Buy Star Cement Ltd Target Rs.100 - Emkay Global
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In-line quarter; cost headwinds ahead
* Star Cement’s Q4FY22 EBITDA increased 9% YoY/68% QoQ to Rs1.1bn, broadly in line with our and consensus estimates. EBITDA/ton declined 15% YoY to Rs983 (Emkay est.- Rs1,020).
* In FY22, FCF generation stood at Rs2.1bn post working capital release of Rs1.1bn and capex of Rs2bn. The company has concluded the buyback of 8.2mn shares (2% of share capital) at a price of Rs150/sh, totalling Rs1.2bn. Net cash stood at Rs5.4bn (15% of mcap) as of Mar’22.
* We broadly maintain our FY23-24 estimates with an unchanged TP of Rs100/sh. Our DCF-based TP implies a 1-year forward EV/EBITDA of 9x. Maintain Hold.
* Revenue increased by 24% YoY/35% QoQ to Rs7.5bn. Volumes sharply rose 27% YoY/ 32% QoQ to 1.15mt, owing to a low base. Management has guided for volumes of 4mt, implying growth of 18% YoY in FY23. Industry volumes in North East (NE) grew by 17% YoY in FY22. Cement realization increased ~2% QoQ/declined ~2% YoY to Rs6,498. Cement prices have increased by Rs20-30/bag in West Bengal and Bihar and Rs10-15/bag in the North East region since the exit of Q4FY22
* EBITDA increased 9% YoY/68% QoQ to Rs1.1bn, while EBITDA/ton fell 15% YoY/rose 27% QoQ to Rs983, owing to lower realization. Total cost/ton broadly remained flat YoY and QoQ, in line with our estimates. PAT increased ~4% YoY/doubled QoQ to Rs884mn
* Project updates: 1) Management expects to receive environmental clearance for a 3mt clinker plant in Meghalaya by the end of May’22. The clinker plant, along with a 2mt grinding unit in Guwahati, is targeted to be commissioned by Dec’23. Besides, management is looking to commission another 1.5-2mt grinding unit in Assam and is likely to provide more details in coming quarters. Total capex is expected to be Rs20bn and management has guided for Rs10bn spending in FY23 and FY24 each. 2) The company has spent Rs800mn (out of Rs1.5bn) on 12MW WHRS, which is expected to be commissioned by Oct’22
* Other con-call takeaways: 1) Trade and non-trade mix stood at 86:14. 2) Capacity utilization of the 2mt Siliguri plant was ~65% in Q4; management expects it to operate at 60-65% in FY23. 3) Sales mix between Northeast and Outside Northeast stood at 71:29 in Q4. 4) Lead distance stood at 219kms in FY22. 5) Star received a freight subsidy of Rs250mn in Apr’22. Accordingly, the outstanding freight subsidy stood at Rs120mn. 6) A&P spends stood at Rs450-500mn in FY22, and management guided it to be around Rs300-320mn in FY23.
* FY22 Performance: Volumes increased by 29% YoY to 3.4mt. EBITDA rose ~4% YoY to Rs3.5bn, while EBITDA/ton fell 19% YoY to Rs1,014. FCF generation stood at Rs2.1bn post working capital release of Rs1.1bn and capex spend of Rs2bn. It has utilized it for the buyback at a price of Rs150/sh, totaling Rs1.5bn. Net cash stood at Rs5.4bn (15% of mcap) as of Mar’22.
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