Buy JK Lakshmi Cement Ltd for the Target Rs 665 by Prabhudas Liladhar Ltd
Cost inflation clouds near term outlook
JK Lakshmi Cement (JKLC) reported an inline operating performance in Q2FY27, with volume growth of 5% YoY and a 2.4% QoQ improvement in NSR, driven by price hikes taken since September and a higher premium product mix. However, volumes grew below the industry’s 9-10% growth, with performance impacted by heavy monsoon in key markets and planned shutdowns. The improvement in NSR was insufficient to offset the sharp increase in input costs, particularly higher pet coke, raw material and packaging expenses. Consequently, EBITDA/t declined to INR517 (PLe: INR523), as higher fuel and packing costs more than offset benefits from lower lead distance and higher renewable energy usage. Mgmt. expects further fuel cost inflation in Q3FY27, with prices potentially rising to INR2/kcal, while additional cement price hikes will be critical to offset the cost pressures.
JKLC’s volume growth is lagging the industry over last few quarters while capacity expansion plans also seem fragile in terms of planned timeline. While the company continues to focus on volume-led growth, sustaining market share gains will be important amid intensifying competition and elevated input cost pressures. While price increases were implemented in October, further hikes of ~INR10/bag in November and INR10-15/bag in December are expected, and their sustainability will be a key monitorable. Higher renewable energy usage and operational efficiencies should support cost savings, while timely execution of the East and Northeast expansion plans will be important to drive growth. This needs to be balanced with prudent capital allocation, with Mgmt. aiming to keep net debt/EBITDA below 3.5x. We cut our estimates for FY27/28E by 6% each on imminent cost inflation and expect JKLC to deliver EBITDA/volume CAGR of 16% & 10% over FY26-29E. The stock is trading at lucrative EV of 8x/6.6x FY28/29E EBITDA however lack triggers. Maintain ‘BUY’ with revised TP of INR665 (earlier INR699) valuing at same 9x EV of Sep’28E EBITDA.
Revenue aided by improvement in pricing:
Cons. revenue increased 5.6% YoY to INR16.16bn (-15% QoQ; PLe INR16.1bn) on better NSR, which improved 2.4% QoQ to INR5,420/t (+0.6% YoY; PLe INR5,294/t), led by price hikes in September and higher premium products share of 27% (24% QoQ; 26% YoY). Volumes grew 5% YoY to 2.98mt (-17% QoQ; PLe 3.04mt) despite industry growth of ~9-10% in Q2FY27. Cement capacity utilisation stood at 62% (76% QoQ; 65% YoY).
Cost pressures drag margins:
EBITDA declined 26% YoY to INR1.54bn (-40% QoQ; PLe INR1.59bn) due to higher pet coke and packing bag prices. P&F expenses grew 11% YoY to INR1,444/t due to higher pet coke prices, leading to an increase in fuel cost to INR1.82/kcal (INR1.65/kcal QoQ; INR1.54/kcal YoY). Other expenses increased 10% YoY to INR800/t due to higher packing bag costs. RM costs/t increased 16% to INR1,095 due to higher input costs. Freight cost/t declined 7% YoY to INR1,154, led by a decline in lead distance to 363km (368km QoQ; 395km YoY). Resultant, EBITDA/t stood at INR517 (-29.5% YoY/-28% QoQ) vs PLe INR523/t. PAT declined 75% YoY to INR2.04bn (-81% QoQ; PLe INR3.55bn) due to higher depreciation.
Key Matrices and Capex:
RE mix stood at 48% (49% QoQ; 46% YoY). Trade share stood at 58% (59% QoQ; 53% YoY), while blended cement share stood at 65% (64% QoQ; 62% YoY). JKLC is progressing with its INR32.5bn investment (funded through a mix of debt and internal accruals) at Durg, comprising a railway siding (Phase 1 completed) and capacity expansion of 2.3mtpa clinker and 4.6mtpa cement capacity, with completion expected by Mar’28.
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SEBI Registration number is INH000000933
