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ICICI Securities Report
Given the M&A overhang (and recent sharp run-up in the stock price), we downgrade Star Cement Ltd. to Hold (versus Buy earlier).
As per a BSE filing by industry leader UltraTech Cement Ltd., a section of promoter and promoter group entities of Star Cement have approached UltraTech Cement to sell their equity holdings. Accordingly, UltraTech Cement has approved acquiring a noncontrolling ~8.69% stake in Star at a price not exceeding Rs 235/share (total consideration not exceeding Rs 8.51 billion).
While we reckon that the promoter group holding in Star (as of Q2 FY25) stands at a rich 66.47% (market free-float is a mere ~20%), the event could lead to expectation of potential merger and acquisition; more so given that the promoter holding is held across more than 50 entities.
At Rs 235/share, the deal values Star at an enterprise value/tonne of ~$150/tonne on current capacity of 7.7 million tonnes per annum (~$118 on expanded capacity of 9.7 mtpa; expected by end-FY26E), which is broadly at par with our current target price of Rs 227.
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