Add JK Lakshmi Cement Ltd For Target Rs. 1,175 By Choice Broking Ltd
Amalgamation is a Positive Trigger
We upgrade our rating to BUY from ADD on JK Lakshmi Cement Ltd (JKLC) with an increased TP of INR 1,175 (from INR 970 earlier). The amalgamation of Udaipur Cement Works Ltd. (UCWL) & other subsidiaries into JKLC clears the overhang of a complicated corporate structure. Now that the overhang is behind us, our focus is back on JKLC’s amalgamated entity business merits like: 1) Capacity addition of 4.4 MTPA by FY28E, 2) Volume growth of 6.0%/5.0%/10.0% in FY26E/27E/28E driven by asset sweating, 3) Cost saving of INR 150/t phased out over a period of the next 3 years. We adopt a robust EV to CE (Enterprise Value to Capital Employed) based valuation framework, which allows us a rational basis to assign a valuation multiple that captures the fundamentals (ROCE expansion over FY25-28E).
We forecast JKLC’s EBITDA to grow at a CAGR of 23.4% over FY25-28E, supported by our assumptions of volume growth at 6.0/5.0/10.0% and realization growth of 1.5/1.0/1.0% in FY26E/FY27E/FY28E, respectively.
We value JKLC on our EV/CE framework, where we assign an EV/CE multiple of 1.9x/ 1.9x for FY27E/28E. This valuation framework gives us the flexibility to assign a commensurate valuation multiple basis an objective assessment of the quantifiable forecast financial performance of the company. We do a sanity check of our EV/CE TP using implied EV/EBITDA, and P/E multiples. On our TP of INR 1,175, implied EV/EBITDA / PE multiples translate to 10.1x/14.5x, which are reasonable in our view.
Q1FY26 Results: Good all-round performance
JKLC reported Q1FY26 Revenue and EBITDA of INR 17,409Mn (+11.3% YoY, -8.3% QoQ) and INR 3,112Mn (+39.1% YoY, -11.3% QoQ). Total volume for Q1 stood at 3.3 Mnt, up 10.0% YoY and down 7.6% QoQ.
Realization/t came in at INR 5,234/t (+1.2% YoY and -0.8% QoQ). Total cost/t came in at INR 4,299/t (-3.0% YoY and flat QoQ). As a result, EBITDA/t came in at INR 936/t, which is a increase of ~INR 196/t YoY.
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