The key raw material cost of titanium dioxide is likely shoot up with the rising crude oil prices.
Shares of paint companies led by the latest entrant, JK Cement tanked as the steady rise in crude oil is expected to push up input costs amid uncertain demand.
Berger Paint and Kansai Nerolac Paint dipped four per cent each to ₹629 and ₹431. Asian Paints and Shalimar Paints were down one per cent each at ₹2,708 and ₹134.
The cost of key raw material titanium dioxide (TIO2) for making paint is expected to shoot up with the rise in crude oil prices. TIO2 is a derivative of crude oil. The surge in raw material prices will increase the cost of production and impact the paint companies’ gross margins.
Antu Thomas, Senior Research Analyst, Geojit Financial Services, said paint stocks witnessed a sharp fall in the market as rich valuation and a significant rise in oil prices continued to drag the investor’s sentiment. Paint companies have already implemented 18-20 per cent price hike in last nine months to pass on the higher input prices to end consumers, he added.
Crude oil prices rallied over six per cent to touch their highest since 2008 on the back of the United States and European allies planning to ban Russian oil imports. Moreover, the global markets are expected to face a tight supply scenario with the potential delay in returing to Iranian crude.
Notwithstanding the crude shock, the board of JK Cement had approved an investment of up to ₹600 crore over the next five years to set up plants across various locations and brand building. The company targets to produce various products with a revenue target of ₹850 crore in the next five years.
Dharmesh Shah, Research Analyst, Emkay Global Research, said the JK Cement management is targeting commissioning the paint plant in the next two years which looks aggressive given that land acquisition and various regulatory clearances are still pending.
“We believe that the establishment of a management team, creation of stronger brand equity and investment in tinting machines remain key challenges. In an optimistic scenario, if the company achieves the guidance for the paint business, it could potentially add five per cent to its market cap,” he added.
Published on March 07, 2022