After a stellar run, higher valuations may keep sentiment muted for JK Cement

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26 Aug, 2025 12:21

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JK Cement has been the best performing cement stock in the past two years with the shares appreciating by nearly 200 percent to Rs 3,513.55 apiece on the National Stock Exchange (NSE).

“We now believe the positives are fully priced in, which are market share gain due to significant capacity addition over FY20-21, attractive growth prospects and improved balance sheet,” said analysts from Kotak Institutional Equities in a report on November 16. The brokerage firm has downgraded the stock to a ‘Sell’ rating on expensive valuations with a fair value of Rs 2700 per share.

But Kotak is not the only one. Antique Stock Broking Ltd too has downgraded the rating on JK Cement to ‘Hold’ from ‘Buy’ and its target price is Rs 3755 per share. “While we continue to like the company's presence and expansion in favorable pricing regions, with limited upside in valuations, we downgrade the stock to Hold,” said Antique’s analysts in a report on November 18.

As such, JK Cement’s September quarter results (Q2FY22) were far from inspiring. Standalone revenues increased by 18 percent year-on-year to Rs 1835 crore. Revenue growth was driven by better volumes performance with blended realisations rather muted.

Nonetheless, operating costs rising at a relatively faster pace meant revenue growth did not translate into commensurate profit growth. Reported EBITDA (earnings before interest, tax, depreciation and amortization) declined 20 percent year-on-year to Rs 329 crore. EBITDA is a measure of profitability for companies. Note that JK Cement’s EBITDA adjusted for Rs26 crore impairment included in other expenses is down 13.6 percent compared to the same quarter last year.

Raw material costs as a percentage of revenues rose 152 basis points year-on-year. One basis point is one-hundredth of a percentage point. Plus, absolute employee costs increased sharply by 33 percent year-on-year. Other operating costs components such as power and fuel expenses; and freight costs also saw faster pace of growth.

As such, Q2 EBITDA performance was below analysts’ expectations.

Indeed, higher costs pressures pose trouble for the company in the near future and may well weigh on investor sentiment for the stock. On the other hand, volume outlook appears more upbeat. Work is progressing as per schedule at the company’s greenfield expansion (4mtpa) at Panna with completion expected in March 2023. This bodes well for volume growth in future. Analysts expect the Nimbahera-line 3 upgradation, completed on 29 September 2021, shall help reduce costs. Production in Nimbahera is expected to stabilize in the current December quarter.

Since Q2 results were announced, shares of JK Cement have declined by 4.5 percent.