Buy Star Cement, target price Rs 107: Emkay Global

Emkay Global has given buy rating to Star Cement with a target price of Rs 107. The share price moved down by by 0.06 per cent from its previous close of Rs 88.35. The stock’s last traded price is Rs 88.40.

Star Cement Ltd. key Products/Revenue Segments include Cement which contributed Rs 1691.46 Crore to Sales Value (99.76 % of Total Sales) and Other Operating Revenue which contributed Rs 3.92 Crore to Sales Value (0.23 % of Total Sales)for the year ending 31-Mar-2019.

Financials
For the quarter ended 30-06-2020, the company reported a Consolidated sales of Rs 291.97 Crore, down 46.85 % from last quarter Sales of Rs 549.38 Crore and down -36.65 % from last year same quarter Sales of Rs 460.85 Crore Company has reported net profit after tax of Rs 44.24 Crore in latest quarter.

Investment Rationale
The brokerage has raised EBITDA estimates for FY21/22/23 marginally by 2.5%/1.3%/0.9% on higher volumes/cost savings. Management is hopeful to achieve FY20 volumes in FY21 despite a weak Q1. THe brokerage has factored in a 10% yoy volume decline in FY21 and would wait for the sustenance of current demand trends to become more aggressive in the assumptions. The 2mt cement grinding unit in Siliguri is expected to be commissioned by Q2FY21 and should help cater to North Bengal and East Bihar markets. The company is planning to further boost its clinker capacity by 2.5mt at the existing location in Meghalaya by FY23E. It is also considering the commissioning of the WHRS plant of 12-13MW, which will help reduce energy costs. The brokerage prefers Star Cement for its presence in the NE, strong margin profile, and superior return ratios. Valuations at 7.2x/6.3x FY22/23E EV/EBITDA appear attractive. It maintains Buy rating, with a TP of Rs 107 (8.5x mid-FY23E EV/EBITDA). Key risks are lower cement demand and a decline in cement prices.

Promoter/FII Holdings
Promoters held 66.8 per cent stake in the company as of June 30, 2020, while FIIs held 0.2 per cent, DIIs 8.4 per cent and public and others 24.6 per cent.