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Easing cost offset pricing woes

After a weak Q2FY25, which was hit by weak volume as well as realization and cost inflation, JK Lakshmi Cement (JKLC IN) reported a strong QoQ recovery in Q3FY25. Q3 revenue was largely in line while EBITDA was ahead of our expectations, backed by stronger-than-expected volume and lower-than-expected operating cost. While a ~33% YoY decline, consolidated EBITDA surged ~126% QoQ to ~INR 2.0bn, ahead of our and Consensus estimates of ~INR 1.7bn and INR 1.8bn, respectively. JKLC recorded the highest QoQ volume growth of ~22% and the second-largest QoQ cost reduction of INR 348/tonne within our cement universe, aided by operating leverage benefit. We expect a further recovery in performance, driven by better demand, higher cement prices, and operating leverage benefits. Thus, we reiterate Accumulate. While we retain our EBITDA for FY27E, we cut it by ~3% for FY25E and ~2% for FY26E to factor in a weak pricing outlook. We rollover to March 2027E and our TP stands raised to INR 902

Capacity to increase by ~36% by end-FY27E: JKLC’s previously announced expansion projects are progressing well and completion of these projects is set to increase consolidated cement capacity to ~22.5mn tonne by FY27E from ~16.5mn tonne in FY24. Similarly, clinker capacity will rise to ~12.3mn tonne by FY27E from ~10mn tonne in FY24. In addition to these expansion projects, the company is also developing a railway siding project at its Chhattisgarh-based Durg plant

EBITDA/tonne up ~85% QoQ: Realization declined ~14% YoY and ~1% QoQ to INR 4,940/tonne, ~4% below our estimates. However, this negative impact was offset by better volume and lower-than-expected operating cost. Consolidated sales volume was up ~2% YoY and ~22% QoQ to ~3mn tonne, ~6% ahead of our estimates. Operating cost fell ~10% YoY and ~8% QoQ to INR 4,274/tonne, ~6% below our estimates. Thus, EBITDA/tonne dropped ~35% YoY but jumped ~85% QoQ to INR 666 vs our estimates of INR 600. QoQ recovery in EBITDA/tonne for the company is the second-highest next to JK Cement (JKCE IN, Accumulate, CMP: INR 4,800, TP: INR 5,263) within our cement universe.

Reiterate Accumulate with a higher TP of INR 902: We expect volume growth to remain robust in the upcoming quarters, supported by improved demand, ramp-up of grinding capacity at Udaipur Cement Works (UCWL), and the expected completion of ongoing expansion projects. Additionally, rising cement prices in its key markets, continued focus on low-cost green power, addition of railway siding, and other cost savings initiatives are likely to enhance margin. Therefore, we reiterate Accumulate. While we retain our EBITDA for FY27E, we cut it by ~3% for FY25E and ~2% for FY26E, to factor in a weak pricing outlook. We rollover to March 2027E from September 2026E; thus, our TP stands raised to INR 902 from INR 817 based on 9x (unchanged) March 2027E EV/EBITDA. Sub-par demand, weak cement prices, and a sharp rise in fuel price are key risks to our call.

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