HDFC Securities estimates Star to deliver 12% volume CAGR over FY26-29E. It should continue to deliver industry-best margin of >Rs 1,400/MT until FY28E, in the brokerage's view.
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HDFC Securities Institutional Equities
HDFC Securities has maintained Buy rating on Star Cement Ltd. but has cut down its target price to Rs 250/share from Rs 270, (12 times Sep'28E consolidated Ebitda).
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The management noted that Q2 FY27 volume growth is likely to remain flat YoY, with the decline in July being offset by traction in August, September, highlights the brokerage's during its interaction with the company.
On the margin front, it expects a flattish margin QoQ (and hence industry-best) as a slight decline in the fuel cost (Q1 base was higher) will offset higher packing costs (and even NSR is expected to be flat).
Star Cement is currently focused on its 5mn MT greenfield IU in the north, which should be operational by FY29E and add to volume growth FY29 onward.
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On the margin front, it expects various ongoing initiatives to reduce logistics cost by ~Rs 100/MT from the start of FY28E. Even regional competition in the northeast region (NER) is likely to remain subdued until FY29E, benefitting incumbent leaders Star Cement and Dalmia Bharat.
HDFC Securities estimates Star to deliver 12% volume CAGR over FY26-29E. It should continue to deliver industry-best margin of >Rs 1,400/MT until FY28E, in its view.
The brokerage estimates this will moderate to Rs 1,234/MT in FY29E, owing to initial operating loss in the north and rising competition in the NER. Thus, the brokerage expects Ebitda to remain largely unchanged over FY26-29E (~0% CAGR).
HDFC Securities also expects Star Cement's net debt to Ebitda to peak at~2.3x in FY29E.
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