Star Cement falls 6% as stock trades ex-share buyback

The Buyback would help in improving return on equity by reducing the equity base, and will lead to long term increase in shareholders' value

Shares of Star Cement dipped 6 per cent to Rs 109.40 on the BSE in the intra-day trade on Wednesday after the stock of cement manufacture turned ex-share buyback today. The company has fixed Thursday, August 26, 2021 as the record date for the purpose of buyback of equity shares. The stock had hit a 52-week high of Rs 120 on August 16, 2021.

"The board of directors of Star Cement, at its meeting held on August 13, 2021, approved the buyback of not exceeding 8.25 million equity shares, representing up to 2 per cent of total equity capital of the company, at a price of Rs 150 per share. The buyback shall be on a proportionate basis from all the equity shareholders of the company through the tender offer process," the company said.

Share buyback is the acquisition of its own shares by a company with an objective to return surplus cash to the shareholders holding the equity shares. Buyback is a more efficient form of distributing surplus cash to the shareholders holding equity shares of the Company.

The Buyback would help in improving return on equity, by reduction in the equity base, thereby leading to long term increase in shareholders’ value. It would help in optimizing the capital structure.

In April-June quarter (Q1FY22), Star Cement reported volume/revenue growth of 70 per cent/75 per cent respectively on account of higher demand, better realization, and lower base on a year on year (YoY) basis. However, it reported lower-than-expected Ebitda (earnings before interest, taxes, depreciation, and amortization) margins owing to one of the costs related to plant shutdown and higher other expenditures. The company recorded an Ebitda margin of 18.1 per cent as against 22.4 per cent YoY.

Analysts at Axis Securities believe Star Cement’s operating region (East & North East) would witness significant demand for cement consumption going forward. Further, with the addition of new capacity (2 mntpa) in the East, the company is well-positioned to take advantage of rising cement demand in the region, they say.

"In financial year 2021-22 (FY22), Star will continue to focus on ramping up Siliguri production and commissioning the 12MW WHRS (by FY23). Star’s brownfield clinker expansion (3mn MT) in Meghalaya is delayed (not expected before H2FY24), owing to delays in environmental clearance," HDFC Securities said in a June quarter result update.