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Star Cement’s consolidated EBITDA increased 37% YoY/51% QoQ to Rs1.5bn in Q3FY24 which was 15% above Consensus estimate. EBITDA/t stood at Rs1,538 (18-quarter high). Volume grew 7% YoY/ 8% QoQ to 0.9mt (in line with estimates). Realizations improved 3% QoQ to Rs6,736/t on account of price increases in the north-eastern region (NER). While, Q4FY24 has started on a tepid note, the management expects the volume trajectory to accelerate in FY25 owing to commissioning of new capacities (targets 18% YoY growth in FY25). Star has embarked on a journey to strengthen its market share in NER to over 30% (currently at 25%) by FY26-27, by more than doubling its capacity. Factoring-in the Q3 performance, we raise our EBITDA by 4-7% for FY25-26E and maintain our ADD rating on the stock, with revised Dec-24E TP to Rs210/share (based on 10x EV/EBITDA).

Result Summary

Revenue grew 5% YoY (11% QoQ) to Rs6.2bn. Overall volume grew 7% YoY, whereas volume in NER increased 11% YoY (better than industry volume growth of 3% YoY). Total cost/t dropped, by Rs234 QoQ to Rs5,198, mainly on account of reduction in RM+P&F cost by Rs123/t QoQ (fuel cost fell to Rs1.75/Kcal vs. Rs1.9 in Q3FY24). Realizations improved by Rs204/t to Rs6,522/t. Subsequently, Company recorded one of its highest EBITDA/t numbers, at Rs1,538 (up Rs438/t QoQ). Company is on track to increase its clinker and grinding capacities to 5.8mt and 9.7mt, respectively, and has already spent ~Rs12bn, as of Dec-23. The new grinding unit in Guwahati will be eligible for capital subsidy, i.e. 200% of capex. Company will accrue Rs1.5-1.6bn worth of incentives over the next 5-7 years. Star maintains its healthy cash reserves, of Rs1.2bn as of Dec-23. Despite the ongoing capex, we expect leverage to stay low over FY25-26E.

What we like: Better than expected profitability

What we do not like: Slight delay in commissioning of the upcoming project

Key Concall Takeaways: i) Star’s 2mt GU in Guwahati to be commissioned by Mar-24 (earlier, Dec-23), while its 3mt clinker plant in Meghalaya is expected to be commissioned in Mar-24 (earlier, Feb-24). ii) Post the ongoing expansion, Company targets achieving capacity of 20mt by 2030. Looking to acquire mines in the South and Rajasthan, and setting up a 2.5mt clinker and a corresponding 3.5-4mt GU at capex of around Rs25bn. iii) Company has, till date, spent Rs3.3bn on the Guwahati GU and is expected to incur another Rs550mn in Q4 (project cost down, from Rs4.3bn); similarly, it has spent Rs8.5bn for its clinker unit in Meghalaya and will be spending Rs2bn in Q4 and Rs1bn in Q1FY25. iv) Company expects volumes to grow 7-8% in Q4FY24 (vs. industry growth of 5-6%). v) Currently, the total Assam market is ~65% (7.5-8mt) of NER market (12.5-13mt). Star is at present supplying ~1.8mt in Assam and aims for 20% growth in FY25 to 2.2-2.3mt and to 2.6mt in FY26.

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