Axis Securities Places Buy On This Multibagger Midcap Cement Stock, Shares Likely To Surge In 2023

Stock Outlook & Returns

The stock last traded at Rs 3,026.15 apiece on NSE, gaining 3.34% as compared to its previous close. Its 52-week low level is Rs 2,003.70 apiece and its 52-week high is Rs 3,659.25 apiece, respectively. 

The stock in the past 1 week has fallen 1.53%, and in the past 3 months, it surged 19.15%, respectively. It gave 11.96% negative returns in the past 1 year. However, in the past 3 years, it has given 160.92% multibagger returns, and in the past 5 years, it gave 179.12% multibagger returns, respectively.

The company to acquire Acro Paint Limited

JK Paints and Coatings Ltd., (a wholly owned subsidiary of JK Cement Ltd.) has entered into a share purchase agreement with Acro Paints Ltd. and its shareholders to acquire a 60% controlling stake in the company for Rs 153 Cr. The balance 40% shall be acquired over 12 months as per the definitive agreement entered between the two parties. Acro Paints is a leading manufacturer of Architectural and High-performance paints and coatings in Northern India. 

Paint manufacturing capacity

Situated in Bhiwadi (Delhi-NCR region), the company has two state-of-the-art manufacturing facilities with a post-expansion capacity of 60,000 Kilo Liter (KL) in decorative & textured paints and 6,700 KL in construction chemicals. The ongoing capacity expansion is expected to be completed by Q2FY24.

Exposure to a complete range of paints including construction chemicals

Acro Paint Limited has a wide product portfolio with having presence in all categories - Economy, Premium, and Luxury with 3,000 SKUs at various price points. The acquisition will also provide an opportunity to foray into the growing vertical of construction chemicals & waterproofing products which has a current market size of 5000+ Cr, growing at over 10% per annum.

Strategy to augment Paint business

The company aims to achieve a turnover of Rs 400 Cr in the next 3-4 years and will incur further Capex to augment the Paint business The management has earlier indicated incurring Capex of Rs 600 Cr for the Paint business out of the internal accruals in the next 5 years and current acquisition is in line with the management strategy to build a paint business in its core market of North India. The management also indicated to deepen its presence in its strong markets over the next few years and has identified specific geographic, product, and channel niches for future expansion.

Leveraging White Cement and Wall Putty business

The company intends to leverage its White Cement and Wall Putty business by foraying into the paint business as these businesses are complementary to each other. It has over 1,00,000 dealers, 75,000 influencers, and 1,500 distributors. Along with Acro's distribution network, this deep network will enable the company to reach a wider market, ensuring ready accessibility to customers in the region.

Acro's Financial

The company recorded revenue of Rs 78/78/89 Cr in FY20/21/22 with EBITDA margins ranging between 5-6%. The current utilisation level stands around 50%. In FY23, it is expected to report revenue of Rs 100 Cr. JK Cement has acquired the business at 2.8x of FY22 sales.

Outlook & Valuation

According to the brokerage, The company's foray into the paint business should be viewed from a long-term perspective. With both Wall Putty and Paint businesses having common attributes and influential networks, the paint business is expected to complement and support the growth of the Wall Putty business moving forward. Besides, the company is well-placed to leverage its robust existing dealers network and strong presence in the 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.

The brokerage said, "JK Cements is currently trading at 17x and 12x FY23E/24E EV/EBITDA and we estimate the company to register Revenue/EBITDA/PAT CAGR of 19%/23%/23% over FY22- FY24E. We maintain our BUY rating on the stock and value it at 13x FY24E EV/EBITDA to arrive at a target price of Rs 3,350/share (unchanged), implying an upside of 14% from the current levels."

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.