Maintain BUY on Star Cement - Regional disruptuion hits volume - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities.

Star Cement's 3QFY21 performance was hit by logistic disruptions in Meghalaya which pulled down sales and inflated its opex. Thus, consolidated Revenue/EBITDA/APAT fell 6/11/26% YoY to INR 4.23/0.84/0.53 bn respectively. As the disruption is expected to continue until mid-Feb'21, even 4Q profits will remain impacted. Star's newly commissioned Siliguri plant will reduce its costs of sales for outside-NE region. Strong balance sheet will support Star's planned expansions in NE region. We maintain our BUY rating with an unchanged target price of INR 125 (9x its Dec'22 Consol EBITDA).

Key highlights: Logistic disruption in Meghalaya during the second half of 3QFY21 pulled down Star's total sales volume by 8% YoY. Star's cement sales in NE region rose 1% YoY while its sales outside NE fell 32% YoY. While, cement prices fell QoQ across both the markets, reported NSR stood flat QoQ (+4% YoY) owing to increased sales in the high-realisation NE markets in 3Q. Unitary Opex went up 5% YoY led by higher input costs and negative op-lev arising out of lower sales. Subsequently, unitary EBITDA declined 3% YoY to INR 1,213/MT. Star expensed INR 646mn (pre-tax, one off) in 3Q, on reversal of its earlier claim of 50% excise refund made in 2012.

Capex and Outlook: Star will add a 13MW WHRS in Meghalaya by end of FY23E. It is also working on a 2mn MT clinker expansion in Meghalaya (expected in FY24E) to support its recent 2mn MT grinding expansion in Siliguri. The Siliguri plant will increase Star's sales outside the NE region and will also lower its opex in these markets 4QFY21 onwards. We maintain our earnings estimates and BUY rating on the stock with an unchanged target price of INR 125/share (9x its Dec'22 Consol EBITDA).

Shares of Star Cement Ltd was last trading in BSE at Rs.95.9 as compared to the previous close of Rs. 96.6. The total number of shares traded during the day was 9417 in over 144 trades.

The stock hit an intraday high of Rs. 99 and intraday low of 95.5. The net turnover during the day was Rs. 908591.

Source : Equity Bulls

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