India by targeting tier 3 and 4 cities. The company indicated to have a balanced approach while gaining market share in both the organised and unorganised parts of the business.
Aims to target 9-10% of its core market: The current size of the paint industry In India works out to be between Rs 55,000-60,000 Cr and its core market accounts for 20-25% of the same, noted Axis Securities. The company aims to target 9-10% of its core market to establish itself over some time. It is targeting an EBITDA margin in the range of 15-16% from the paint business moving ahead.
JK Cement well-placed to leverage existing dealers network, presence in Wall Putty biz to augment paint’s business
Axis Securities in its note said the company’s foray into the paint business should be viewed from a long-term perspective. “The company is well-placed to leverage its robust existing dealers network and strong presence in Wall Putty business to augment the paint’s business. The company’s capital commitment is in line with its aspiration to become the leading regional player in its core markets and we expect significant benefits to accrue over a long period of time,” it said.
The company has a network of around 60,000 dealers and it aims to utilise 70% of this existing network besides building a new dealers network for the paint vertical. The company wants to be the regional player in the paint business with a keen focus on North and Central India
JK Lakshmi Cement stock rating: BUY
Target price: Rs 3,100; Upside: 33%
Axis Securities expects the impact of higher costs in the cement business to contract margins. Cement demand is expected to be good. We estimate the company to register Revenue, EBITDA and PAT CAGR of 12%, 15% and 21% respectively over FY22-24 as a new capacity of 4 mntpa would get commissioned in Central India by the end of FY23. The brokerage has maintained ‘Buy’ rating on the stock with a target price of Rs 3,100/share, implying an upside of 35%.
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