Buy JK Cement For Target Rs. 7,000 by Choice Institutional Equities Ltd
Capacity-led growth & cost discipline support long-term earnings visibility
We maintain our BUY rating on JKCE with an unchanged TP of INR 7,000/share. Our positive stance is underpinned by:
1) Continued market share gains in Central India, driven by recent capacity addition and management's double-digit volume growth target for FY27E
2) Strong long-term growth visibility, with grey cement capacity expansion progressing towards ~50 MTPA by FY30E
3) Structural margin improvement, supported by higher green power penetration and increased AFR usage
4) Stable pricing environment, which should partially offset elevated fuel cost pressure.
While the operational outlook remains constructive, we have factored in an incremental cost increase of ~INR 150/t in Q2FY27E, comprising ~INR 100/t fuel cost inflation, in line with the management guidance and ~INR 50/t increase in other operating cost, partly offset by lower packaging expenses. As a result, we estimate FY27E total cost/t to increase by ~INR 130/t, while still expecting JKCE to deliver a healthy EBITDA/t of ~INR 1,053/t, reflecting resilient profitability despite nearterm cost headwinds.
We forecast EBITDA CAGR of 13.5% over FY26–29E, driven by a healthy volume growth of 7.0%/8.0%/10.0% and realisation growth of 3.0%/0.5%/0.5% across FY27E/FY28E/FY29E, respectively, supported by capacity expansion, improving utilisation and disciplined pricing. Valuation: We value JKCE at 3.6x FY28E EV/CE and derive a 1-year forward TP of INR 7,000/share, while maintaining our BUY recommendation.
Q1FY27: Higher operating expenses tempered margin expansion
JKCE reported Q1FY27 consolidated revenue and EBITDA of INR 40,317 Mn (+20.3% YoY, +3.7% QoQ) and INR 6,477 Mn (-5.8% YoY, -5.1% QoQ) vs CIE estimate of INR 37,012 Mn and INR 6,153 Mn, respectively. Volume came in at 6.6 Mnt (+18.0% YoY, -2.6% QoQ) vs (CIE est. 6.3 Mnt).
Realisation/t came in at INR 6,090/t (+1.9% YoY and +6.5% QoQ), which is higher than CIE’s estimate of INR 5,917/t. Total cost/t came in at INR 5,112/t (+7.6% YoY and +8.5% QoQ). As a result, EBITDA/t came in at INR 978/t, a decrease of ~INR 247/t YoY and INR 25/t QoQ.
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