JK Lakshmi Cement Ltd Management Discussions

OUTLOOK FOR INDIAN ECONOMY, INDUSTRY STRUCTURE AND DEVELOPMENTS

During FY 2025-26, Indias economy grew by ~7.6%, reclaiming its position as the worlds fastest-growing major economy and marking the strongest expansion since FY 2022-23, well ahead of initial projections of 6.3%-6.8%. Growth was broad-based: manufacturing recorded double-digit expansion for the third consecutive year, services GVA grew ~9.1%, agriculture rose 3.1% on the back of an above-normal monsoon, and construction sustained robust momentum driven by infrastructure spending and rural housing demand.

A strong first half, with GDP expanding at 8.0%, was the primary engine of full-year performance, driven by Income Tax and GST rationalisation, which boosted household disposable incomes, front-loaded government capital expenditure, and an easing of the monetary cycle. The RBI delivered a cumulative 125 basis points of repo rate cuts over the year, bringing the policy rate to 5.25%, with strong monetary transmission, weighted-average lending rates declined by ~105 basis points for fresh loans.

Headline CPI averaged just 2.1% for the full year, the lowest since the inception of the current series - driven by food price deflation and the GST rationalisation of September 2025. Private Final Consumption Expenditure grew ~7.0%-7.5%, reaching 61.5% of GDP, the highest share since FY 2011-12. Gross Fixed Capital Formation sustained ~30% of GDP. Private-sector capex rose by over 20% to —Rs 2.67 Lakh Crore, reflecting healthier corporate balance sheets and rising capacity utilisation. The banking sector recorded multi-decade low gross NPAs of 2.2% and net NPAs of 0.5%, while credit growth accelerated to —14.5% year-on-year. The fiscal deficit remained on track at 4.4% of GDP, supported by record GST collections of Rs 17.4 Lakh Crore in April-December 2025. India also received a sovereign credit rating upgrade from S&P during the year.

The West Asia Conflict: A Q4 Shock

The Anal quarter of FY 2025-26 was materially disrupted by the outbreak of the conflict in West Asia in late February 2026. The US-Israeli strikes on Iran and Irans retaliatory closure of the Strait of Hormuz, through which —20% of global oil and LNG trade normally passes, triggered a severe global energy shock. Indian crude basket prices surged to USD 124 per barrel by early April

2026, up over 50% from pre-conflict levels.

The impact on India was immediate and multi-channel: energy import costs surged, the rupee depreciated over 11% for the full year, the steepest since FY 2011-12, FPI equity outflows for FY 2025-26 reached USD 16.6 Billion, and the RBI deployed approximately USD 40 Billion in forex reserves to moderate the currency slide. The fertiliser sector faced acute stress, with —86% of the LNG used in Indias urea plants sourced from the Gulf region. Global urea prices climbed nearly USD 200-250 per tonne from pre-conflict levels, pushing Indias fertiliser subsidy outgo — 14% above budget at Rs 1.92 Lakh Crore.

Notwithstanding the shock, the resilience of Indias underlying economy was demonstrated by Q4 FY 2025-26 GDP growth of —7.2% and full-year growth of —7.6%.

Outlook for FY 2026-27

India is projected to remain the fastest-growing major economy globally in FY 2026-27, with growth moderating to —6.9% as elevated energy costs and global uncertainty work through the system. The RBI held the repo rate unchanged at 5.25% in April 2026, adopting a data-dependent, wait-and-watch stance. FY 2026-27 CPI inflation is projected at 4.6%, nearly double the FY 2025-26 outturn, primarily reflecting the supply-side energy shock rather than demand-side pressures.

Structural supports remain intact: domestic consumption is anchored by a tax-rationalised economy, government capex continues to scale, corporate and banking balance sheets are healthy, and services exports remain resilient. Key risks include the trajectory of crude oil prices and the normalisation of the Strait of Hormuz, the potential El Nino impact on the monsoon, and the outcome of US-India trade negotiations.

