YES Securities' research report on Star Cement
Robust demand scenario in NER and East during Q4FY20 helped the company outperform on volume front as compared to overall industry and its peers. Total volumes for the quarter came in at 0.84 MT, which was flattish on y/y basis vs industry de-growth of ~5-7% y/y. Improvement in realizations for the company (NSR +2.5% y/y) was majorly offset by increase in energy costs due to higher reliance on imported coal (vis-à-vis procurement of lower cost domestic coal last year). Accordingly, EBITDA/te of STAR stood at Rs 1,478 (-2% y/y) while absolute EBITDA was ~Rs 1.25 bn (-1.8% y/y). We reckon that STAR would be relatively unscathed from COVID pandemic as its core operating market of NER has witnessed least impact of COVID. Further, commissioning of 2 MTPA Siliguri plant by Q2FY21 would uphold volume dispatches of the company.
Accordingly, we factor in volume CAGR of 12.7% over FY20-FY22E. Currently STAR is trading at EV/EBITDA at ~7.3x and EV/te of $85 on FY22E. Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 104/share (implied EV/EBITDA multiple of 8.7x on FY22E).
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