Buy Star Cement Ltd Target Rs.117 - Sushil Finance
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Highlightsfrom the Quarter (Q3 FY22)
During Q3 FY22, the top-line grew by 31% yoy to Rs.554.9 cr and up by 36.5% as compared to Rs.406.6 cr on qoq basis. Cement sales volume for the quarter was 8.62 lakh tonnes as compared to 6.62 lakh tonnes on yoy basis. Going forward, the management expects to close FY22 with a volume growth of above 20% driven by pick up in demand and improvement in capacity utilization of new plant at Siliguri from 30% to 65% in H1 FY22. Cement prices saw a dip of 7-8% in East, of which 50% of the drop has been recovered in the month of Jan, 2022.
EBITDA margin contracted by ~500 bps to 12.2% in Q3 FY22 on account of higher fuel cost and employee expenses. The company spent Rs.13 cr in the current quarter as compared Rs.4 cr last year, on account of promotion expenses. Apart from this, it incurred a consulting fee of Rs.5 cr, which is a one time expense. However, the company expects that one time expense like advertisement expense, purchase of 200 fleets and set up of 1 st phase of Waste heat recovery (WHR) plant by Sep, 2022 should lead to improvement in margins in the medium term.
The company has estimated a capex of Rs. 1,700 cr over the next three years in building a 3 MTPA clinker plant in Meghalaya, 2 MTPA grinding unit in Guwahati and 24MW WHR. Total capex planned for FY22 stands at Rs. 300 cr, with a majority of the 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.6.3 in FY24; assigning a target multiple of 18.5x, we arrive at a target price of Rs.117, showcasing an upside potential of 23% for 18-24 months.
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