Indian Cement Industry: Structure & Developments

The Indian cement industry, the worlds second largest, sustained strong momentum in FY 2025-26, with demand growing by —7%, driven by government-led infrastructure programmes such as PM Gati Shakti, Bharatmala, Smart Cities Mission, and PMAY alongside rising urbanisation and housing demand in rural and semi-urban markets.

Total installed capacity reached —712 million tonnes, up from 667 million tonnes in FY 2024-25. Capacity additions of 5-7% remain manageable relative to demand growth, and the demand-supply balance is expected to stay flat over the medium term. Ongoing consolidation among the top players is expected to support pricing discipline over time.

The cost environment, however, became materially more complex in Q4 following the conflict in West Asia. Pet coke and LNG costs spiked; freight and logistics costs rose amid higher diesel prices; and the Rupees 11% depreciation elevated the landed cost of imported fuels and raw materials. These pressures compressed industry margins in Q4 and are expected to keep cost management a central priority entering FY 2026-27. Cement price realisations remained under pressure throughout the year due to regional competitive dynamics, though robust infrastructure demand provided volume support.

Sustainability continues to be a defining strategic and regulatory imperative. Blended cement now accounts for over 70% of industry production. Investment in waste heat recovery, alternative fuels, and low-carbon products such as LC-3 cement is accelerating, in alignment with Indias net-zero emissions target of 2070. Digital technologies including AI-driven process optimisation, predictive maintenance, and real-time energy monitoring, are being deployed at scale to improve efficiency and offset cost headwinds.

JK Lakshmi Cement Limited: Strategy & Progress

At JK Lakshmi Cement Ltd. (JKLC), FY 2025-26 saw meaningful progress across our three strategic priorities of capacity expansion, cost leadership and sustainability.

Our capacity expansion programme toward 30 million tonnes by 2030 remains on track. The Surat Grinding Unit capacity addition of 1.35 million tonnes was commissioned during the year, strengthening our western region footprint. Our efficiency enhancement programme on cost savings continued to deliver results across plant operations, logistics, discount rationalisation, and geo-mix optimisation, providing structural insulation even as the Q4 West Asia shock introduced fresh fuel and freight cost headwinds.

Regarding sustainability, renewable energy currently accounts for approximately ~47% of our total electrical power consumption, with a target of 100% by 2040. The Company remains 4.49 times water positive, targeting 7 times by FY 202930. Our blended-cement portfolio, LC-3 development, and alternative-fuel adoption continue to strengthen our decarbonisation trajectory. CSR programmes have positively touched the lives of over 3,50,000 individuals. Innovations, including LNG-fuelled logistics and Indias first floating solar installation in the cement sector, reflect our commitment to sustainability leadership.

As we enter FY 2026-27, we remain watchful of the evolving geopolitical environment and its implications for energy and input costs. However, our expanding capacity, cost discipline, and sustainability credentials position JKLC well to navigate nearterm uncertainties and deliver long-term stakeholder value.

FINANCIAL PERFORMANCE

During the FY 2025-26, the Companys Cement Production was higher by 10.38% at 126.07 lac tonnes as against 114.21 lac tonnes achieved during the last Financial Year. The Companys Sales during the Financial Year ended 31^st March 2026 were up by 10.03% at 133.46 lac tonnes against 121.29 lac tonnes logged in the last Financial Year.

The Company recorded revenue from operation of Rs 6,762.63 Crore during the year under review as compared to the revenue of Rs 6,192.62 Crore in the FY 2024-25. Profit before Tax stood at Rs 574.25 Crore in FY 2025-26 as compared to Rs 402.90 Crore in FY 2024-25. Profit after Tax stood at Rs 430.34 Crore in FY 202526 as compared to Rs 282.72 Crore in FY 2024-25.

