JSW Cement demand outlook remains constructive despite Q1 FY27 EBITDA margin pressure

Investment View and Valuation

Motilal Oswal Financial Services retained its Neutral rating on JSW Cement following a first-quarter FY27 EBITDA miss. The broker noted a constructive demand outlook, along with progress on capacity expansion and cost initiatives.

The target price of Rs 146 is based on 14 times FY28E EV/EBITDA. At the report CMP of Rs 130, the stock was considered fairly valued at 16 times FY27E and 13 times FY28E EV/EBITDA.

Q1 FY27 Financial Performance

JSW Cement reported consolidated revenue of Rs 1,900 crore in Q1 FY27, up 22 per cent year on year and 5 per cent above Motilal Oswal's estimate. EBITDA declined about 7 per cent year on year to Rs 300 crore, missing the broker's estimate by 6 per cent, primarily because operating expenditure per tonne was higher than expected.

Operating margin contracted 4.9 percentage points year on year to about 16 per cent, versus the broker's estimate of about 18 per cent. Adjusted PAT rose about 11 per cent year on year to Rs 120 crore, beating the estimate by about 17 per cent because of a higher-than-estimated share of profit from the joint venture.

Volumes, Realisations and Cost Trends

Sales volume increased 15 per cent year on year to 3.8 million tonnes, in line with estimates. Cement volume grew 27 per cent to 2.34 million tonnes, while GGBS volume increased 3 per cent to 1.33 million tonnes.

Blended realisation increased about 6 per cent year on year and 5 per cent quarter on quarter to Rs 4,977 per tonne, around 5 per cent above the broker's estimate. However, operating expenditure rose about 12 per cent year on year to Rs 4,194 per tonne, around 7 per cent above estimate. This was driven by about 15 per cent higher variable costs per tonne and 33 per cent higher other expenses per tonne. Freight cost per tonne declined about 1 per cent year on year.

EBITDA per tonne declined about 20 per cent year on year to Rs 784, below the estimate of Rs 835 per tonne.

Demand Outlook and Cost Initiatives

Management expects cement demand to improve sequentially in Q2 FY27 despite the monsoon, supported by infrastructure and housing demand. Demand in the South, West and East grew about 6 per cent year on year in Q1 FY27, while North grew about 11 per cent.

Management is targeting high-teens overall volume growth and high-single-digit GGBS growth in FY27. Blended fuel cost rose to Rs 1.80 per Kcal in Q1 FY27 from Rs 1.49 per Kcal in the preceding quarter. JSW Cement is increasing domestic fuel usage to optimise costs.

North Business Ramp-up and Capacity Expansion

The North business is ramping up, with utilisation reaching about 68 per cent in June 2026 from about 55 per cent in Q1 FY27. An additional 1.0 million tonnes per annum of grinding capacity at Nagaur is on track for commissioning by the end of Q2 FY27. Management expects North operations to achieve EBITDA break-even by September 2026.

Waste heat recovery, OLBC and AFR systems are nearing completion and are expected to improve the North cost structure. JSW Cement plans capex of Rs 2,300 crore in FY27 and Rs 2,000 crore in FY28, targeting capacity expansion from 24.1 million tonnes per annum to about 43.5 million tonnes per annum over the next few years. Total capex is expected to be Rs 7,500-7,600 crore.

Estimates and Earnings Outlook

Motilal Oswal maintained its FY27 and FY28 EBITDA estimates but raised its FY27 PAT estimate by about 9 per cent because of a higher joint-venture profit contribution. The broker estimates revenue, EBITDA and adjusted PAT CAGRs of about 20 per cent, 20 per cent and 14 per cent, respectively, over FY26-FY28.

Key Near-term Pressures and Leverage

Key near-term pressures identified by the broker are elevated marketing expenditure, higher fuel costs and initial North-region ramp-up losses.

Net debt was Rs 3,560 crore in Q1 FY27, compared with Rs 3,640 crore at March 2026. Net debt to EBITDA was 2.95 times on a trailing-twelve-month basis. Motilal Oswal expects net debt to remain elevated at Rs 6,420 crore and net debt to EBITDA to rise to 3.6 times by FY28 because of aggressive capex, whereas management targets net debt to EBITDA below 3.0 times.