Buy Star Cement Ltd for the Target Rs.280 By Emkay Global Financial Services Ltd
Robust quarter, robust momentum
Star Cement (Star) reported consolidated EBITDA at Rs1.9bn (surged ~2x YoY and down 17% QoQ), which stands above our estimate (of Rs1.63bn) due to higher-than-expected volumes and better cost control. The company reported 20% YoY volume growth, mainly on a low base (Meghalaya clinker line commissioned in Apr-24, albeit stabilized only by Q3FY25). Cement realizations (excl incentives) dipped ~2% sequentially, due to pricing weakness in the East ,in Q2, coupled with higher dispatches in the non-trade segment. Incentives stood at Rs560mn (~Rs480/t) vs Rs370mn YoY and Rs620 QoQ. On QoQ basis, tight control on variable cost offset the inflation in fixed cost which resulted in unit operating cost declining 5% YoY and standing flat QoQ. Overall, EBITDA/t stood at Rs1,620 and at Rs1,145 ex-incentives (Emkay: Rs990). On the capex front, Star has delayed the 2mtpa Jorhat GU (scheduled to commission in FY27) and greenlit the 2mtpa GU in Bihar which will be commissioned by H1FY28-end. The company shall see a unit incentive hit of Rs130-150 due to reduction of GST rates (incentive pool being linked to SGST). Further, the delay in Jorhat GU will also delay the incentive accrual in FY28E; hence, we cut FY28E EBITDA by ~10% while broadly maintaining our estimates for FY26/27. We continue to value Star at 12x EV/EBITDA on Q2FY28E (rolled forward by one quarter), while raising our TP by ~6% to Rs280 (earlier Rs265); maintain BUY.