KEY CHANGES IN FINANCIAL INDICATORS

The various Financial Ratios for the year under review as compared to the same of the previous Financial Year are given hereunder:

S. No. Particulars	Unit	As at 31.3.2026	As at 31.3.2025	Comments
1 Operating Profit Margin	%	15	14	Increase in Margin primarily due to higher sales realization on the back of strong Cement demand
2 Net Profit Margin	%	6.36	4.52
3 Return on Net-Worth	%	11.46	8.15
4 Interest Coverage Ratio	Times	5.35	5.07
5 Debt Service Coverage Ratio	Times	2.76	2
6 Current Ratio	Times	1.31	1.04	Increase in Current Investments and Decrease in Current Liabilities
7 Debt Equity Ratio	Times	0.63	0.71	Increase in Net Worth based on Profit for the year & repayment of Term Loans
8 Net Debt Equity Ratio	Times	0.32	0.39	Increase in Current Investments and Fixed Deposit with Banks
9 Net Debt to EBIDTA	Times	1.12	1.50	Increase in Operating Profit
10 Inventory Turnover	Times	9	7	Increase is due to increase in the Revenue from Operation and decrease in the Average inventory
11 Debtors Turnover	Times	76	105	Reduction is due to increase in the Average Debtors

OPPORTUNITIES AND THREATS

The US-Iran war, which escalated sharply in late February 2026 and effectively closed the Strait of Hormuz from early March, has materially altered the operating environment for Indian cement. India depends on the Gulf for 87% of its crude oil and close to 90% of its LPG imports. For cement specifically, the disruption is simultaneously hitting fuel supplies, freight costs, insurance premiums, and currency. India, with thinner reserves and a heavy reliance on Middle Eastern crude, is more vulnerable to a prolonged disruption, higher energy prices are feeding inflation, weakening the rupee, and threatening growth. The industry must navigate a structurally repriced cost environment even as its demand fundamentals remain broadly positive.

OPPORTUNITIES

(a) Demand: Positive but Execution-Dependent

Government infrastructure Capex, PMAY housing, and urbanisation continue to provide a credible demand base. Demand is projected to grow by 6-7% in FY 2026-27, driven by housing and infrastructure, roads, railways, affordable housing, and Tier-II city development, which remain multi-year tailwinds.

However, demand optimism must be tempered. In FY 2025-26, actual government Capex underperformed the Budget Estimates. PMAY-Rural and PMGSY targets were missed in both FY 2024-25 and FY 2025-26. Real estate new launches fell 44% YoY in January 2026. The macro stress from the conflict, inflation, rupee weakness, and compressed fiscal headroom, poses a real risk of Capex slippage and softness in private housing in FY 2026-27.

(b) Domestic Coal Substitution

The conflict has accelerated a shift in the strategically important fuel mix. Indian cement makers received 1.36 million tonnes of domestic coal in February 2026, up 85% from a year earlier. The removal of 400/MT coal levy in September 2025 had already tilted the economics, and producers are now targeting 25%+ domestic coal in the fuel mix. This reduces Hormuz-linked import exposure and, if sustained, structurally improves cost stability.

(c) Cement Price Recovery

The shared cost shock provides the industry with a rare exogenous justification for price hikes. It is likely that an increase in energy and freight costs will be passed on to consumers.

(d) Green Cement and Energy Security: A Converging Agenda

The conflict has sharpened the business case for investment in WHRS, alternative fuels, blended cement, and captive renewable power. Budget 2026 allocated 20,000 crore over five years for CCUS technologies, explicitly including cement. The sustainability and energy security agendas have converged: green Capex is now both a cost- management lever and a regulatory necessity.

THREATS

(a) Hormuz Closure: Structural, Not Temporary

The Strait of Hormuz, through which 20% of global oil and LNG flows, has emerged as a critical chokepoint. Indian cement companies, which source ~50% of their pet coke from Saudi Arabia and the UAE, are facing supply disruptions and pivoting to costlier US coal. Crucially, even a negotiated reopening offers limited relief: war-risk insurance premiums, previously ~0.25% of hull value, could rise up to 20x, keeping freight and insurance costs structurally elevated for years.

