Rising Input Costs Bite
Motilal Oswal highlights significant input cost inflation affecting JK Cement. Petcoke prices have risen by about $20 per tonne, adding INR75-80 per tonne to costs. Rising packaging costs are also expected to increase operational expenses per tonne in Q1 FY27. Management is exploring cost savings through green energy and logistics improvements, but their effectiveness against rising input prices is yet to be confirmed.
Ambitious Growth Plans
Despite these cost pressures, JK Cement is pushing ahead with ambitious expansion plans. The company aims to grow its operations to over 50 mtpa in the medium term. Key milestones include reaching around 40 mtpa by H1 FY28 and about 45 mtpa by FY29. This expansion is driven by projects in Jaisalmer, Mudappur, and Panna.
Debt and Leverage Outlook
Aggressive capital spending of INR90 billion from FY26 to FY28 is expected to significantly increase JK Cement's net debt. Net debt is forecast to rise to INR79 billion by FY28. This could push the net-debt to EBITDA ratio to 2.5x by FY28, up from a previous target of 2.0x. This rise in leverage is a key factor for investors tracking the company's financial health.
Motilal Oswal's Revised View
Considering these factors, Motilal Oswal cut its EBITDA estimates by about 8% for FY27 and FY28. The brokerage values JK Cement at 17x its FY28E EV/EBITDA, resulting in a lower price target of INR6,040, down from INR6,780. Despite the target cut and cost concerns, Motilal Oswal maintained its 'Buy' rating, showing confidence in the company's expansion-driven growth.