Buy J K Cement for the Target Rs 6,430 by Motilal Oswal Financial Services Ltd
Strong volume-led growth; cement prices largely stable Higher maintenance costs in 1Q; expected to moderate in 2Q
* JK Cement’s (JKCE) 1QFY27 EBITDA was above our estimates, led by higher-than-estimated volume and white cement realization. Revenue grew ~20% YoY to INR40.3b (+8% vs. our estimates), while EBITDA declined ~6% YoY to INR6.5b (~7% beat), driven by higher opex/t (up ~8% YoY/QoQ). OPM contracted 4.5pp YoY to ~16% (in line). EBITDA/t declined ~20% YoY to INR979 (in line). PAT declined ~14% YoY to INR2.8b (~13% beat, led by lower-than-estimated depreciation).
* Management reiterated grey cement volume growth in double digits, with a volume target of ~23mt in FY27E. Cement prices remained stable, and management expects them to remain steady despite the monsoon, aided by elevated industry cost pressures. Opex/t is expected to rise ~INR150/t in 2QFY27, mainly led by higher fuel and diesel costs, while packaging costs should ease sequentially. In 1Q, profitability was impacted by INR500-600m of additional maintenance expenses, as planned shutdowns were shifted earlier to 1Q, resulting in a lower maintenance burden in subsequent quarters. The ongoing expansion program remains on track, with the greenfield integrated project at Jaisalmers scheduled for commissioning in 1HFY28.
* We raised our EBITDA estimate by ~3% for FY27/FY28 (each), given the lower cost guidance. We value JKCE at 17x FY28E EV/EBITDA to arrive at a TP of INR6,430. Reiterate BUY.
Grey/white cement volume up ~19%/11% YoY
* JKCE’s consol. revenue/EBITDA/PAT stood at INR40.3b/INR6.5b/INR2.8b (+20%/-6%/-14% YoY and +8%/+7%/+13% vs. our estimates). Sales volume grew ~18% YoY (+5% vs. estimates), led by 19% YoY growth in grey cement (+4% vs. estimates). White cement volume rose ~11% YoY (+7% vs. our estimate). Blended realization increased ~2% YoY/7% QoQ. Grey cement realization rose ~3% YoY (up 5% QoQ). White cement realization rose ~11% YoY (up ~14% QoQ).
* Opex/t rose ~8% YoY, led by ~7%/23%/1% increase in variable/freight costs/other expenses. Employee expenses/t declined ~1% YoY, supported by higher volume. EBITDA/t declined ~20% YoY to INR979. Depreciation/interest costs rose ~14%/5% YoY, and other income dipped ~30% YoY.
* Net debt stood at INR38.6b vs. INR33.7b as of Mar’26. Net debt to EBITDA ratio was at 1.69x vs. 1.45x as of Mar’26.
Valuation and view
* JKCE’s EBITDA was above our estimate, led by robust volume growth and better realizations in the white cement segment. While management maintains a positive demand and pricing outlook, it expects profitability to decline in 2Q, given the higher fuel costs. The company’s capacity expansion plans are on track, which are expected to drive medium-term growth.
* We estimate JKCE’s consolidated revenue/EBITDA/PAT CAGR at 16%/18%/13% over FY26-28. We anticipate the company’s consolidated volumes to post ~15% CAGR over FY26-28. We estimate margin to contract in FY27 due to cost pressure, but expand to ~18% in FY28 (better than the average of FY24-26). We estimate EBITDA/t at INR1,000/INR1,062 in FY27/FY28 vs. INR1,017 in FY26. We estimate its consolidated net debt to increase to INR79.0b in FY28 vs. INR55.7b in FY26. Net debt-to-EBITDA ratio is estimated at 2.4x in FY28 vs. 2.3x in FY26.
* The stock is trading at 18x/15x FY27E/FY28E EV/EBITDA. We value JKCE at 17x FY28E EV/EBITDA to arrive at our revised TP of INR6,430. Reiterate BUY.
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