Star Cement Q2 Results Review - Profitability To Improve As Cost Declines, Incentives Rises: Dolat Capital

Dolat Capital Report

Star Cement Ltd.’s Q2 FY25 performance was mixed. Volume/revenue came in line, however realization, Ebitda, Ebitda/tonne were above estimates, whereas adjusted profit after tax was below.

We expect revenue/Ebitda/adjusted profit after tax compound annual growth rate of 14.4%/19.9%/21.5% over FY24-27E led by 7%/20%/15% volume growth and 0.3%/0.5%/0.5% realization growth in FY25E/FY26E/FY27E.

We decrease our FY25E/FY26E Ebitda estimates by 16.1%/14.6% post factoring lower volume coupled with higher opex/tn and introduce FY27E. We expect FY25E/FY26E/FY27E profitability to improve from Rs 1,253 /Rs 977/ Rs 993 in FY24/Q2 FY25/H1 FY25 to Rs 1,252/Rs 1,381/ Rs 1,462 driven by anticipated incentives and improved pricing in North-East markets.

Given correction in stock price by ~9% since our last result update on August 12, 2024, we maintain our ‘Accumulate’ rating with a revised target price of Rs 218 based on nine times consolidated FY27E EV/Ebitda and 50% capital work in progress of FY27E.

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