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Leveraging group synergies with greener solutions

India’s leading GGBS manufacturer with ~84% market share

* Ground granulated blast furnace slag (GGBS) contributes significantly to EBITDA: Leveraging JSW Group’s presence in steel manufacturing, JSW Cement (JSWC) is the largest supplier of GGBS in India with ~84% market share in FY25. The product is manufactured from slag, a byproduct of the steel-making process. GGBS accounted for ~34% of JSWC’s total revenue in FY25, though we believe that its contribution to EBITDA was higher at ~61%/76% in FY24/FY25. We estimate GGBS EBITDA contribution to be at ~63%/57%/52% in FY26/FY27/FY28.

* Capacity expansion to help regional diversification for cement: The company’s current expansion plans will mark its entry into the North region, where industry profitability is better compared to the South region. It will also help JSWC reduce its capacity concentration in the South region to ~41% in FY28E from ~53% in FY25. We expect a higher cost of limestone for the North plant (INR210/t+ higher as mines have been acquired through e-auction) to be offset by state incentives (INR273/INR140 per ton in FY27/28E) as new cement plants in Rajasthan are eligible for state incentives for seven years.

* Capex intensity to keep debt elevated: We estimate a capex of INR56b during FY26-28E, which would be mainly for the Rajasthan integrated unit. The remaining capex will be used for a grinding unit of Shiva Cement, a greenfield GU in Punjab and brownfield capacity expansion in the south region. Net debt is estimated to be at INR57.5b in FY28E vs. INR40.7b (excl. CCPS) in FY25. Net debt-to-EBITDA ratio is estimated to remain elevated at 3.0x in FY28E vs. 3.2x/4.7x in FY24/FY25.

* Fairly valued; initiate with Neutral: Over FY25-28E, we estimate a CAGR of 19%/31% in revenue/EBITDA, led by volume (~12%/19% CAGR for GGBS/cement) and pricing growth (~2%/3% CAGR for GGBS/cement). It should report a profit of ~INR3b in FY26E (loss of INR554m adjusted for CCPS-related charges in FY25). RoIC should rise to 8.1% in FY28E from 5.7% in FY25. We initiate coverage on JSWC with a Neutral rating and a target price of INR163, valuing at 15x Sep’27E EV/EBITDA. ? Key upside risks: 1) improvement in C:C ratio for existing plants and higher-thanestimated C: C ratio for the North plant; and 2) higher-than-estimated GGBS volumes and higher utilization for the North plant. Key downside risks: 1) declining trade volumes of ~53% in FY25 vs. ~65% in FY22; 2) pricing pressure in the South region; and 3) delay in capacity commissioning in the North or lower utilization there.

GGBS: Higher contributor to EBITDA (~52% in FY28E vs. ~76% in FY25)

* JSWC, unlike other cement companies that are predominantly into grey cement, has a higher profitability share from GGBS, in our view. GGBS is manufactured from slag, a byproduct of the steel-making process, and JSWC leverages its group presence in steel to procure slag under long-term agreements.

* JSWC is the largest supplier of GGBS in India with ~84% share in FY25. Other companies using slag for cement manufacturing procure it from steel manufacturers. Out of ~37mt slag produced in FY25, 65-70% was used by the cement sector. JSWC consumed ~9.7mt slag in FY25.

* GGBS contributed ~33%/34% to JSWC’s total revenues in FY24/FY25; however, its EBITDA contribution was much higher at ~61%/76% in FY24/FY25 (as per our calculations). GGBS sales by JSWC increased at ~12% CAGR over FY19-25 and we estimate sales volume CAGR of ~12% over FY25-28E. We estimate GGBS revenue contribution to be at ~35%/32%/31% in FY26/27/28E. Based on our estimates, we expect its EBITDA contribution to be at ~63%/57%/52% in FY26/27/28E.

Regional diversification through expansion in North

* JSWC’s ~53% of grinding capacities (both cement and slag grinding capacities are fungible) are in the south region, while ~25%/22% of capacities are in the East/West regions. With its expansion in the North, we believe that ~41%/20%/20%/19% of grinding capacities will be in the South/West/North/East regions in FY28E. ? Regional diversification will help JSWC in risk mitigation as profitability for cement companies as of now is better in the North region than in the South/East regions. JSWC’s mines in Nagaur, Rajasthan, have been acquired through e-auctions and we believe that the cost of limestone will be higher by INR210/t+ compared to other operating mines in the region.

