JK Lakshmi Cement Limited (JKLC) delivered a muted operating performance in Q3FY26 as pricing pressures outweighed healthy volume growth, largely due to a sharp increase in non-trade sales following the commissioning of its Surat grinding unit. Average cement realizations declined materially, compressing margins despite notable cost efficiencies in power and freight. Even so, Prabhudas Lilladher maintains a BUY call, citing improving price momentum, structural cost advantages, and a multi-year volume expansion roadmap that supports earnings growth through FY28.

PL Capital's Call on JK Lakshmi Cement: What Investors Should Know

JK Lakshmi Cement reported subdued Q3FY26 results as a 10% sequential drop in realizations offset an 8% year-on-year rise in volumes. The commissioning of the Surat grinding unit temporarily skewed the sales mix toward lower-priced institutional volumes at a time of industry-wide price corrections linked to GST rationalization. While EBITDA per tonne slipped to Rs625, management expects pricing to recover from Q4 onward as trade share improves and fuel inflation supports price hikes. With disciplined capex, rising green energy usage, and expanding capacity, PL Capital reiterates its BUY rating with a revised target of Rs881.

Volumes Expand, but Mix Turns Adverse After Surat Commissioning

JK Lakshmi Cement recorded an 8% YoY increase in cement volumes to 3.28 million tonnes in Q3FY26, driven primarily by higher institutional sales in Gujarat and Mumbai following the commissioning of its 1.5 mtpa Surat grinding unit in September 2025. However, this incremental volume came at a cost.

The trade share of volumes declined to 49% from 53% in the previous quarter, increasing exposure to non-trade segments where price erosion has been sharper. Management clarified that this mix shift is transitional, noting that trade volumes began recovering in December and January as channel demand strengthened.

Sharp Drop in Realizations Undercuts Revenue Growth

Average net sales realization (NSR) declined 10% quarter-on-quarter to Rs4,841 per tonne, marking the most significant headwind in the quarter. The decline was driven by a combination of weaker trade demand during the GST rationalization phase and aggressive price corrections in institutional markets post-September.

As a result, consolidated revenue rose only 6% YoY to Rs15.9 billion, undershooting expectations despite robust volume growth. PL Capital emphasized that the timing of the Surat commissioning coincided with one of the weakest pricing environments in recent quarters.

Margin Compression Evident as EBITDA per Tonne Falls

EBITDA for the quarter increased just 2% YoY to Rs2.05 billion, with EBITDA per tonne declining 6% YoY and 15% QoQ to Rs625. While operational efficiencies cushioned part of the pricing shock, they were insufficient to fully offset realization losses.

Raw material costs rose 5% YoY to Rs952 per tonne, while depreciation and interest expenses increased following the Surat plant’s capitalization. Consequently, reported PAT declined 9% YoY to Rs0.57 billion, reflecting both margin compression and higher financial charges.

Cost Controls Provide Structural Support

Despite near-term margin pressure, JK Lakshmi Cement continued to demonstrate progress on the cost front.

Power and fuel costs declined 2% YoY to Rs1,131 per tonne, supported by a higher share of renewable energy, which reached 48% of total power consumption in Q3FY26. Freight and forwarding expenses also fell 2% YoY to Rs1,119 per tonne due to reduced lead distances following capacity additions.

Other operating expenses declined modestly on improved operating leverage, reinforcing the company’s structural cost competitiveness over the medium term.

Pricing Outlook Turns Constructive from Q4FY26

Management commentary struck a cautiously optimistic tone on pricing.

Non-trade prices have already increased by Rs10–15 per bag across key regions post December 2025, and trade prices are expected to follow as demand momentum remains healthy and fuel costs trend upward. Importantly, the company indicated that its price gap with larger peers has not widened, preserving competitive positioning.

PL Capital expects the trade-to-non-trade mix to normalize over the coming quarters, aiding realization recovery.

Capacity Headroom Supports Sustained Volume Growth

JK Lakshmi Cement expects double-digit volume growth in Q4FY26, broadly in line with industry growth of around 7% for the full year.

Management guided for a similar growth trajectory in FY27, supported by available capacity headroom at Surat, Udaipur, Jhajjar, and Cuttack. The company is also working to increase its blended cement share from 62% to approximately 67%, which should improve clinker efficiency and lower production costs.

Capex Remains Phased and Disciplined

Capital expenditure remains calibrated rather than aggressive.

Capex is guided at approximately Rs6.5–7 billion for FY26 and Rs16–17 billion for FY27, with the balance of around Rs30 billion planned for FY28. Around Rs3.5 billion has already been spent in 9MFY26, with another Rs4 billion expected in Q4.

Net debt to EBITDA is projected to remain below 3.5x, indicating balance-sheet prudence even as expansion continues.

Financial Trajectory and Valuation Perspective

PL Capital trimmed its FY27 and FY28 earnings estimates marginally to reflect conservative pricing assumptions. Even so, JK Lakshmi Cement is expected to deliver an EBITDA CAGR of 21% and volume CAGR of 10% over FY25–FY28.

At the current market price, the stock trades at 9.0x FY27E and 8.7x FY28E EV/EBITDA, which PL Capital views as reasonable given the company’s improving cost structure and growth visibility.

Valuation Snapshot (Consolidated)

Investment View: BUY Maintained with Target of Rs881

PL Capital reiterates a BUY rating on JK Lakshmi Cement with a revised target price of Rs881, valuing the stock at 10x March 2028E EBITDA. While near-term earnings remain sensitive to pricing recovery, the brokerage believes the worst of the realization pressure is behind.

For long-term investors, JK Lakshmi Cement offers a compelling mix of capacity-led volume growth, improving energy efficiency, and disciplined capital allocation—factors that should translate into margin normalization and steady shareholder returns over the next two years.