ICICI Direct's research report on Star Cement
We recently met the management of Star Cement. The key takeaways are: -i) Siliguri 2 MT grinding unit expansion is on track and is expected to be commissioned in H2FY20E. This plant will mainly serve the North Bengal and Eastern Bihar markets, which currently have annual demand of ~5.5-6 MT demand and are growing at healthy pace, ii) in the North East region, incremental demand will mainly be served by Dalmia and Star Cement as other players are already operating at higher utilisation, iii) currently cement prices in Guwahati are at around Rs 390/bag; limited scope for price increase because prices above Rs 415-420 levels, will attract supply from eastern region players, currently 10-12% of volumes come from these players, iv) due to supply shortage, prices of clinker in the north east region have shot up from Rs 3000 per tonne earlier to Rs4000-4500 per tonne, v) prices in West Bengal are facing headwinds due to incremental supply coming from the ramp-up of acquired plants of Century Textiles by UltraTech Cement.
In the near term, cessation of transport subsidy, higher power cost and other expenses would keep margins under pressure. Hence, we maintain HOLD rating with a revised target price of Rs 110 (i.e. 8.5x FY20E EV/EBITDA).
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