Star Cement soars 11%, nears 52-week high on heavy volumes

The long-term demand prospects remain positive given the government's thrust on the affordable housing and infrastructure segments, ICRA said

Shares of Star Cement (SCL) soared 11 per cent to Rs 119.95 on the BSE in Thursday’s intra-day trade amid back of heavy volumes. The stock of cement & cement products company inched towards its 52-week high level of Rs 124.10, touched on December 12, 2022.

At 02:08 pm; SCL was trading 5 per cent higher at Rs 113.70 on the back of a multiple-fold jump in its average trading volumes. A combined 3.21 million shares, representing 0.79 per cent equity of SCL, changed hands on the NSE and BSE. In comparison, the S&P BSE Sensex was down 0.01 per cent at 58,209.

SCL manufactures clinker and cement. Apart from a 0.8-MMTPA clinker manufacturing unit and 5.00-MMTPA cement grinding unit of SCL, at the consolidated level, the Group has additional facilities of a 0.7-MMTPA cement grinding unit (under Megha Technical and Engineers Private Limited-MTEPL), a 2.0-MMTPA clinker manufacturing unit (under Star Cement Meghalaya Limited- SCML) and a 51-MW captive coal-based power plant (under Meghalaya Power Limited-MPL).

Last week, the rating agency ICRA retained the long-term rating of SCL at AA- and short-term rating at A1+. The outlook on the long-term rating has been revised to positive from stable.

The revision in the outlook factors in the expected increase in SCL’s scale of operations and operating profits, and further strengthening of its presence in the North East (NE) region upon achieving significant progress in the ongoing capital expenditure.

The company plans to expand its cement capacity by 4 million MTPA and clinker capacity by 3 million MTPA, in a phased manner, during FY2024-FY2026. Additionally, it is setting up a 23-MW waste heat recovery systems (WHRS), of which 12-MW capacity is expected to be operational in March 2023 and another 11- MW capacity will be operational in December 2024, which would aid in savings in power costs, ICRA said in a rating rationale.

The long-term demand prospects remain positive, given the government’s thrust on the affordable housing and infrastructure segments. Despite the increase in input costs, the group is able to maintain healthy operating profitability of 16.1 per cent in 9M FY23 (15.7 per cent in 9M FY2022), driven by the cost optimization initiatives viz. improvement in efficiency of operations of the kilns, which has led to lower energy usage resulting in lower power and fuel costs and control over freight costs by usage of own fleet of vehicles for transportation against using services of third-party logistics providers, the rating agency said.

"Star commands more than 23 per cent market share in the fast-growing northeast region and is likely to maintain its dominance over the medium term, thanks to its established presence, strong brand recall, and no new significant addition in the area by peers. Factoring in the Q3FY23 beat and lower opex/ton, we increase our FY24- 25E EBITDA by 10 per cent and target price to Rs 125/share (earlier Rs 105), post the half-yearly rollover", said Emkay Global Financial Services in its December quarter result update.