IGI Logo

Capacity expansion still some time away

We maintain our ADD rating (earlier rating was HOLD; as per CHOICE new rating methodology ADD is the closest rating to HOLD) on JK Lakshmi Cement Ltd (JKLC) with an increased TP of INR970 (from INR900 earlier) as we factor in: 1) Capacity addition of 4.4 MTPA by FY28E, taking the total standalone capacity to 20.9 MTPA by 2027 end, 2) Volume growth of 6.0%/6.0% in FY26/27E driven by asset sweating 3) Cost saving of INR 150/t phased out over a period of next 3 years, 4) Higher EBITDA and EBITDA/t, and finally, 5) A robust EV to CE (Enterprise Value to Capital Employed) based valuation framework (Exhibit 3 which allows us a rational basis to assign a valuation multiple that captures the fundamentals (marginal ROCE expansion over FY25-28E).

We forecast JKLC’s EBITDA to grow at a CAGR of 18.9% over FY25-28E, supported by our assumptions of volume growth at 6.0/6.0/6.0% and realization growth of 1.5/0.0/0.0% in FY26E/FY27E/FY28E, respectively. Limited capacity addition in the near to medium term is a limiting factor.

We arrive at a 1-year forward TP of INR970/share for JKLC. We now value JKLC on our EV/CE framework, where we assign an EV/CE multiple of 1.9x/ 1.9x for FY27E/28E (standalone basis), which we believe is a reasonably high enough multiple given limited ROCE expansion (from 9.1% in FY25 to 10.9% in FY28E), even under reasonably optimistic operational assumption. Additionally, we value JKLC’s 75% stake in Udaipur Cement Works Limited (UCWL) at a 25% discount to market value. 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, P/BV, and P/E multiples. On our TP of INR970 FY27E, implied EVEBITDA/PB/PE multiples are 12.5x/2.4x/21.7x. Slowdown in construction activities due to early and excessive monsoon, sudden large spike in petcoke prices as a result of various global dynamics are risks to our ADD rating.

Q4FY25 Results: EBITDA fall short of expectations, despite in-line volume

JKLC reported Q4FY25 Revenue and EBITDA of INR17,388 Mn (+5.5% YoY, 26.6% QoQ) and INR2,424 Mn (-12.0% YoY, +70.1% QoQ) vs CEBPL estimates of INR16,097 Mn and INR2,505 Mn, respectively. In our view, the market expectation of Q4FY25 EBITDA was in the range of INR 2,600-3,000 Mn, so the reported numbers are on the lower side. Total volume for Q4 stood at 2.6 Mnt (vs CEBPL est. 2.6 Mnt), up 0.8% YoY and 14.3% QoQ.

Realization/t came in at INR6,766/t (+4.7% YoY and 10.8% QoQ), which is higher than CEBPL’s est of INR6,201/t. The reported realization/t was higher because of non-cement business revenue of INR1,510 Mn. Total cost/t came in at INR5,823/t (+8.2% YoY and +6.4% QoQ). As a result, EBITDA/t came in at INR 943/t, which is a decline of ~INR137/t YoY.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer

SEBI Registration no.: INZ 000160131