Buy Star Cement; target of Rs 265: Emkay Global Financial

Emkay Global Financial' research report on Star Cement

We interacted with Tushar Bhajanka, Deputy MD of Star Cement, to understand the company’s growth plans and the demand-supply outlook in the Northeast. KTAs: 1) The Northeast remains one of the fastest cement consuming regions, with ~10% medium-term CAGR backed by infrastructure spends of Central/state governments. 2) Led by upcoming capacity expansions, Star aims to strengthen its leadership in the Northeast, beyond its current volume market share of ~27%. 3) The unlikely entry of any new player in the Northeast in the next ~4Y would augur well for cement prices. 4) Star aims to diversify geographically, with clear expansion plans in Rajasthan; it has already secured limestone mines in the state through government auctions. 5) It is on track to reach capacity of ~18mtpa (vs ~8mtpa currently) in the medium term. 6) Focus remains on cost-efficiency through capex on efficiency parameters. We like Star’s regional dominance and endeavor to stretch its leadership over peers in the Northeastern market. Further, entry into Rajasthan will help it shed the tag of a regional player and establish its brand in North India, coupled with >2x its existing capacity base. We note that the recent surge in the stock price (up >30% in the past 2M) could limit upside in the near term.

Outlook

Also, at the CMP, Star trades at ~11x FY27E EV/EBITDA, ie near +1SD (5Y mean). We maintain BUY and our earnings estimates, with a TP of Rs265.