Star Cement shares jump 11% to hit one-year high; brokerage sees more upside

Shares of Star Cement Ltd rose sharply on Wednesday trade, defying weakness in the domestic equity benchmarks. The stock today jumped 10.78 per cent to hit a 52-week high of Rs 159.35. It eventually settled 10.32 per cent higher at Rs 158.70. The scrip has gained around 39 per cent in 2023 so far and 77 per cent in the last one year. On BSE, around 5.17 lakh shares changed hands, which was way more than the two-week average volume of 15,000 shares. Turnover on the counter stood at Rs 8.02 crore, commanding a market capitalisation (m-cap) of Rs 6,353.72 crore. The company is scheduled to declare its first-quarter (Q1) results for the financial year 2023-24 (FY24) on August 9, post market hours.

ICICI Direct Research has given a 'Buy' call on the counter with a target price of Rs 185 over a 12-month period. "Star has embarked on a journey to further strengthen its market share in North Eastern Region (NER) to 30 per cent + (from current 25 per cent) by FY26E by more than doubling its capacity. The company is setting up a 3 MT clinker unit with 12 MW WHRS at Meghalaya (capex: Rs 1300 crore, completion: Jan-24) and two grinding units of 2 MT each in Assam (capex: Rs 800 crore, completion: Guwahati in Dec 23 and Silchar in Aug 24). Post the expansion, the company's overall clinker and cement capacity will increase to 5.8 and 9.7 MT, respectively by FY25E. The cost of project stands at $67/t which is around 33 per cent lower than industry replacement cost," the brokerage stated.

ICICI Direct mentioned that Star has a consistent cash generation profile with company recording cumulative CFO (operating cashflows) worth around Rs 2,800 crore during FY18-23, with average CFO/EBITDA at 105 per cent.

"It has a cash rich balance sheet with investment of Rs 485 crore. Going forward, we expect company to generate Rs 1,400 crore cumulative OCF during FY23-25E which would assist funding its capex requirements (Rs 2,300 crore). We expect the leverage to remain low at 0.2x with peak debt levels of Rs 550 crore in FY24E," it further said.

Enhanced capacity utilisation, backed by the government's thrust on infrastructure development in the NER and better pricing power would entail Star to register revenue and earnings CAGR of 15 per cent and 17 per cent, respectively, in FY23-25E, ICICI Direct added.

On the technical setup, the stock was last seen trading higher than the 5-day, 10-, 20-day, 30-day, 50-, 100-, 150- and 200-day simple moving averages (SMAs). The counter's 14-day relative strength index (RSI) came at 72.66. A level below 30 is defined as oversold while a value above 70 is considered overbought. The company's stock has a price-to-equity (P/E) ratio of 35.45 against a price-to-book (P/B) value of 3.97.

The scrip has an average target price of Rs 133, Trendlyne data showed, suggesting a potential downside of 16 per cent. It has a one-year beta of 0.83, indicating low volatility on the counter.

Star Cement operates in a complex geographical topography and has built competitive advantages owing to its experience of operating in the NER and has fortified its presence with a material volume share of 25 per cent.

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