Maintain BUY on Star Cement - Margin recovers on pricing gain - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

We maintain BUY on Star Cement with an unchanged TP of INR 130/share (8x its Jun'23E consolidated EBITDA). The company reported broadly in-line numbers in Q1. Consolidated net sales/EBITDA/APAT fell 15/11/ 20% QoQ to INR 5.11/0.93/0.68bn due to lower sales (mainly in the northeast region) and rising cost pressure. We expect EBITDA margin to expand FY22E onwards on production ramp-up (in Siliguri) and post WHRS commissioning (in FY23).

Q1FY22 performance: Sales volume fell 16% QoQ to 0.76mn MT, mainly on account of lower sales in the northeast. Star's sales outside this region remained flat QoQ, owing to production ramp-up at the recently commissioned Siliguri SGU. Overall utilisation fell to 54% vs 63% QoQ (higher vs 41% YoY on low base). NSR rose a modest 1% QoQ, owing to fall in sales share in the northeast. Opex came in flat QoQ, mainly on freight cost rationalisation while input cost remained flattish and fixed cost went up on lower utilisation. Logistics disruption in Meghalaya had bloated its freight cost in the preceding two quarters. Unitary EBITDA recovered 6% QoQ to INR 1,220/MT, on slight realisation gain.

Buy-back announcement: Star will be buying back up to 8.25mn shares (2% of equity) at INR 150/share, amounting to INR 1.24bn in outflow (~25% of its cash balance of INR 4.9bn at end of Mar'21). It had not announced any dividend for FY21.

Capex update and outlook: In FY22E, Star will continue to focus on ramping up Siliguri production and commissioning the 12MW WHRS (by FY23). Star's brownfield clinker expansion (3mn MT) in Meghalaya is delayed (not expected before H2FY24), owing to delays in environmental clearance. We maintain our BUY rating on the stock with an unchanged target price of INR 130 (8x Jun'23E consolidated EBITDA).

Shares of Star Cement Limited was last trading in BSE at Rs. 115.4 as compared to the previous close of Rs. 116.65. The total number of shares traded during the day was 48069 in over 984 trades.

The stock hit an intraday high of Rs. 117.45 and intraday low of 115.05. The net turnover during the day was Rs. 5564718.

Source : Equity Bulls

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