Buy Star Cement; target of Rs 262: Asit C Mehta

Asit C Mehta report on Star Cement

We initiate coverage on Star Cement Ltd (STRCEM) with a “BUY” recommendation and target price of Rs262 based on 10x FY26E EV/EBITDA. Our recommendation is mainly driven by 1). Capacity addition 2). Better volume growth, 3). Higher incentive in-flows, 4). Improved cost efficiency and 5). Increase in premium segment sale. STRCEM’s strong presence in the northeast region of India coupled with pricing benefits and higher incentive-based plants has enabled it to deliver better EBITDA/tn in the industry. At 69% of capacity utilisation, STRCEM leading 23% of total northeastern market shares and targeting 30% market share in nearterm. The recently commissioned 2mtpa Sonapur grinding unit and 3.3mtpa Lumshnong in Meghalaya, clinker unit to have higher volume addition, going forward. In addition, the company is adding 2mtpa new cement grinding unit at Silchar in Assam, expected to commission in Sep’25. We see a volume growth of 17% CAGR over FY23–FY26E at an average capacity utilisation of 67%. We expect Revenue/EBITDA/PAT growth of 16%/30%/41% CAGR over FY23–FY26E.

Outlook

At CMP Rs220, the stock trades at ~16x/~13x/~9x FY24E/25E/26E EV/EBITDA and USD 135/152/114 EV/ton. It traded at an average EV/EBITDA of ~11x in the last six years. With an improvement in profitability, return ratios & balance sheet and a continued focus on capacity addition, we expect it to trade at higher-thanhistorical multiples, going forward. We value the company at 10x FY26E EV/EBITDA to arrive at a target price of Rs262 (an upside of 19%) and initiate coverage with a BUY rating. While, delay in capex plan and incentive, slower-than-expected demand, regional pricing pressure from new entrant are key downside risks to our call.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Star Cement - 18052024 - ac