Star Cement - Positives Galore; ICICI Securities Initiates Coverage With A Buy

ICICI Securities Report

Star Cement Ltd. is set to surpass the Rs 10 billion-plus Ebitda milestone in FY26E, complimented by:

1. expected cost savings of ~Rs 150/tonne, owing to the slated jump in share of green power and increase in fuel supply agreement coal allocation;

2. a strong balance-sheet with net cash of ~Rs 8 billion in FY26E (versus ~Rs 5 billion in FY23) despite capex; and

3. firm return on equity of ~18% over FY25-FY26.

Factoring in the multiple positives, we value Star Cement’s core Ebitda (excluding incentives) at 11 times FY26E enterprise value/Ebitda multiple. Being prudent, we have assumed an net present value of the fiscal incentives that are likely to accrue beyond FY26.

Our ascribed valuation multiple of 11 times is 1-standard deviation higher than the past five-year EV/Ebitda mean of ~9.5 times (on reported Ebitda, including incentives).

However, it is at par to the past three-year average (EV/Ebitda) when we consider core Ebitda (excluding incentives). With a target price of Rs 271, we initiate coverage on Star Cement with a Buy.

Key Risk:

A sharp drop in cement prices or sharp increase in fuel cost are the key risks to our recommendation.

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