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We assume coverage on Star Cement (Star) with BUY and target price of Rs250, while valuing the stock at FY27E EV/EBITDA of 12x. Star, with the upcoming commissioning of grinding units (GUs) in Silchar and Jorhat (both in Assam) is set to consolidate its leadership position in the Northeast. We estimate its volume/capacity share to increase to ~29%/45% by FY27E from ~23%/33% as of FY25-end, respectively. On the incentives front, the management has given guidance of Rs2-2.5bnpa of incentives for the next two years. We have valued incentives receivable (over the next 9 years), per DCF methodology, and estimate the net present value of incentives at ~Rs10bn (~Rs25/sh). We believe incentives shall cushion Star’s balance sheet amid ongoing and planned (Rajasthan) capacity expansions. Ex-incentives, we see Star’s EBITDA/t rise to Rs1,151 in FY26E and Rs1,212 in FY27E from Rs885 in FY25.

Competitive intensity in NE to remain low; bodes well for regional pricing

As per our demand-supply framework, the north-eastern region will see capacity addition primarily from its top-two players, ie Star Cement and Dalmia Bharat over FY26E-27E. Accordingly, these players will strengthen their presence, as capacity share of top-2 players rises to ~80% in FY27E from ~75% in FY25. JK Lakshmi (JKLC)’s plan to enter the region through subsidiary ‘Agrani Cement’ is witnessing delays (7-8 months), and we believe commissioning of its greenfield project (1/1.5mtpa clinker/cement IU) could be delayed to FY29E. Besides JKLC, none of the other larger players have announced capacity expansion projects in the Northeast, implying low competitive intensity in the region, at least in the medium term (3-4 years). We believe lower competitive intensity bodes well for cement prices and expect these to remain firm in the region.

With home turf well-guarded, Star shall look to diversify in north India

We estimate ~23%/33% volume/capacity share for Star in the Northeast as at FY25- end, respectively. Further, with commissioning of Silchar and Jorhat GUs in FY26 and FY27 we see Star’s volume/capacity share rising to a robust ~29%/45% in the Northeast by FY27E. The management gave guidance for a greenfield expansion project (4-4.5mtpa IU) in Rajasthan, as the next leg of expansion after completion of ongoing projects. Star shall achieve cement capacity of ~16mtpa (~2x of current capacity) in ~5 years, with the completion of the Rajasthan project.

Incentives to cushion balance sheet amid expansions

We estimate Star receiving cumulative incentives (primarily SGST and IGST) to the tune of ~Rs17bn over FY26E-34E, implying ~Rs1.8bn per annum. The incentives will primarily originate from the recently commissioned clinker line at Lumshnong, Meghalaya, and Guwahati GU. The upcoming Silchar GU shall also contribute to the incentive pool from FY27E. We believe the incentives will aid Star in maintaining a healthy balance sheet amid ongoing and future expansions. We estimate a meagre net debt-to-EBITDA of ~0.4x in FY27E (vs ~0.3x in FY25E) despite spending Rs15bn as capex over FY26E-27E against ~Rs10bn of operating cash flows (excluding incentives).

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