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NSR recovers; cost pressures persist

JK Lakshmi Cement (JKLC) reported an inline operating performance in Q1FY27, with healthy volume growth of 8% YoY and a sharp 8.5% QoQ improvement in blended NSR driven by better pricing in non-trade segment across key markets and geo-mix optimization, with ~90% of sales concentrated in core markets. The stronger NSR, along with healthy volume growth, largely offset the sharp increase in input costs arising from higher imported fuel prices, elevated raw material costs and increased packaging expenses. Consequently, EBITDA/t stood at INR719 (PLe: INR750), as benefits from lower lead distance, higher RE usage and operating efficiencies were partly offset by fuel cost inflation. Mgmt. guided for higher fuel cost in Q2FY27 as ME crisis continues affecting pet coke and packaging costs as well.

Looking ahead, mgmt. expects industry demand to grow 6-7% in FY27, supported by infrastructure and housing, while JKLC continues to target higher than industry volume growth. However, margins are likely to remain under pressure in the near term on flattish pricing, higher fuel costs, maintenance shutdowns and weaker operating leverage. JKLC remains focused on mitigating cost pressures through geo-mix optimization, premiumization, alternate fuel usage and logistics efficiencies, while continuing to pursue price hikes to offset input cost inflation. Key monitorables are: (a) easing of geopolitical tensions and consequent moderation in fuel/input costs, (b) ability to take price hikes amid seasonally weaker Q2 demand to protect margins, and (c) pace of capex deployment and timely commissioning of the Durg expansion. We cut our estimates for FY27/28E by 3%/5% on imminent cost inflation and expect JKLC to deliver EBITDA/volume CAGR of 8% & 11% each over FY26-28E. The stock is trading at EV of 8.6x FY28E EBITDA. Maintain ‘BUY’ with revised TP of INR714 (earlier INR765) valuing at same 10x EV of Mar’28E EBITDA.

Pricing strength supports earnings:

Consolidated revenue increased 9.4% YoY to INR19bn (flat QoQ; PLe INR17.6bn) on higher-than-expected NSR and volumes. Volumes grew 8% YoY to 3.6mt (-8% QoQ; PLe 3.53mt). Average realization improved 8.5% QoQ to INR5,294/t (+1% YoY; PLe INR4,978/t) on higher pricing in North & East regions. Mgmt. indicated higher pricing in non-trade segment which aided average NSR; while trade pricing was mixed across regions.

Cost pressures drag margins:

EBITDA declined 17% YoY to INR2.58bn (-10% QoQ; PLe INR2.64bn) on higher RM costs and increase in power/fuel costs due to ME crisis led increase in pet coke. P&F costs per ton increased up 5% YoY to INR1,190 despite 49% RE mix for the quarter (46% in Q4). Freight cost/t declined 4% YoY to INR1,151. RM costs/t increased 21% to INR1,111. Other expense/t too increased 14% YoY to INR769/t. Resultant, EBITDA/t works out at INR719 (-23% YoY/ -2% QoQ) vs PLe INR750/t due to higher-than-expected volumes. PAT declined 29% YoY to INR1.07bn (-21% QoQ, PLe INR1.05bn).

Capex & RE:

Railway siding: Durg railway siding project (INR3.25bn) progressing, funded through INR2.25bn debt and the balance via internal accruals; Phase 1 has been completed. Expansion at Durg- 2.3mtpa clinker line and 4.6mtpa cement grinding capacity (3 GUs). Total capex: INR30bn, funded through a mix of debt and internal accruals; targeted for completion by end FY28. RE power investment: Approved investment of up to INR20.5cr (min 26% stake) in STLC RE 1 Ltd to set up a 29MW AC / 42MWp DC solar plant and 28MWh BESS at the Sirohi integrated cement plant under the group captive route. The solar + BESS project is expected to secure solar power at competitive rates, supporting lower power costs.

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