Star Cement soars 14% on heavy volumes; stock rallies 26% in one week

Elara Capital believes Star Cement is well placed to report healthy performance from hereon led by healthy volume growth due to ramp-up of recently added capacity and completion of ongoing project.

Shares of Star Cement soared by 14 per cent to Rs 222.95 on the BSE in Wednesday’s intra-day trade amid heavy volumes on expectations of healthy performance going forward. In the past one week, the stock of cement maker has rallied 26 per cent, as compared to less than 1 per cent gain in the BSE Sensex. 

 

Star Cement is one of the leading names among Eastern India's cement manufacturers. The company declared as preferred bidder for 6 limestone blocks in Beawar district, Rajasthan; estimated geological LS resources~ 63.9 million tons; over an area of 95.68 hectares.  Meanwhile, on news report that Adani Group evaluates acquiring Star Cement for expansion in North East, the company clarified that the above mentioned news item is speculative and the company is not engaged in any discussions in this regard.  At 02:46 pm; Star Cement was trading 3 per cent higher at Rs 202.85, as against a 0.16 per cent rise in the benchmark index. The average trading volumes on the counter jumped nearly 20-fold with a combined 13.76 million equity shares representing 3.4 per cent of total equity of Star Cement changed hands on the NSE and BSE. The stock had hit a 52-week high of Rs 255.95 on May 22, 2024.  However, in July to September quarter (Q2FY25), Star Cement reported net sales were broadly in line with expectations, but earnings before interest, tax, depreciation and amortization (EBITDA) was ahead of analysts and consensus estimates, driven by slightly better-than-expected realization. 

 

The company had posted 86 per cent year-on-year (YoY) decline in profit after tax at Rs 6 crore. EBITDA were down by 7 per cent YoY at Rs 97 crore. Revenue from sale of cement and clinker was up 10 per cent YoY at Rs 642 crore.

 

Analysts at Elara Capital said this YoY EBITDA fall was the lowest in its cement universe, led by incentive income, lower competitive intensity in its core North East market and additional volume from the new plant. The company’s EBITDA/tonne reached closer to four digits, a level unmatched by any other player this quarter, marking the highest in our Cement universe, it added. The brokerage firm believes Star Cement’s earnings will be an oasis in the cement industry that has been struggling with intense competition and surplus.

 

Analysts reiterated Buy rating on Star Cement, however target price pared down to Rs 262 as the brokerage firm believes the company is well placed to report healthy performance from hereon led by healthy volume growth due to ramp-up of recently added capacity and completion of ongoing growth projects, higher accrual of GST benefits from Q4FY25,  access to low-cost renewable power, no major capacity addition in its core market in the next year,  absence of clinker purchase due to stabilization of clinker unit from Q4FY25 and margin benefit from operating leverage.

 

Meanwhile, various Government initiatives like "Housing for All" and the Smart Cities Mission provide a structured framework for development, creating sustained demand for cement. Increasing Government initiatives and investments in infrastructure projects play a crucial role in boosting the demand for cement.

 

Large-scale infrastructure projects such as the National Infrastructure Pipeline (NIP), Bharatmala Pariyojana and development of roads, bridges, railways, airports, and housing schemes will not only improve connectivity but also stimulate demand for cement across different regions of the country, Star Cement said in its FY24 annual report.

 

Overall, the positive outlook for the Indian cement industry is underpinned by a combination of demographic trends, urbanization, and government-led initiatives aimed at fostering growth and development. Despite the growth prospects, challenges such as fluctuating raw material prices, regulatory hurdles, and intense competition within the industry could impact market dynamics, the company said.

 

Infrastructure is set to expand its share over the next five years, driven by the government's focus on flagship schemes like PM Gati Shakti and increased investments in roads, railways, metros, airports, and irrigation. Herein, the roads are expected to see the highest traction. 

 

The set target under Phase 1 of the Bharat Mala Project is 34,800 kilometers, out of which up till March 31st, 2024, only 50 per cent has been achieved, indicating that larger part of demand is expected to materialize in the second half of this fiscal and in FY26. Given the pace of execution in the last two fiscals, the target completion date has also been extended to 2028, CareEdge Ratings said.