Buy JK Lakshmi Cement Ltd for the Target Rs.640 by Choice Institutional Equities Ltd
Fuel cost headwinds cloud the near-term outlook; volume and pricing recovery to aid H2FY27
We retain our ‘BUY’ rating on JK Lakshmi Cement (JKLC) but revise our target price to INR 640/share, mainly due to higher-than-projected fuel-cost inflation and a slower-than-estimated margin recovery.
We have revised our FY27E earnings estimate downward by 2.9% and cut our EV/CE multiple to 1.4x (from 1.6x earlier). Higher fuel cost, with management projecting fuel cost to increase to INR 2.00/kcal in Q3FY27 (from INR 1.82 kcal in Q2FY27) and INR 2.15– 2.20/kcal in Q4FY27. The management has moderated its FY30 capacity target to 25 MTPA (from 30 MTPA), indicating a slower pace of capacity expansion, which could moderate long-term volume growth potential.
We have lowered our FY27E EBITDA/t estimate to INR 652/t, factoring in elevated fuel cost, partly offset by improving realisation, higher renewable energy contribution and lower shutdown-related expense.
Despite near-term margin pressure, we remain constructive on JKLC's medium-term prospects, supported by (1) Improving pricing momentum, with management expecting further price increases of INR 10/bag in November and INR 10–15/bag in December, which should support realisation recovery; (2) Expected H2FY27 volume recovery of 7–8%; and (3) 4.6 MTPA capacity expansion across Durg, Madhubani and UCWL by March 2028. Additionally, higher WHRS utilisation, renewable energy contribution and premiumisation are likely to support operating efficiencies and gradual margin recovery.
We forecast JKLC's EBITDA to expand at a CAGR of 10.7% over FY26–29E, supported by volume growth of 5.0/7.0/8.0% and realisation growth of 5.0/1.0/0.5% in FY27E/FY28E/FY29E, respectively.
We value JKLC using our EV/CE framework, assigning FY28E EV/CE multiple of 1.4x, arriving at a revised target price of INR 640/share.
Q2FY27 result: Margin compression weighs on earnings
JKLC reported Q2FY27 revenue and EBITDA of INR 16,169 Mn (+5.6% YoY, -15.1% QoQ) and INR 1,542 Mn (-25.9% YoY, -40.4% QoQ) vs CIE estimate of INR 15,827 Mn and INR 1,630 Mn. Total volume for Q2 stood at 3.0 Mnt (vs CIE estimate of 3.1 Mnt), up 4.9% YoY and down 17.1% QoQ.
Realisation/t came in at INR 5,420/t (+0.6% YoY and +2.4% QoQ) vs CIE estimate of INR 5,188/t. Total cost/t came in at INR 4,904/t (+5.3% YoY and +7.2% QoQ). As a result, EBITDA/t came in at INR 517/t, down ~INR 215/t YoY vs the CIE estimate of INR 534/t, driven by higher operating expenses.
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