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Dolat Capital Report
Star Cement Ltd. reported volume, revenue in line, however realisation, Ebitda, Ebitda/tonne and adjusted profit after tax below estimates.
Star Cement posted 14.3% YoY growth in revenue to Rs 6 billion (-8.4% QoQ) led by +18.8% YoY in volume to 1.2 million tonne (-5.7% QoQ), which was partially offset by - 3.7% YoY in realisation/tonne to Rs 6,533 (-2.8% QoQ).
Ebitda +4.1%/ -22.2% YoY/ QoQ to Rs 1.3 billion. However, adjusted profit after tax (after adjusting Rs 193 million towards deferred tax assets for earlier years) -0.5% YoY to Rs 672 million in Q1 FY24.
We like Star Cement due to its strong presence in lucrative North East region and improving utilisation.
However, we factor significant increase in net debt to Rs 4.6 billion/ Rs 4.2 billion in FY24E/ FY25E from Rs 5.1 billion (FY23)/ Rs 3 billion (Q1 FY24) net cash due to Rs 18 billion capex (FY23-25E) for three million tonnes per annum/ 2 mtpa/ 2 mtpa clinker/ grinding unit/ GU expansion at Meghalaya/ Guwahati/ Silchar, Assam (to start by February 2024/ November-December 2023/ Dec-2024).
This limits the potential valuation upside coupled with ~30% increase in stock price since our last result update note (May, 22, 2023).
Thus, we downgrade from 'Accumulate' to 'Sell' with a revised target price of Rs 152 based on nine times (in line five-year average versus eight times earlier) consolidated FY25E enterprise value/Ebitda and 50% capital work in progress of FY25E.
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