Buy Star Cement; target of Rs 280: Emkay Global Financial

Emkay Global Financial' research report on Star Cement

We interacted with the senior management of Star Cement (Star), for a deep dive into their growth plans and competitive scenario in the Northeast. KTAs: 1) Explicit plans of reaching clinker-backed installed capacity of ~18mtpa (vs ~8mtpa now) by FY29/30. 2) The upcoming 2mtpa GU in Begusarai, Bihar will aid Star in not just serving the high-yielding markets of central and western Bihar, but also enjoying 300% SGST benefits. 3) The upcoming railway line from Lanka (Hojai district, Assam) to Umrangso (Dima Hasao district, Assam; news link) will reduce logistics cost (per ton per km) by ~33%, along with helping transport clinker from the upcoming clinker line in Umrangso to its Bihar GU. 4) The GST rate cut will impact annual incentive run-rate by Rs130-150/t; Star expects to accrue Rs1.5-1.8bn worth of annual incentives over FY26-28. 5) Cement price in the Northeast is flat as of Q3FY26TD vs end-Q2FY26; Star expects a similar pricing buoyancy, as entry of a new player in the Northeast in the next ~4Y is unlikely. 6) The Northeast remains one of the fastest cement consuming regions, with ~10% medium-term CAGR backed by infrastructure spends of Central/State governments. We like Star’s regional dominance and endeavor toward stretching 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 too, coupled with >2x its existing capacity base.

Outlook

At CMP, Star trades at ~10x FY27E EV/EBITDA, viz close to the 5Y mean. We maintain BUY on the stock as well as our earnings estimates; we retain TP of Rs280.

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