Target: ₹207

CMP: ₹173.25

Star Cement Ltd (SCL) reported 9.6 per cent y-o-y growth in its sales at ₹642 crore with underlying sales volume growing 7.4 per cent y-o-y to 1.0 mt. Sales volume in North-East grew 11.5 per cent y-o-y to 0.75 mt while outside North-East, it fell 5.1 per cent to 0.21 mt.

The realisation grew 2.1 per cent y-o-y to ₹6,669 per tonne despite a challenging operating environment. EBITDA decline of 3 per cent to ₹96 crore was relatively lower than its peers. PAT declined 86.1 per cent to ₹6 crore primarily due to a 129.2 per cent jump in depreciation cost and a 119.2 per cent spike in interest cost.

Given the reduced guidance and weakness in the overall sector, we lower our Revenue/EBITDA/PAT estimates for FY25E/FY26E by 8.4/7.6/11.6 per cent and 21.1/19.4/28.3 per cent respectively. However, we believe its capacity addition plans, expansion outside North-East and East markets (greenfield opportunities in Rajasthan) and operational efficiencies (cost saving of ₹100-150/t from the operation of the new kiln) will help it to drive long-term growth.

Currently, SCL trades at FY25E EV/T of $182. We value the company at 12.5x 1-Yr rolling forward EV/EBITDA multiple and reduce our target price to ₹207 for 12-18 months.

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