Buy JK Lakshmi Cement Ltd For Target Rs.775 by Choice Institutional Equities Ltd
FY27E earnings revised downwards due to cost inflation
We maintain our BUY rating on JK Lakshmi Cement (JKLC) while revising our target price to INR 775/share (from INR 855/share). The revision primarily reflects higher near-term cost assumption, driven by persistent fuel cost inflation and geopolitical uncertainties which are affecting input prices.
We have revised our FY27 earnings estimate downwards by 2.2% to reflect higher operating cost assumption in Q2FY27. Our revision is driven by:
(1) Increase in fuel cost from INR 1.65/kcal to ~INR 1.85/kcal, translating into an estimated ~INR 100/t increase in power and fuel cost
(2) INR 3–4/bag increase in packaging cost, likely adding ~INR 60/t to operating expenses
(3) Higher lead distance during the monsoon season, resulting in elevated freight cost. However, the management expects further cement price hike, particularly in the Northern region – JKLC’s key operating market – where cost inflation has been most pronounced. We believe these price increases are estimated to offset a significant portion of the nearterm cost pressure.
Reflecting the higher cost assumptions, we have lowered our FY27E EBITDA/t estimate to INR 669/t, factoring in the projected increase in fuel, packaging and freight cost.
Despite the near-term margin headwinds, management remains confident in its long-term growth strategy, supported by
(1) Capacity expansion to ~30 MTPA by FY30E
(2) Improving pricing momentum across key market. We believe these structural growth drivers should offset a substantial portion of the current cost inflation and support margin recovery over the medium term.
We forecast JKLC’s EBITDA to expand at a CAGR of 10.4% over FY26– 29E, supported by our assumption of volume growth of 5.0/7.0/8.0% and realisation growth of 3.0/1.0/0.5% in FY27E/FY28E/FY29E, respectively.
We value JKLC using our EV/CE framework, assigning an FY28E EV/CE multiple of 1.7x, which yields a revised target price of INR 775/share
Q1FY27 result: Beats our expectations on all fronts
JKLC reported Q1FY27 revenue and EBITDA of INR 19,048 Mn (+9.4% YoY, +0.2% QoQ) and INR 2,588 Mn (-16.9% YoY, -9.6% QoQ) vs CIE estimate of INR 17,642 Mn and INR 2,402 Mn. Total volume for Q1 stood at 3.6 Mnt (vs CIE estimate of 3.5 Mnt), up 8.2% YoY and down 7.6% QoQ
Realisation/t came in at INR 5,294/t (+1.1% YoY and +8.5% QoQ) vs CIE estimate of INR 5,052/t. Total cost/t came in at INR 4,575/t (+6.4% YoY and +10.3% QoQ). As a result, EBITDA/t came in at INR 719/t, which is a decline of ~INR 217/t YoY vs CIE estimate of INR 688/t, impacted by higher operating expenses.
For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131
