Buy JK Lakshmi Cement Ltd for the Target Rs. 855 by Choice Institutional Equities
Operating expenses weigh on margin
We retain our BUY rating on JK Lakshmi Cement (JKLC) while revising our target price downwards to INR 855/share (earlier INR 1,075), primarily due to near-term input cost pressure arising from geopolitical uncertainty and elevated fuel price.
Our lower target price reflects management’s guidance, indicating a sharp increase in operating cost in Q1FY27 and Q2FY27. 1) Power and fuel cost is projected to rise by ~INR 300/t, 2) Packaging cost is likely to increase by INR 80–100/t. Of the total increase of INR 400/t, around INR 100–120/t may affect Q1FY27 directly. Additionally, cement price hike across JKLC’s key operating regions — particularly the North, West and parts of the East — was insufficient to offset the steep rise in fuel cost, with petcoke prices increasing by ~40% QoQ and coal prices rising by ~30% QoQ.
Consequently, we estimate a net cost escalation of ~INR 209/t, which is projected to exert moderate pressure on FY27E EBITDA/t.
Despite near-term margin headwinds, the management remains confident regarding 1) Capacity expansion plans so as to achieve 30 Mnt capacity by FY30E and 2) Improving price momentum across key markets going forward. These factors are expected to offset a substantial portion of the cost inflation in the medium term.
We forecast JKLC’s EBITDA to expand at a CAGR of 12.5% over FY26–29E, supported by our assumption of volume growth of 6.0/7.0/8.0% and realisation growth of 3.5/1.0/0.5% in FY27E/FY28E/FY29E, respectively.
We value JKLC using our EV/CE framework, assigning an FY28E EV/CE multiple of 1.8x, which yields a revised target price of INR 855/share. At our target price, JKLC trades at an implied FY28E EV/EBITDA multiple of 8.2x, which we believe is reasonable.
Q4FY26 result: Muted quarterly performance; misses street estimate
JKLC reported Q4FY26 revenue and EBITDA of INR 19,015 Mn (+0.2% YoY, +19.7% QoQ) and INR 2,861 Mn (-18.4% YoY, +38.9% QoQ) vs CIE estimate of INR 19,714 Mn and INR 3,335 Mn. Total volume for Q4 stood at 3.9 Mnt (vs CIE estimate of 3.9 Mnt), up 8.3% YoY and up 18.8% QoQ.
Realisation/t came in at INR 4,881/t (-7.5% YoY and +0.8% QoQ) vs CIE estimate of INR 5,097/t. Total cost/t came in at INR 4,146/t (-3.6% YoY). As a result, EBITDA/t came in at INR 734/t, which is a decline of ~INR 240/t YoY, impacted by lower realisation and higher operating expenses.
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