Shares of JK Cement Ltd. fell the most in two years as analysts raised concerns about the company’s “aggressive” investment plan to enter the paints business.
JK Cement’s wholly owned subsidiary will make, sell, trade, import and export of all types of paints and allied products, the company announced on Saturday. It plans to invest Rs 600 crore into the new business over the next five years.
New players struggle to scale up in the paints business due to high entry barriers, according to analysts from ICICI Securities, Emkay Global and Kotak Institutional Equities. That may raise capital allocation concerns.
Consumer preference for existing brands and infrequent purchase cycle could also make it difficult for JK Cement to gain share in the mid-to-premium emulsions business, they said.
Investment plans are “aggressive” as the land acquisition and regulatory clearances are pending, analysts said.
Shares of JK Cement fell by 12%, the most in nearly two years since March 2020. Trading volume on the stock was nearly six times the 30-day average volume at this time of day.
The relative strength index on the stock was at 16, suggesting it may be oversold.
Of the 28 analysts tracking the company, 14 maintain ‘buy’, 11 suggest ‘hold’ and three recommend ‘sell’. The overall consensus price tracked by Bloomberg implies an upside of 44.3%.