Leading analyst firm Jefferies has revised down its target prices for three significant Indian cement companies: JK Lakshmi Cement Ltd, Birla Corporation Ltd, and HeidelbergCement India Ltd. This adjustment comes in the wake of their September quarter (Q2 FY27) financial results, which revealed that rising input costs are weighing heavily on operating profitability.
Cost Pressures Impact Q2 Performance
In its November 6 report, titled Cement Sep-26Q: Costs Weigh; Can Pricing Catch Up?, Jefferies highlighted that cement companies are grappling with increased operational expenses. Despite experiencing healthy volume growth, the escalating input costs have suppressed overall profitability. The brokerage noted that aggregate EBITDA across its covered cement universe declined by 1% year-over-year in Q2 FY27, although this figure was 6% above its initial estimates.
Jefferies has consequently lowered its aggregate FY27-FY29 EBITDA estimates for the sector by approximately 1-4%. However, estimates for UltraTech Cement and Nuvoco Vistas remained largely unchanged, with UltraTech Cement being identified as Jefferies' top pick in the sector, delivering a strong 20% year-over-year EBITDA increase.
Individual Company Adjustments
JK Lakshmi Cement Ltd
- Target Price Cut: Jefferies lowered its target price on JK Lakshmi Cement to Rs 540 from Rs 620, maintaining a 'Hold' rating. The revised target is based on eight times the company's estimated September 2028 EBITDA.
- EBITDA & Net Profit: The brokerage reduced its FY27, FY28, and FY29 EBITDA estimates by 8%, 5%, and 4% respectively. Net profit estimates were cut by 16%, 14%, and 11% over the same period.
- Q2 FY27 Performance: JK Lakshmi Cement reported Q2 FY27 EBITDA of Rs 154.1 crore (down 26% YoY), with revenue increasing 5.6% to Rs 1,616.9 crore.
Birla Corporation Ltd
- Target Price Cut: Jefferies cut its target price on Birla Corporation to Rs 950 from Rs 1,030, retaining its 'Hold' rating. The new target is based on seven times its estimated September 2028 EBITDA.
- Volume & Profit Estimates: The brokerage projects moderate volume growth with a 5% compound annual growth rate (CAGR) over FY27-FY29. EBITDA estimates for FY27, FY28, and FY29 were lowered by 6% each, while net profit estimates were reduced by 9%, 13%, and 15% respectively.
- Q2 FY27 Performance: Birla Corporation's Q2 FY27 EBITDA declined 25.3% YoY to Rs 227.8 crore, even as revenue rose 9.5% to Rs 2,415.4 crore.
HeidelbergCement India Ltd
- Target Price Cut: Jefferies reduced its target price on HeidelbergCement India to Rs 110 from Rs 135, maintaining an 'Underperform' rating. The revised target is based on seven times estimated September 2028 EBITDA.
- EBITDA & Net Profit: The brokerage cut its FY27, FY28, and FY29 EBITDA estimates by 3%, 8%, and 7% respectively. Net profit estimates were lowered by 7%, 13%, and 13%.
- Q2 FY27 Performance: The company reported Q2 FY27 EBITDA of Rs 48.2 crore (down 16.3% YoY), with revenue increasing 11% to Rs 567.8 crore.
Sector Outlook and Rising Variable Costs
Jefferies' analysis indicated that the average cost per tonne for cement companies increased by 5-6% sequentially, exceeding their 4-5% estimate. Industry-wide EBITDA per tonne fell by approximately Rs 125 year-over-year to around Rs 803 in the September quarter. Companies have also indicated a further increase of about Rs 100 per tonne in variable costs for the December quarter, with potential for more pressure if fuel prices remain elevated.