ICICI Securities research report on Star Cement
Star Cement (Star) has been on top of its game – evidence of which is apparent in: 1) it being a major beneficiary of the favourable demand-supply dynamics in India’s north-east (NE) region (where prices stood firm in Q4FY24 vs. a steep >8% QoQ drop in east India) – outlook for NE remains sanguine; 2) the rationale that while capex completion shall drive ~21% CAGR volume growth over FY25-FY26E, project incentives (of ~INR 300/t) will be an icing on the cake; and 3) its slated increase in share of green power (from ~21% in FY24E to ~50% in FY26E) with greater FSA coal allocation, in tandem, will likely uplift efficiency (by ~INR 150/t). A strong debt-free balance-sheet, high RoE and its imminent entry into the ‘INR 10bn-plus EBITDA club’ make for a compelling investment case. We recommend BUY with an INR 271 TP, valued at 11x FY26E EV/EBITDA.
Outlook
Star is set to surpass the INR 10bn-plus EBITDA milestone in FY26E, complimented by: 1) expected cost savings of ~INR 150/t, owing to the slated jump in share of green power and increase in FSA coal allocation; 2) a strong balance-sheet with net cash of ~INR 8bn in FY26E (vs. ~INR 5bn in FY23) despite capex; and 3) firm RoE of ~18% over FY25-FY26. Factoring in the multiple positives, we value Star at 11x FY26E EV/core EBITDA (ex-incentives), which yields a TP of INR 271. We initiate coverage with a BUY.
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Star Cement - 08042024 - icici