Star Cement surges 9% on heavy volumes; nears 4-year high

Enhanced capacity utilisation, backed by the government's thrust on infrastructure development in the NER and better pricing power would enable Star to register revenue and earnings by going forward

Shares of Star Cement hit a 52-week high of Rs 135.90, as they rallied 9 per cent on the BSE in Thursday's intra-day trade, in an otherwise subdued market on improved operational performance. The stock was quoting close to its four-year high of Rs 137.60, touched in June 2019. In comparison, the S&P BSE Sensex was down 0.21 per cent at 61,642 at 10:56 AM.

Star Cement is engaged in the manufacturing and selling of Cement Clinker & Cement. The manufacturing units are located at Lumshnong (Meghalaya), Guwahati (Assam), and Siliguri (West Bengal). The company is selling its product across north eastern and eastern states of India.

The company operates in a complex geographical topography and has built competitive advantages owing to its experience of operating in the North Eastern Region (NER) of India and has fortified its presence with a material volume share of around 25 per cent.

The government has initiated, in various fonts, for overall development of NER of the country. On a range of indicators, the rate of development now a days is on the rise, with notable improvements in health, education, infrastructure development and industrialisation which contributed in development of socio economic standard of the Region.

Implementation of various projects and initiatives of the government will contribute in all round development in NER which will pool cement demand and lead to increase in per capita consumption of cement and would help the company to increase its market share in the Region.

Enhanced capacity utilisation, backed by the government's thrust on infrastructure development in the NER and better pricing power would enable Star to register revenue and earnings CAGR of 14 per cent and 17 per cent, respectively in FY23-25E, according to analysts.

"The NER has favourable demand-supply dynamics with overall ~14 MT of grinding capacity and 12 MT of cement consumption. Star has embarked on a journey to further strengthen its market share in NER to 30 per cent plus by FY26E by more than doubling its capacity. It continues to have a robust b/s, debt free status and cash & investment worth Rs 480 crore. Star trades at reasonable valuations of 8x FY25E EV/EBITDA ($70/t)," according to analysts at ICICI Securities.

Meanwhile, Star's 12MW Waste Heat Recovery Systems (WHRS) plant started operations in May 2022 (will save Rs 40 crore in annual opex). Additionally, increased own fleet usage, savings from new limestone mines, and energy cost reductions are expected to offset the impact of the sharp drop in incentives in FY24E, said analysts at HDFC Securities.

Star's expansions (total Capex around Rs 2,100 crore) are on track to be fully commissioned in H1FY25E. These plants will further increase incentive accruals from FY25E onwards, the brokerage firm said. However, it lowered FY24E EBITDA by 3 per cent to factor in lower incentives but increase FY25E EBITDA by 3 per cent factoring in higher volumes. Currently, the stock is trading above the brokerage firm’s target price of Rs 130 per share.