(b) Petcoke Price and Supply Shock

Prices of imported petcoke and coal have already increased by ~40% and 35% respectively since the start of the conflict and is currently estimated to be $160-170/MT; the last traded assessment was $160/MT in April. With fuel and power accounting for 30-35% of production costs, this translates to ~ Rs 300/MT of unbudgeted cost pressure. Refiners increasingly focusing on gas production could further limit the availability of pet coke as a refinery byproduct, making this a supply availability issue, not just a price issue.

(c) Freight, Insurance and Currency: A Triple Squeeze

Shipping lines have imposed war risk surcharges of $1,5002,000 per container on Gulf cargo, and rerouting via the Cape of Good Hope adds 10-14 days to every voyage. The Rupees breach of 95/USD amplifies every dollar- denominated import, pet coke, gypsum and freight- creating a compounded cost headwind where commodity and currency risk move in the same adverse direction.

(d) Capacity Surplus Meets Cost Squeeze

The industry is expected to add 50 MTPA of new capacity in FY 2026-27, after similar additions in FY 2025-26. In a high-cost environment, producers facing margin pressure may choose volume over pricing discipline, undermining the industrys ability to pass through costs. The combination of surplus capacity and a cost shock is the most corrosive scenario for sector profitability.

RISKS AND CONCERNS

JKLC operates in a complex macroeconomic and regulatory landscape that presents a wide spectrum of internal and external risks. Recognising these challenges, the Company has embedded an enterprise-wide risk assessment framework that continuously monitors the evolving business environment. Key risks and concerns are outlined below:

(a) Margin Sustainability: The Central Risk

Volume growth and profitability are diverging. The cement industry is expected to grow 6-7% in FY 2026-27, but profitability will remain under pressure due to rising input costs and geopolitical tensions affecting fuel and freight. A key concern is margin sustainability, as input costs, especially for fuel and packaging, are expected to rise further in FY 2026-27, mirroring the FY 2022-23 scenario, where cost increases outpaced price hikes. Estimates suggest a cost rise of 300-400 per tonne for FY 2026-27, while price hikes are likely to lag, making the gap between cost inflation and realisation growth the defining profitability risk of the year.

(b) Overcapacity and Price Discipline

Despite ongoing consolidation, industry capacity utilisation is projected to remain around 70% even on an expanded base in FY 2026-27, indicating ample room for supply to outpace demand, suppressing prices and margins. Addition of over 60 million MTPA capacity in FY 2025-26 alone could create an overhang, pressuring realisations if demand does not keep pace or competitive intensity escalates. Capacity expansion is most pronounced in the North, anticipated to grow at 12% CAGR through FY 2027-28 - introducing heightened risk of regional price volatility. Pricing CAGR for the sector has already been estimated at negative 1-2% between FY 2022-23 and FY 2025-26, and the trajectory is unlikely to reverse meaningfully as long as capacity additions continue at the current pace.

(c) Petcoke and Energy Cost Exposure

Rising petcoke prices pose a direct threat to EBITDA margins, potentially offsetting gains from cost efficiencies and modest price hikes. The Middle East conflict has pushed petcoke prices 25-30% above FY 2026-27 budget assumptions, and the structural repricing of Hormuz-linked shipping costs will persist even after the conflict ends. For pet coke-heavy producers, those sourcing 70-95% of energy from imported coke, this is an existential cost management challenge, not a tactical one.

(d) Packaging Cost Escalation

A less-discussed but significant input cost risk is packaging. The cost of polypropylene bags for packaging has nearly doubled, adding an estimated 60-80 per tonne. The Middle East conflict has compounded this pressure. The full effect is expected to be felt from Q1 FY 2026-27 onwards, hitting margins as fuel costs peak.

(e) Government Capex Slippage

Infrastructure-led demand is the industrys anchor thesis, but execution risk is real and recurring. Government Capex declined 24% year-on-year in January 2026. The recent moderation in government capital expenditure trends poses a risk to infrastructure-led demand. PMAY targets were missed in both FY 2024-25 and FY 2025-26. If the macro stress from the conflict, inflation, fiscal compression and RBI policy constraints, leads to further Capex deferral, the demand cushion supporting pricing recovery weakens materially.

