ICICI Direct’s research report on Star Cement
Star Cement’s Q3FY19 results were a mixed bag. While revenues remained below our estimates, EBITDA and PAT were higher than our estimates due to better margins Revenues during Q3FY19 grew 11.5% YoY to Rs 417.5 crore (below I-direct estimate of ~ Rs 459 crore). Sales volumes grew 5.6% YoY to 0.66 MT remaining below our estimates due to lower sales outside NER regions. Realisations grew 5.5% YoY to Rs 6374/t EBITDA margins remained better than our estimates at 29.5% (above I-direct estimate of 25.9%) in Q3FY19. However, it declined 836 bps YoY due to high base impact and cessation of transport subsidy. On an absolute basis, EBITDA declined 13.2% YoY to Rs 123 crore (vs. I-direct estimates of Rs 118.7 crore) With better-than-expected margins, PAT of Rs 82.3 crore (down 8.1% YoY) stayed ahead of our estimates (vs. I-direct estimate: Rs 62.5 crore.
Star Cement (SCL) is the largest cement player in the NER with over 22% market share. Hence, we expect SCL to be a key beneficiary of this upcoming growth in NER region. However, cessation of transport subsidy, higher power cost and increase in other expenses is expected to keep margins under pressure. Hence, we maintain HOLD rating with a revised target price of Rs 90 (i.e. 7.0x FY20E EV/EBITDA).
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First Published on Feb 14, 2019 03:55 pm