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Performance improves amid challenges

Expects volume growth of 7-8% in 4QFY25 and 10% in FY26

* JK Cement (JKCE)’s 3QFY25 result was above our estimates, led by 1) higher other operating income (impact of INR20-30/t), and 2) a higher volume of white cement. EBITDA stood at INR4.9b (-21% YoY; +7% vs. estimate), and EBITDA/t was INR1,010 (-24% YoY) vs. our estimate of INR943/t. Profit came in at INR1.9b (-33% YoY) vs. estimated INR1.6b.

* Management expects volume growth of 7-8% in 4QFY25 and ~10% in FY26. In FY25, JKCE will realize cost savings of INR40-50/t and the rest of INR75/t will be realized over the next few quarters. The company announced the acquisition of Saifco Cements, which has a grinding capacity of 0.42mtpa in Srinagar, and the EBITDA/t of this plant is INR1,500/t.

* We raise our FY25E EPS by 5% and reduce our FY27E EPS by 7% by tweaking the interest and depreciation expenses. We value it at 16x Mar’27 EV/EBITDA (vs. 15x earlier) and reiterate our BUY rating on the stock.

Sales volume up 4% YoY; grey cement realization down 1% QoQ

* JKCE’s consolidated revenue/EBITDA/adj. PAT stood at INR29.3b/INR4.9b/ INR1.9b (flat/-21%/-33% YoY and up 2%/7%/21% vs. our est.). Combined sales volume was up 4% YoY (in line) as grey cement volume was up 4% YoY (-1% vs. estimate); while white cement volume was up 6% YoY (+6% vs. estimate). Grey cement realization was down 4.6% YoY, but up 1% QoQ. Other op. income/t stood at INR277 vs. INR195/INR206 in 3QFY24 /2QFY25.

* Opex/t increased 2% YoY (+1% vs. estimate), led by an 11%/8%/3% increase in employee costs/other expenses/freight costs. Variable cost/t declined 4% YoY/3% QoQ. EBITDA/t was at INR1,010 vs. INR1,332/INR655 in 3QFY24/2QFY25. Other income was up 16% YoY; while depreciation increased 4% YoY. Interest expense was down 2% YoY.

* In 9MFY25, revenue/EBITDA/Adj. PAT declined 2%/16%/30% YoY. Sales volume was up 4% YoY, while realization declined 6% YoY. EBITDA/t dipped 19% YoY to INR875. Standalone net debt was INR31.1b vs. INR25.8b/INR30.4b in 3QFY24/2QFY25.

Highlights from the management commentary

* Premium product sales were at 16% (highest ever) vs. 14% in 2QFY25. The target is to raise premium products’ share to 20%+ in the next two years.

* Incentives run-rate should be at INR250m/month. There was an additional incentive of INR100-150m in 3Q because of Panna and Ujjain units.

* Putty markets continue to remain competitive as Asian Paints and UltraTech are very aggressive. This has put pressure on prices. Putty demand is growing at 8-9% YoY.

Valuation & View

* JKCE remains one of our preferred picks in the cement space due to its consistent capacity additions (grey cement capacity CAGR of 18% in the last five years and will further increase by 25% in FY26) and cost-saving strategies. It has demonstrated its ability to improve the capacity utilization of new plants in a short period and increase its market share in new regions (the Central and Bihar markets).

* We expect its revenue/EBITDA/profits to post a CAGR of 9%/12%/18% over FY24-27. We estimate EBITDA/t to reach INR1,149 in FY27 vs. INR1,079 in FY24 and INR953 in FY25. Net debt/EBITDA should reach 1.5x in FY27 vs. 2.2x in FY25E. We estimate the RoIC of JKCE to be at 12%/14% in FY26/27E vs. 11.6%/9.7% in FY24/25.

* The stock trades at 16.8x/13.7x FY26/27E EV/EBITDA. We value it at 16x Mar’27 EV/EBITDA (vs. 15x earlier) to arrive at our TP of INR5,630. We reiterate our BUY rating on the stock.

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