Target: ₹872
CMP: ₹719.10
We reiterate our Buy recommendation on JK Lakshmi (JKLC) with an unchanged target price of ₹872/share (9x FY27E consolidated EBITDA), following our recent discussion with the management team.
Despite a relatively flat performance in FY25, we anticipate JKLC’s volume growth to pick up pace, achieving a 9 percent CAGR for the period FY25-27E primarily due to the expansion activities in the northern region. In addition to this, JKLC has initiated a branding initiative and is focusing on enhancing its green energy infrastructure while also reducing lead distance. The decline in fuel costs is expected to provide a buffer against margin pressure stemming from weak pricing in FY25, and contribute to margin recovery starting from FY26.
As a result, we project unit EBITDA to bounce back from the six-year low of ₹648 per MT in FY25E to ₹863/968 per MT in FY26/27E. The ongoing capacity expansions are set to increase the consolidated capacity to 22.5 million MT by FY28, up from the current 16.5 million MT in FY24. JKLC has reaffirmed its capex guidance of ₹800/1,000/1,500 crore for FY25/26/27E for these expansion projects.
Moreover, we anticipate the consolidated net debt to EBITDA ratio to decline and stay below 2x during FY26/27E. Our valuation of the company remains at 9x its FY27E consolidated EBITDA.
