JK Cement has entered into binding agreement to acquire 60% stake in Acro Paints for Rs 153 crore. In Mar-22, company first talked of Paints foray, but via greenfield project. M&A will provide a jump start; JKCE targets to capitalise on its White Putty network to gain scale in paints. However, given the competitive intensity in paint business, company’s paint foray will be significantly challenged and is not appreciated by investors.
Announces acquisition in Paint segment: Company through its wholly owned subsidiary M/s. JK Paints and Coatings has proposed to initially/at first tranche invest an amount of Rs 153 crore for acquiring 60% equity shares of M/s. Acro Paints. Remaining 40% shall be acquired over a period of 12 months. Acro Paints, incorporated in 1989, is a North India based player with a portfolio of decorative paints and is also present in niche product categories of textured paints, construction chemicals and waterproofing products.
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Capacity: Situated in Bhiwadi, in Delhi-NCR region, the company has two facilities with a post-expansion capacity of 60,000 KL in decorative & textured paints & 6,700 KL in construction chemicals segment. The company is currently operating at sub-50% utilisation. The ongoing capacity expansion is expected to be completed by Q2FY24.
Valuation: Acro Paints generated gross revenues of Rs 890mn in FY22 and expected to close FY23 at Rs 100 crore. Acquisition implies EV of Rs 255 crore, and company targets small incremental capex to the tune of Rs 200mn, taking total cash outflow of Rs 275 crore for the project over FY23-FY24.
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JK Cement
- In Mar-22, company outlined expenditure of Rs 600 crore towards the paint business, including Rs 300 crore towards Capex and balance Rs 300 crore towards brand building/other expense for the first three years.
- The Rs 300 crore organic capacity capex is now replaced by inorganic expansion. Target capacity of 60,000KL initially is in line with that of the acquired capacity now.
- Management believes that paint segment shares a common retail channel and common influencers with the White putty segment — which provides a strong headstart to build paint segment for JKCE.
- JKCE sells White Putty via a network of 60,000 dealers, of which 65-70% would be the Paint outlets and 30-35% hardware stores. Of these dealers, 20,000-25,000 would be in UP/North markets.