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Star Cement - Company Update - ICICI Securities

Posted On: 2020-07-02 04:42:29

Star Cement being the leader in North East with over ~24% share remains a preferred play to ride the growth story of the NER region. Also, being a brand leader, the company generates EBITDA/tonne of over ~Rs. 1400/t, which remains one of the highest among all major industry players. The recent performance of Q4FY20 and FY20 also validates its strength, whereby Star reported volume growth of 4% YoY, 3.1% YoY, respectively, vs. all-India volume de-growth of -13% and -2.5% YoY during the same period. On the margin front, the company ended FY20 with EBITDA margins of 23% and EBITDA/t of Rs. 1438/t (best in the industry). Limited capacity in NER resulting in firm pricing environment, benefit of subsidies from government are also some factors driving healthy margins. The company is virtually debt free and is now expanding its capacity from 4.3 MT to 6.3 MT in the next two years. With government focus on strengthening infrastructure development along the India-China border, firm retail demand and capex by it, we expect Star Cement to clock EBITDA CAGR of 15.1% in FY20-22E. Hence, we remain positive on the company from a long term perspective.

Valuation & Outlook

The company continues to remain a leader in NER. With commissioning of new capacity, we expect Star Cement to return to a healthy growth trajectory curve with RoCE inching upwards to 19% by FY22E. Hence, we upgrade our recommendation from HOLD to BUY with a target price of Rs. 105/share (~7x FY22E EV/EBITDA and EV/t of $95).

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Shares of Star Cement Ltd was last trading in BSE at Rs.86.7 as compared to the previous close of Rs. 86.3. The total number of shares traded during the day was 6209 in over 319 trades.

The stock hit an intraday high of Rs. 87.4 and intraday low of 85.75. The net turnover during the day was Rs. 537177.

Source: Equity Bulls

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