Buy JSW Cement Ltd For Target Rs.170 By JM Financial Services
Capacity-led growth ahead
JSW Cement (JSWC) consolidated EBITDA grew 65% YoY/ declined 17% QoQ to INR 2.7bn in 2Q with blended EBITDA/tn grew 44% YoY/ declined ~12% QoQ to INR 860 (a decline of INR 115/tn sequentially). Total volume increased 15% YoY/ declined 6% QoQ to 3.1mt with Cement volume grew ~7% YoY/ declined ~11% QoQ to 1.6mt (~53% volume mix), while GGBS volume increased 20% YoY/ ~6% QoQ to 1.4mt. The management aims for mid-teens volume growth in FY26, supported by capacity ramp-up and demand recovery, with ~INR 200/tn cost savings from cement operations expected from 4QFY26 onwards. Net debt declined sharply by INR 13.4bn QoQ to INR 32.3bn (Sep’25), aided by IPO proceeds utilization. JSWC is targeting >50% capacity additions (from 22mt to ~34mt) by CY28. With ongoing expansion, its overall volume is expected to grow at ~16% CAGR (~2.5x ahead of industry forecast) over FY25-28E. We broadly maintain our FY26–28E EBITDA estimates and retain TP at INR 170/share, based on 14x Dec’27E EV/EBITDA. Maintain BUY given industry-leading volume growth, regional diversification, and earnings stability from its high-margin GGBS segment. While capex intensity remains elevated, leverage is expected to stay in range of 2.5x–3.5x in coming years.
* Result summary: In 1H, total volume grew 11% YoY to 6.4mt (cement: +8% YoY; GGBS: +12% YoY). Blended realisation grew 2.3% YoY/ declined 2% QoQ to INR 4,619 in 2Q. Cement realisation declined 5% QoQ to INR 4,638 owing to regional mix, while GGBS realisation declined ~1% sequentially to INR 3,685. Total cost/tn declined ~4% YoY/ increased ~1% QoQ to INR 3,759. Net debt declined INR 13.4bn QoQ to INR 32.3bn as of Sep'25 primarily due to receipt of IPO proceeds. In 1HFY26, the company has generated negative FCF of INR 6.5bn post working capital blockage of INR 1.4bn and capex spend of INR 9.6bn (~INR 5.1bn in 2Q).
* What we liked: Decline in net debt
* What we did not like: Decline in cement realisation sequentially
* Earnings call KTAs: 1) The management targets EBITDA/tn of INR 1,100/tn post the commissioning of its North expansion. 2) In 2Q, company reported higher volume growth vs. industry growth of 4-5%; further it aims volume growth in mid-teens YoY in FY26. Regionally, it witnessed volume growth of +21% in south, +1% in West (primarily Mumbai), while negative 3% in East in 1HFY26. 3) In Oct’25, cement prices declined in South and East, while West remained stable; expects to improve from Nov’25. While company maintained GGBS prices at similar levels given the cost remained flat. 4) It already achieved cost savings of INR 200/tn and is working towards additional savings of INR 200/tn for cement operations and most of it to flow in from 4QFY26. 5) Expansion updates: i) It commissioned 1mt at Sambalpur, Odisha in end-Sep’25; will be targeting markets of Western Odisha and parts of Jharkhand. ii) Expansion of 3mt clinker and 3.5mt cement at Nagaur to come in 2 phases. For first phase (3mt clinker and 2.5mt cement), 95% of equipment and machinery deliveries have been completed, while ~94% of construction of main plant building has been completed; expected to get commissioned in early 4QFY26. For second phase (1mt cement), major packages have been ordered and civil work is in progress; to get commissioned by mid CY26 along with WHRS unit. Post the commissioning of the assets, it expects utilisation of ~55-60% (on 2.5mt capacity) in the first year and reach ~ 80% in the second year. iii) For 2.75mt at Talwandi Sabo, NOC from site appraisal committee and CLU permissions are in progress and engineering work is on track. The plant will be sourcing clinker from its Nagaur unit. 6) It targets net debt to remain below ~INR 50bn, going forward. 7) Guided capex of INR 23bn for FY26 and INR 20bn for FY27.
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SEBI Registration Number is INM000010361