* Nagaur plant will also be eligible for state incentives, which represent 75% of state tax due and are deposited for a period of seven years from the date of commencement of commercial production. However, the annual ceiling on incentives is capped at INR500m for 1-3 years and INR650m for 4-7 years. Based on our assumptions, we expect incentive per ton from the Nagaur plant to be at INR273/INR140 per ton in FY27/28E.

* The commissioning of a grinding unit at the Shiva Cement plant in the east region may also help in cost savings as other grinding units are situated at a distance of ~370-400km. However, the benefit would be marginal as the clinker plant operated at ~68% capacity (in FY25) and currently caters to the requirements of grinding units in Odisha and West Bengal.

Surplus grinding unit estimated in the North region

* JSWC is planning to increase its clinker capacity by 3.3mtpa to 9.7mtpa by 4QFY26, while its grinding capacity is estimated to increase to 27.9mtpa by FY27 and 31.9mtpa by FY28. The clinker-to-cement conversion (C:C) ratio of the company declined to 1.71x in FY25 from 1.81x in FY24. We expect the C:C ratio for the North plant to be lower initially (40% OPC and 60% PPC) and hence, it is estimated to be at 1.61x in FY28E.

* We believe that the company will have a surplus GU capacity of ~8mtpa (excess grinding capacity in North region to be at ~1.5mtpa) based on its current expansion plans. We estimate the Nagaur plant’s clinker capacity utilization to be at ~40%/70% in FY27/28E, which reflects a grinding capacity utilization of ~51-52% in FY27/28E. ? Cement volume CAGR should be at ~19% over FY25-28E, based on ~7% CAGR from existing plants and additional volumes from the North plant.

Debt to remain high; net debt-to-EBITDA at 3.0x in FY28E

* Based on the stated capacity expansion plans, we expect a capex of INR56b during FY26-28E, mainly for the Rajasthan integrated unit, while the remaining capex will be spent on the Shiva Cement GU, a greenfield GU in Punjab, and brownfield capacity expansion in the South region.

* Cash outflow during FY26-28E is estimated to be at INR16.8b and hence, we estimate net debt to be at INR45.2b/INR55.1b/INR57.5b in FY26/27/28E vs. INR40.7b (ex-CCPS) in FY25.

* Net debt-to-EBITDA ratio is estimated to remain high at 3.6x/3.4x/3.0x in FY26/27/28E vs. 3.2x/4.7x in FY24/25.

Estimate CAGR of ~19%/31% in revenue/EBITDA over FY25-28E

* JSWC’s performance in FY25 was impacted by ~8% YoY decline in cement realization which led to ~4%/20% decline in revenue/EBITDA. Going forward, we estimate ~19% revenue CAGR over FY25-28E, led by volume growth (~12%/19% CAGR for GGBS/cement) and higher cement/GGBS prices (~2%/3% CAGR for GGBS/cement).

* We estimate ~31% EBITDA CAGR over FY25-28 and expect EBITDA/t of INR993 in FY28E vs. INR699 in FY25 (CAGR of ~12% over FY25-28E). OPM is estimated to be at ~20% in FY28E vs. ~15% in FY25.

* JSWC reported a loss of INR1.6b in FY25; however, adjusted for CCPS-related charges, we believe that the loss was ~INR554m in FY25. Higher profitability of cement and GGBS, along with stable interest expenses (absence of CCPS-related charges), should help the company to report a profit of ~INR3b in FY26, which we expect to increase to ~INR5b in FY28E.

Valuation and view: Fairly valued; initiate with Neutral

* At CMP, JSWC trades at 16.0x/13.6x FY27/28E EV/EBITDA and USD107/USD94 FY27/28 EV/t (adjusted EV/t at USD122/USD120 for FY27/28E considering surplus grinding units).

* The Ramco Cements (TRCL) and Dalmia Bharat (DALBHARA), which operate in similar markets, trade at 14.0x and 11.4x FY27E EV/EBITDA, respectively. Considering the aggressive expansion plans of JSWC and earnings stability due to its exposure in GGBS, we value it at a higher multiple of 15x Sep’27E EV/EBITDA to arrive at our TP of INR163. We initiate coverage on JSWC with a Neutral rating.

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