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Working capital build-up burdens OCF

JK Lakshmi Cement (JKLC IN) reported consolidated EBITDA of ~INR 1.5bn, slightly ahead of our estimate of ~INR 1.4bn but below consensus estimates of ~INR 1.6bn. T he benefit from improved volumes and realizations was offset by higher operating costs, resulting in EBITDA per tonne falling to seven -quarter low at INR 517/tonne . The company has revis ed downward its FY30 cap acity target to 25mn tonne s from 30mn tonne s earlier to avoid overleveraging its balance sheet . It target s to keep net debt to EBITDA ratio below 3.5x.

Going ahead, while cost inflation may remain elevated in Q3FY27, particularly with management guiding for fuel costs to increase to ~INR 2.15 – 2.20/kcal from ~INR 1.82/kcal in Q2FY27, lower spend on maintenance should partly cushion the impact in H2FY27. Further, a higher share of renewable power and operating leverage benefits should support margin improvement. The ramp -up of recently commissioned capacities and timely execution of ongoing expansion projects should drive long -term volume growth. We there fore reiterate Accumulate with an unchanged TP of INR 546, based on 8x March 2029E normalized EV/EBITDA

Operating cash flow turns negative due to increase in working capital:

Consolidated operating cash flow (OCF) turned negative at ~INR 1.0bn in H1FY27, compared with an inflow of ~INR 3.5bn in H1FY26, primarily due to a sharp ~INR 3.8bn YoY increase in working capital absorption, led by higher inventory and receivables. This resulted in a significant deterioration in cash conversion despite the company reporting positive operating profits.

Improved realization aids in partly mitigating cost pressure:

Sales volumes grew ~5% YoY but declined ~17% QoQ to ~2.98mn tonnes due to weather disruption in core markets and planned shutdowns . Realisations improved ~1% YoY and ~2% QoQ to INR 5,420/tonne, led by a higher premium product mix, which rose to ~27% in Q2FY27 from ~26% in Q2FY26 and ~24% in Q1FY27. Operating cost/tonne increased ~5% YoY and ~7% QoQ to INR 4,904, driven by a ~13% YoY and ~10% QoQ rise in variable costs, primarily due to elevated power and fuel costs. Fuel costs increased to INR 1.82/kcal in Q2FY27 from INR 1.54/kcal in Q2FY26 and INR 1.65/kcal in Q1FY27. Consequently, EBITDA/tonne declined ~29% YoY and ~28% QoQ to INR 517, its lowest level since Q2FY 25, versus our estimate of INR 495

Reiterate Accumulate with an unchanged TP of INR 546:

While management expects cost pressures to remain elevated in Q2FY27, driven by higher fuel costs (expected to rise to ~INR 2.15-2.2/kcal from ~INR 1. 82/kcal) , w e believe these impact s on earnings are likely to be cushion ed by cement price hikes in the past two months, seasonal demand ,lower maintenance spend and efforts by the management to reduce realizations gap with the market leader . Thus, we reiterate Accumulate

We pare our EBITDA estimate by ~3% for FY27E, factoring in higher costs pressures, while retain ing it for FY28 E -29E. Our TP is unchanged at INR 546 based on 8x March 202 9E normalized EV/EBITDA Key risks to our call are sub -par demand, weak cement prices, and a sharp rise in fuel costs.

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