BUY on Star Cement - Stable margins - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

Star Cement (STRCEM) reported 37/42/49% YoY consolidated revenue/ EBITDA/APAT decline to Rs 2.92/0.65/0.43 bn respectively. While lower sales (volume down 38% YoY) drove this fall, the impact is moderated on stable input costs and a sharp cut in discretionary expenses. Pent-up demand execution and upcoming Siliguri GU should accelerate volume growth hereon. Further, the upcoming e-auction of local coal should aid fuel cost reduction. We estimate 15% EBITDA CAGR during FY20-23E.

1QFY21 - Stable margin QoQ: Total sales volume fell 38/49% YoY/QoQ to 0.45mn MT, which is due to significant sales loss in April and early May. However, STRCEM registered volume growth in June, despite COVID impact. NSR firmed up 6% QoQ (+5% YoY), aided by price hikes and lower clinker sales in 1Q. The opex inflated 6/7% QoQ/YoY, on account of stable employee cost amid sharp volume decline. STRCEM's input cost fell, aided by lower fuel prices. The company also reduced discretionary expenses, thus cushioning cost inflation. Subsequently, unitary EBITDA stood at Rs 1,455/MT (+2% QoQ, -6% YoY).

Concall KTAs and outlook: STRCEM expects to deliver flattish volume in FY21E (despite sharp loss in 1Q), buoyed by demand pick-up June onwards (we build in a 5% decline). By Sep'20, STRCEM expects to operationalise the 2mn MT Siliguri GU and complete 0.2mn MT clinker debottlenecking. These should aid in 24% volume CAGR during FY21-23E, in our view. The company is optimistic about the upcoming local coal auction in Meghalaya, which will reduce costs. We estimate 15% EBITDA CAGR during FY20-23E. We maintain our estimates and target price of Rs 120/share. We value the company at 9x its consolidated Jun'22E EBITDA.

Shares of Star Cement Ltd was last trading in BSE at Rs.87.55 as compared to the previous close of Rs. 88.15. The total number of shares traded during the day was 9504 in over 209 trades.

The stock hit an intraday high of Rs. 89.1 and intraday low of 87. The net turnover during the day was Rs. 834272.

Source : Equity Bulls

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