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A miss on est. due to lower volumes and higher costs

* JKLC’s 2QFY25 earnings were notably below our estimate due to lower-thanestimated volume (~11% miss) and higher-than-estimated opex/t (+3% vs. our est.). Consol. EBITDA declined ~59% YoY to INR893m (~42% below our estimate), and EBITDA/t was down ~55% YoY to INR360 (our est. at INR550). OPM dipped 6.6pp YoY to ~7% (est. ~11%). JKLC reported a net loss of INR140m (vs. estimated profit of INR262m) vs. PAT of INR927m in 2QFY24.

* The company’s profitability was adversely impacted due to a sharp correction in cement prices in its core markets and lower volumes. It is expanding its grinding capacity by 6.0mtpa to 22.4mtpa at an estimated capex of INR27b. This is likely to be completed in a phased manner over FY25-27. Capex will be funded through a mix of debt and internal accruals.

* We have a BUY rating on the stock and will review our assumptions after the concall.

Sales volume dips 9% YoY; realization/t drops 14% YoY

* Consolidated revenue/EBITDA stood at INR12.3b/INR893m (down 22%/ 59% YoY and down 13%/42% vs. our estimate) in 2QFY25. It reported a net loss of INR140m vs. a PAT of INR927m in 2QFY24. Sales volume declined 9% YoY to 2.48mt. Realization was down 14% YoY/3% QoQ to INR4,983/t (-1% vs. our estimate).

* Opex/t declined 7% YoY, driven by a 17%/1% decline in variable/freight costs. Other expenses/employee cost per tonne increased 13%/16% YoY. OPM contracted 6.6pp YoY to ~7% and EBITDA/t declined 55% YoY to INR360 in 2QFY25. Depreciation/finance costs increased 32%/28% YoY. Other income was down 40% YoY.

* 1HFY25 consol. revenue/EBITDA/PAT stood at INR28.0b/INR3.1b/INR563m (declined 15%/25%/67% YoY). Volume/realization declined 4%/11% YoY. EBITDA/t declined 21% YoY to INR565 and OPM contracted 1.4pp YoY to ~11%. OCF declined 81% YoY to INR514m due to lower profitability and reduction in working capital. Capex stood at INR4.4b vs. INR5.1b in 1HFY24.

Highlights from the management commentary

* The share of green power stood at ~47% in 2QFY25 vs. 39%/48% in FY24/ 1QFY25. It is implementing a project to increase the TSR share to 16% from 4% at its Sirohi plant in a phased manner.

* It expects cement demand to improve in the coming years given the government's focus on infrastructure development and various other initiatives for housing and road development.

Valuation and view

* JKLC reported a disappointing performance due to an all-round miss. Further, higher depreciation, interest, and lower other income led to a net loss during the quarter. We have a BUY rating on the stock. However, we will review our assumptions after the concall on 8 th Nov’24

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