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Star Cement Ltd. recently announced its performance for the quarter ended October 31 2021. Following are the key highlights.

Highlights from the Quarter (Q2 FY22)

During Q2 FY22, the top-line grew by 1.2% yoy at Rs.406.6 cr and down by 20.5% as compared to Rs.511.1 cr on qoq basis. Cement sales volume for the quarter was 6.17 lakh tonne as compared to 6.34 lakh tonne on yoy basis. Capacity utilization was low at ~43%, on account of shutdown in the cement plant at Lumshnong, Meghalaya and high rainfall in the North East region. Going forward, management expects volume growth of 20% yoy as of FY22, with the signs of pick up in demand from October and improvement in capacity utilization of new plant at Siliguri to 65-70% from 30% in 1HFY22. In Oct’21, the company has taken a price hike of Rs5-7/bag in North-East (NE) region and Rs10/bag in the Eastern region. And, there is a further price hike expected post-Diwali. Also, management has stated that there may be a sharp price hike in the near term to absorb the fuel cost pressure.

EBITDA margin went down by 200 bps to 17.6% in Q2FY22 on account of higher fuel cost and employee expenses. Bonus and increment resulted in a 37% yoy increase in employee expenses, while an increase in freight cost impacted margins.

The company has estimated a capex of Rs. 1,100-1,200 cr over the next three years in building a 3 mtpa clinker plant in Meghalaya. Total capex planned for FY22 stands at Rs. 300 cr, with a majority of amount spent on 12 MW WHRS. This plant is expected to get operational in FY23, which should result in a saving in power cost going forward.

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. Going forward, we expect the company to deliver an EPS of Rs.6.9 in FY23; assigning a target multiple of 18x, we arrive at a target price of Rs.126 for 18-24 months .

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