Buy JK Lakshmi Cement Ltd For Target Rs.640 by Motilal Oswal Financial Services Ltd
In-line EBITDA; target 2H volume growth in line with industry Demand and pricing improves; scales back expansion plans
* JK Lakshmi Cement’s (JKLC) 2QFY27 operating performance was in line with our estimate. EBITDA declined ~26% YoY to INR1.5b. EBITDA/t declined ~29% YoY to INR517 (est. of INR490). OPM contracted 4.1pp YoY 9.5%. Adj. profit declined 75% YoY to INR205m (-24% vs. our estimate, led by lowerthan-estimated other income and higher-than-estimated ETR).
* Management highlighted that demand improved in Oct’26 and anticipates volume growth at ~7%-8% YoY in 2H, in line with the industry. Cement prices (both trade/non-trade) also improved in Oct’26, with a further hike expected post festive season alongside a pickup in demand. Fuel costs are estimated to further increase during 2HFY27. It has revised its capacity expansion target to 25mtpa by FY30 from the earlier target of 30mtpa, prioritizing balance sheet discipline over aggressive expansion.
* We maintain our EBITDA estimate for FY27-FY28. However, we cut our EPS by ~12%/5% for FY27E/FY28 on account of lower other income. We value the stock at 9x FY28E EV/EBITDA to arrive at a TP of INR640. Reiterate BUY.
Sales volume rises 5% YoY; realization/t increases ~1% YoY
* Consolidated revenue/EBITDA/adj. PAT stood at INR16.2b/INR1.5b/INR205m (+6/-26%/-75% YoY and +4%/+4%/-24% vs. our estimates). Volume grew 5% YoY to 3.0mt (in line). Realization/t rose ~1%/2% YoY/QoQ to INR5,420/t.
* Opex/t rose ~5% YoY, led by an increase in variable cost/other expenses per ton by ~13%/10% YoY. Employee cost/Freight cost/t declined ~10%/7% YoY. OPM contracted 4.1pp YoY to ~9.5%, and EBITDA/t declined ~29% YoY to INR517 in 2QFY27. Depreciation/interest cost rose ~9%/1% YoY. Other income declined ~56% YoY.
* In 1HFY27, revenue/EBITDA/PAT stood at INR35.2b/INR4.1b/INR1.3b (+8%/- 21%/-44% YoY). OPM contracted 4.2pp YoY to ~12%. EBITDA/t declined 26% YoY to INR627. Operating cash outflow stood at INR1.0b vs. operating cash inflow of INR3.5b in 1HFY26. Capex stood at INR5.1b vs. INR2.5b in 1HFY26. Net cash outflow stood at INR6.2b vs. FCF at INR991.4m in 1HFY26.
Highlights from the management commentary
* Management indicated that demand started improving toward the latter part of Sep’26 and remained encouraging in Oct’26. It expects to achieve industry-level volume growth of ~7-8% in 2HFY27.
* It indicated that fuel cost increased to INR1.82/kcal in 2QFY27 from INR1.54/kcal in 1QFY27. It expects fuel cost to rise further to INR2.00/kcal in 3QFY27 and INR2.15–2.20/kcal in 4QFY27, assuming the current cost environment persists.
* It has reconfigured its Eastern expansion plans. The revised Eastern expansion of 4.6mtpa comprises 1.6mtpa at Durg, 1.5mtpa at Madhubani (Bihar), and 1.5mtpa in West Bengal. Capex is pegged at INR15.0b for FY27 and INR20.0b over the subsequent two years.
Valuation and view
* JKLC’s 2QFY27 operating performance was in line with estimates. However, PAT was below estimates due to lower other income. Profitability is likely to improve in 2H, driven by price action, positive operating leverage, and cost optimization measures. However, elevated fuel costs remains a key concern. Going forward, the progress on its expansions in the Eastern region and improvement in capacity utilization will be key monitorables.
* We estimate a CAGR of ~10%/7% in revenue/EBITDA over FY26-28. We estimate EBITDA/t at INR663/INR777 in FY27/FY28 vs. INR757 in FY26, and a volume CAGR of ~6% over FY26-28. We expect net debt to increase to INR30.5b by FY28 vs. INR20.3b as of Sep’26, with net debt-to-EBITDA ratio at 2.6x in FY28 vs. 2.3x as of Sep’26. The stock is trading at 8x FY27E/FY28E (each) EV/EBITDA. We value the stock at 9x FY28E EV/EBITDA to arrive at a TP of INR640. Reiterate BUY.
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