(f) Real Estate Weakness

Private housing, which accounts for a significant portion of retail cement demand, remains structurally fragile. A drop in new housing project launches has weakened the shortterm demand outlook. Rising construction costs (driven by higher cement, steel and logistics prices), affordability pressures on buyers from food and energy inflation and Developers financing constraints are all dampening the pace of new launches. The risk is that the demand recovery assumed in FY 2026-27 projections may get diluted.

(g) Debt-Funded Capex Cycle: Financial Vulnerability

The sectors heavy reliance on debt for capital expenditure increases financial vulnerability if demand softens or input costs surge unexpectedly. Major players have committed substantial capacity investment through FY 2027-28. At ~70% utilisation rate and compressed EBITDA/MT, debt servicing becomes a drag on free cash flow precisely when cost pressures are highest. Mid-size producers without the balance sheet depth of the top three players are most exposed to this risk.

(h) Sustainability Compliance as a Cost Burden

Mandatory emission reduction targets for 186 cement plants are now in effect, and CCUS investment requirements are becoming non-negotiable. For mid-size producers, compliance Capex competes directly with growth Capex, stretching balance sheets and management bandwidth. The risk is not the sustainability agenda itself - which is directionally correct, but the pace of regulatory enforcement relative to the Industrys ability to fund compliance while managing an already-stressed cost environment.

(i) Prolonged Hormuz Disruption: The Tail Risk

War-risk premiums have surged to 1-5% of hull value from a pre-war baseline of 0.25%, and even a ceasefire offers limited relief given the persistent mine threat in the Strait. If the conflict extends through H1 FY 2026-27, the compounding of pet coke tightness, elevated freight, Rupee weakness, and constrained fiscal support could push sector EBITDA/MT materially below current projections.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

The Company believes that a strong Internal Control framework is an important pillar of Corporate Governance. The Company has a well-defined Internal Control System commensurate with the size, scale and complexities of the operations to support the Business Operations & also to ensure Statutory Compliances. These Internal Control Systems are periodically tested for their effectiveness by the Management and by the Statutory & Internal Auditors of the Company. These Internal Control Systems were found to be operating effectively during the year.

The Company has an Independent In-house Internal Audit Department which is manned by Experienced Professionals. This Internal Audit Department carries out the Internal Audit based on a Systematic Audit Plan covering all key functions and aspects of the Business. This Audit Plan is approved by the Audit Committee at the start of the Financial Year. The Company has also engaged services of certain External Audit Firms for conducting Audit of its major plants and key marketing offices. The Internal Audit Reports, of the external as well as In-house Audit Teams, are reviewed by the Top Management and are placed before the Audit Committee of Directors. The Audit Committee undertakes a total review of the audit observations and the actions taken by the Management on all the findings of the Internal Auditors. The implementation of the recommendations of the Internal Auditors is regularly reviewed and monitored by the Senior Management and the Action Taken Report is placed periodically before the Audit Committee. The Company also has an Internal Risk Management Committee comprising President & Director and Functional Heads. This Committee meets on a quarterly basis to evaluate the risk as also the mitigation plan put in place to minimise the impact of various internal and external risks to the Companys business. In addition, there is a Risk Management Committee at the Board Level to review the various risks which impact the Companys operations and the management plan to meet those risks.

The Company also has a robust MIS and Budgetary Control System under which the operating and financial performances are reviewed on a monthly basis. The variations with the Budget are analysed and corrective actions are taken to minimise the variations with the Budget wherever shortfalls are noticed.

Further, the Company has also put in place Legal Compliance Monitoring Tool to ensure timely compliance of all the applicable Statutes at its different locations.

