Promoter buying lifts this cement stock to 52-week high; do you own it?

Shares of Star Cement advanced 5.3 per cent to its fresh 52-week high on the BSE in Friday's intraday trade. Since February 12, various promoter entities have been acquiring stake via open market

Shares of Star Cement advanced 5.3 per cent to Rs 221.5 per share, also its fresh 52-week high, on the BSE in Friday's intraday trade. The stock surpassed its previous high of Rs 219.45, hit on February 12, 2024.

At 1:08 PM, the shares were quoting 3.8 per cent higher at Rs 218.3 per share as against 0.34 per cent rise in the benchmark S&P BSE Sensex.

Since February 12, various promoter entities have been acquiring additional stake in the firm via open market. According to the data available on the BSE, Suchita Agarwal, one of the promoter group, bought 10,000 shares worth Rs 2.01 million on Feb 12. This was followed by Prem Kumar Bhajanka, promoter and director, who bought one lakh shares worth Rs 2.02 crore on Feb 13.

Later, Amritansh Chamaria (March 1), and Prem Kumar Bhajanka (March 12, 13, 14, 15) bought two lakh shares, and 2.89 lakh shares (cumulatively; 0.07 per cent of total equity), respectively, worth Rs 4.18 crore and Rs 5.78 crore, data shows. 

Including today's gains, shares of Star Cement have rallied 13.2 per cent on the bourses between February 9 and March 22. By comparison, the benchmark S&P BSE Sensex has added 1.8 per cent during the period.

Moreover, thus far in the calendar year 2024, the stock outperformed the market by surging 26 per cent, as compared to less than 1 per cent rise in the S&P BSE Sensex.

On March 4, CRISIL Ratings assigned 'CRISIL A1+' rating to the company's short-term bank facilities, and reaffirmed 'CRISIL AA/Stable' rating on the long-term bank facilities.

The rating, the agency said, reflected CRISIL Ratings' belief that the company's market leadership in north-east India will strengthen further in the near-term with commissioning of 3 million tonnes per annum (MTPA) clinker and 2 MTPA grinding unit by end of current fiscal. 

"This will enable additional sales volumes along with sustained healthy operating profitability and robust financial risk profile, thereby improving its overall credit profile. The successful commissioning of these facilities and their timely stabilisation and ramp-up would be a key monitorable," CRISIL Ratings said.

Star Cement is the leading cement company in North-Eastern India and one of the fastest growing cement brands in West Bengal and Bihar. It has 1.67 MTPA integrated cement plant in Meghalaya, two grinding units (a 2 MTPA cement unit) in Sonapur near Guwahati, and another cement unit at Mohitnagar near Siliguri, West Bengal (2 MTPA capacity).

Expanding capacity

On March 12, the company informed the exchanges that two newly commissioned 2 MTPA cement grinding units of subsidiary firm, Star Cement North East Limited, in Assam, have begun commercial operations.

With these expansions on schedule and pick-up in demand in north-east (NE) region, analysts expect the company's volumes to grow significantly over FY25-26 (12 per cent CAGR over FY23-26E). Moreover, company already being a market leader of NE region, will be able to improve its market share further to 30-32 per cent (from 24-25 per cent at present), they believe.

For FY23, Star Cement recorded revenue of Rs 2,708 crore at a consolidated level, driven by 18 per cent on-year increase in volume to 4.01 million tonne from 3.39 million tonne due to healthy demand in the core north-eastern region. During the period, despite a sharp increase in power, fuel and freight costs, it maintained healthy earnings before interest, depreciation, tax and amortisation (Ebitda) margin of 17.5 per cent and Ebitda per tonne of Rs 1,180. 

The strong operating performance continued during nine months of FY24, with sales volume growing by 8.3 per cent over nine months of fiscal 2023, to 3.01 million tonne. Over the same period, Ebitda per ton increased by Rs 163 to Rs 1,252, owing to reduction in raw material and freight costs.

"We expect the margins to improve further led by further savings in power and fuel, increase in share of premium cement, positive operating leverage and substantial incentives on new capacities in Meghalaya and Assam. We estimate company's Ebitda/tonne to improve to Rs 1489/tonne by FY26E (from Rs 1168/tonne in FY23)," analysts at ICICI Direct said.

As the balance sheet position remains healthy (net cash in FY26E), despite significant capex. return rations are expected to improve with improvement in asset turnover and margins, they added.

The brokerage values Star Cement at 8.8x EV/EBITDA on FY26E basis, which, it believes, is attractive considering the company’s strong growth ahead with further strengthening its market position in NE. It has a 'buy' rating on the stock with a target pf Rs 240. 

"The government's infrastructure focus in Star Cement's core northeast market is likely to propel volumes even as a sound balance sheet despite being in capex mode should support ROE/ROCE expansion to an estimated 14 per cent/19 per cent by FY26. We, thus, assign a higher 9x EV/EBITDA multiple to the stock (vs. 8x earlier)," said those at BOB Capital.