Buy Star Cement Ltd For Target Rs.117 - Sushil Finance
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Highlights from the Quarter (Q4 FY22)
During Q4 FY22, the top-line grew by 24% yoy to Rs.749.2 cr and up by 35% as compared to Rs.554.9 cr on qoq basis. Cement sales volume for the quarter was 11.52 lakh tonnes as compared to 9.01 lakh tonnes on yoy basis. EBITDA margin contracted by ~220 bps yoy to 15.1% in Q4 FY22 on account of higher freight cost. Power cost increase was not substantial due to the availability of healthy stock of coal with the company. It has increased the price of cement by Rs.10-15 per bag in North East and Rs.20-30 per bag in West Bengal to counter the increase in overall cost. The company spent an additional Rs.12 cr in the FY22, on account of promotion expenses of its new plant in Siliguri. Star Cement has substituted 10% of power requirements to biomass and plans to increase the substitution to 15-17% from renewable sources in the next 6-7 months to arrest the increase in the power cost.
Going forward, the management expects volume growth of 17% to 4 mt in FY23 driven by pick-up in demand and improvement in capacity utilization of the new plant at Siliguri as compared to the last year
The company has estimated a capex of Rs. 2,000 cr over the next couple of years in building a 3 MTPA clinker plant in Meghalaya, 4 MTPA grinding unit in Assam. It is likely to receive EC clearance by May end, as a public hearing is completed to set up 3mtpa clinker capacity associated with grinding units and WHRS in Meghalaya. The construction work is expected to start in June 2022.
OUTLOOK AND VALUATION
Healthy regional dynamics in the North East region as well as an increase in capacity in the East by the company, should augur well for the company on a long-term basis. However with increase in power and freight cost, we have trimmed EBITDA margins by 10-30 bps in FY23 and FY24. Going forward, we expect the company to deliver an EPS of Rs.6.1 in FY24; assigning a target multiple of 18.5x, we arrive at a target price of Rs.117, showcasing an upside potential of 27% for 18-24 months.
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