Price Target: ₹270
Current Market Price (CMP): ₹203
Star Cement, as the market leader in the northeast region, experienced robust volume growth in Q3, surpassing the demand growth in that region. However, operational performance was impacted by factors such as the delayed stabilisation of the Meghalaya clinker unit, higher maintenance shut-down costs, and increased freight expenses due to ongoing highway construction activities.
The company, which holds a 26% market share in the northeast, reported a 9.7% year-on-year increase in sales volumes to 1.07 million tonnes (with a 13% growth in the northeast and a 3% decline outside the northeast) and a 10.3% year-on-year growth in revenue to ₹700 crore. Despite lower fuel costs, operational performance was affected by a one-time expense of ₹40 crore and higher freight costs.
Although the Meghalaya clinker unit was stabilised by the end of November, the 2 million tonnes Silchar Grinding Unit is projected to commence operations by December 2025, followed by the 2 million tonnes Jorhat Grinding Unit by the end of FY27, increasing the overall cement capacity to 11.7 million tonnes. Additionally, the company is conducting a geological survey and acquiring land for the development of a clinker plant in Nimbol, Rajasthan, where it recently acquired 65 million tonnes of limestone reserves. The AAC block unit is expected to start operations in Q4.
Improved operational efficiency resulting from the stabilised clinker unit, benefits from capacity expansion, and an increasing adoption of green energy will enhance the company’s operating performance. Although UltraTech is acquiring a non-controlling minority stake (8.69%), Star Cement has not indicated any further plans for promoter stake dilution.
Risks to the company include escalating operational costs and a potential slowdown in demand.
Published on February 10, 2025.
