Maintain BUY on Star Cement - Subdued performance - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities and Mr. Saurabh Dugar, Institutional Research Analyst, HDFC Securities

Star Cement reported a weak show in 4QFY21. Consolidated revenue rose 10% YoY to INR 6.03bn on 4/12% volume/NSR growth. However, EBITDA declined 16% YoY to INR 1.04bn due to significant cost inflation. Lower tax rate moderated APAT (at INR 853mn) decline to 1% YoY. We expect margin to expand FY22 onwards on production ramp-up. We maintain our BUY rating with a revised our target price of INR 125 (8x FY23 consolidated EBITDA).

4QFY21: Sales volume grew a modest 4% YoY, pulled down by fall in clinker sales and slower ramp-up at Siliguri GU. Reported NSR rose 12/12% QoQ/YoY, mainly on account of a fall in low-value clinker sales and better cement realisation. Logistics disruption for clinker evacuation from Meghalaya (till mid-March) inflated input and freight cost during 4Q. Other expense also jumped, led by political donations and surge in packing material costs. Thus, opex inflated 15/20% QoQ/YoY and pulled down unitary EBITDA by 5/19% QoQ/YoY to INR 1,152/MT.

FY21 highlights and outlook: FY21 sales volume fell 9% YoY, hit by sales loss in 1Q and slower recovery thereafter. Sharp opex rise pulled down EBITDA by 8% YoY to INR 1,233/MT. These led to OCF/FCF declining 27% YoY to INR 3.5bn, despite continued working capital reduction. FCF fell 20% YoY to INR 2bn, leading to net cash balance of INR 4.7bn. We trim EBITDA estimates for FY22/23E by 8/5%, as we lower our volumes and margin estimates. In FY22E, Star will focus on completing the 12MW WHRS. Star's clinker expansion (3mn MT) in Meghalaya is expected to take at least three years, owing to delays in environmental clearance. This will hurt volume growth FY24 onwards, in our view. Factoring in this and margin contraction, we reduce our valuation multiple to 8x EBITDA (vs 9x earlier).

Shares of Star Cement Ltd was last trading in BSE at Rs.112.5 as compared to the previous close of Rs. 110.4. The total number of shares traded during the day was 102760 in over 2171 trades.

The stock hit an intraday high of Rs. 115 and intraday low of 110.85. The net turnover during the day was Rs. 11564773.

Source : Equity Bulls

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