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Centrum Broking
Star Cement (Buy)
Target ₹101
CMP: ₹88.70
Star Cement revenues fell by 37 per cent y-o-y to ₹292 crore (marginally lower than our estimates) impacted by lower cement volume that fell 38 per cent y-oy.
Effectively EBITDA fell by approximately 42 per cent to ₹65.30 crore while EBITDA/tn was higher at ₹1,455/tn (+3 per cent).
PAT fell nearly 47 per cent y-o-y to ₹44.20 crore (₹83.90 crore in Q1-FY20). We expect cost benefits post the Siliguri grinding unit commissioning (early Q3-FY21) and with availability of domestic coal and lower logistic cost to reflect in the earnings H2-FY21 onwards.
The earnings will be impacted in the short term due to the current challenging business environment. However, we feel the company with its leadership position in the North-east markets, relatively better earnings visibility (availability of domestic coal and refurbishment of Meghalaya units) will help earnings improvement from 2HFY21 onwards.
We retain our FY21/FY22 earnings at ₹4.7/₹8.2 and our Buy rating with a target price of ₹101 (earlier ₹99) valuing the stock at the replacement cost of ₹7.5 billion/tonne and at 8.3x EV/EBITDA FY22 earnings.
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