HUMAN RESOURCE - "PEOPLE AT THE CORE OF OUR GROWTH STRATEGY"

Our people are the greatest asset and the very foundation of our business. We have consistently dedicated ourselves to cultivating a workplace culture built on our Core Values i.e. Caring for People, Integrity, including intellectual honesty, openness, fairness & trust and Commitment to Excellence while realizing that these values are essential to our collective success and growth.

The Companys Human Resource policies and guidelines are designed to promote collaboration, enable a synergistic work environment, and build organizational agility with a strong focus on future readiness. These frameworks play a critical role in strengthening the leadership pipeline, attracting and nurturing high-potential talent, driving performance-led results, supporting market expansion, and enhancing the Companys overall operational efficiency and profitability.

The Companys inclusive and progressive culture plays a pivotal role in fostering employee engagement and promoting a positive and collaborative work environment. This culture not only supports the attraction of a diverse and talented workforce but also enables effective retention by building a broad spectrum of capabilities essential for sustained growth and long term organizational success.

The Company has undertaken significant initiatives to accelerate its digital transformation in order to remain competitive in an evolving business environment. These efforts focus on strengthening the digital and analytical capabilities of the workforce through structured learning interventions, targeted training programmes, and organization wide awareness initiatives.

In addition, the Company has begun integrating Artificial Intelligence (AI) assisted learning modules and capabilitybuilding initiatives aimed at enhancing data-driven decisionmaking, process automation, and future-ready skill development. Collectively, these initiatives are designed to improve operational efficiency, enhance employee experience, and build a digitally and technologically agile organization.

During the year, the Company undertook various employee engagement initiatives, including structured communication meetings with the CMD and senior leadership, the UDAAN Competition, Naari Shakti Awards, and sports and cultural events across units.

Gen Z employees are actively encouraged, equipped, and empowered to take on enhanced responsibilities across functions and markets. This approach is aligned with the evolving expectations of the younger workforce and is embedded within the Companys HR and culture framework through structured and timely interactions and reviews for focused career development initiatives. These efforts support the aspirations of the new age workforce and contribute to sustained engagement, capability building, and long term retention.

Strengthening human capital and enabling holistic employee development remains a key focus of JK Lakshmi Cement Ltd. During the year, the Company conducted technical and behavioural training programmes (internal and external), along with initiatives relating to physical and mental wellbeing, safety, and health. These initiatives were extended to employees as well as dealers and channel partners, including their family members, contributing to a supportive and inclusive work environment.

During the year, the Companys consistent emphasis on responsible business practices have also been acknowledged through various prestigious awards and recognitions across key areas, including Occupational Health and Safety, Environmental Protection, Corporate Social Responsibility (CSR), and Environmental, Social, and Governance (ESG). These accolades underscore the Companys commitment to maintaining the highest standards of safety, sustainability, ethical governance, and social stewardship, while reinforcing its position as a responsible and future ready organization.

Through a structured and collaborative partnership between Human Resources and CSR, the Company continues to engage closely with communities in the vicinity of its manufacturing units. These initiatives are focused on understanding and addressing evolving community needs, promoting inclusive development, and fostering long-term socio economic progress.

The Company is also proactively integrating community development frameworks into its upcoming projects to ensure sustainable growth and shared value creation from the outset. This consistent and inclusive approach has contributed to strong community relationships, high levels of employee and local talent retention, and the maintenance of harmonious industrial relations for over 27 years.

As we move forward, our people practices will continue to play a pivotal role in nurturing talent, enhancing employee experiences, and strengthening harmonious industrial relations thereby enabling the Company to achieve its objectives responsibly and sustainably, all the while creating value for its stakeholders.

The details of number of people employed are given in Annexure - D to Boards Report.

CAUTIONARY STATEMENT

The Management Discussion and Analysis contains forwardlooking statements, which may be identified by the use of words in that direction or connoting the same. All statements that address expectations or projections about the future including but not limited to statements about your Companys strategy for growth, product development, market positions, expenditures and financial results are forward looking statements.

Your Company s actual results, performance and achievements could thus differ materially from those projected in such forward looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statements on the basis of any subsequent development, information or events.