Star Cement - Aiming To Consolidate Its Core Market: ICICI Securities

ICICI Securities Report

We recently interacted with Star Cement Ltd.'s management for an update on their business strategy and outlook. Key takeaways:

1. aiming for ~30% market share versus current ~23% in the North-East post commissioning of planned projects,

2. increase grinding/clinker capacities to 9.8 million tonner per annum/5.8 mtpa from current 5.8 mtpa/2.8 mtpa by FY25,

3. double the share of premium cement to ~8% (of volumes),

4. installation of 12.5 mega watt waste heat recovery system in Q1 FY24 and another 11 MW in Q4 FY24 to reduce power costs, and

5. diversify its presence outside the NorthEast post completion of the ongoing expansion.

Management indicated that the North-Eastern cement market size is 12-13 mtpa. This is poised for strong volume growth in the medium term given the capital allocation of ~Rs 41 billion to Ministry of Development of North-Eastern Region in the FY24 Union Budget [which is much higher than the ~Rs 7 billion budgeted allocation each in FY22(A) and FY23(RE)].

Further, demand is robust and driven by strong momentum in the infrastructure segment. The stock is currently trading at ~ nine times trailing twelve months enterprise /Ebitda and ~$82 EV/tonne.

Star Cement continues to be a net cash company with return on equity/return on capital employed of ~12% each in FY22.

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