Star Cement - In A Sweet Spot: HDFC Securities

HDFC Securities Institutional Equities

We maintain our Buy rating on Star Cement Ltd. with an unchanged target price of Rs 250/share (10 times September-26E consolidated Ebitda). Star remains in a sweet spot as its large expansion is about to get stabilised and grinding capacity is ramping up.

Star is looking at volume pressure in Q1 FY25E owing to heavy rains in the Northeast region and clinker production disruptions as the new line is being stabilised. However, it remains upbeat on achieving 20% YoY volume growth in FY25E as new expansions stabilise and demand firms up.

Incentives accruals will also swell from Q2 FY25 onwards. Additionally, Star opex should continue to cool off in FY25/26E on strong fuel mix management, rising share of green energy and other initiatives.

Healthy operating cash flows should mostly fund Star’s ongoing expansions, doubling its cement capacity to 11.7million metric tonne between FY23 and FY27. We estimate the net debt to Ebitda to remain under one time along with pre-tax return on capital employed of 19-21% during FY25-27E.

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