Recommendation from Cement Sector

Recommendation from Cement Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

STAR CEMENT

STAR CEMENT: OF STARRY APPEAL

HERE IS WHY
☛Strong market share
☛Good growth prospects
☛Reduced interest costs.

Star Cement Limited is the largest cement manufacturer in North East India. Its plant is spread across 200 hectares of land in the town of Lumshnong, a strategic location in Meghalaya that ensures easy availability of high-grade limestone. The company’s products include Ordinary Portland Cement (OPC 53 grade and OPC 43 grade), Portland Pozzolana Cement (PPC), Portland Slag Cement (PSC) and Anti-Rust Cement (ARC).The company’s institutional customers include Larsen & Tourbo, National Hydro Power Corporation, Public Works Department, Indian Railways and Ministry of Defence.

Star Cement enjoys a leadership position in the north east region with market share of more than 23 per cent .The group is also diversifying its revenue in the eastern region, primarily West Bengal and Bihar. Limestone mines are located within 2-3 km of its plants, providing strong raw material linkage, easy accessibility and uninterrupted supply of raw material. Proximity to raw material results in lower logistics costs. 

The company enjoys the highest volume growth in the north east region and has adequate capacities to cater to growth targets over medium to long term.

‘Star’ as a brand has a very high recall value, enabling repeat customers. While its peers have adopted the wholesale model, Star Cement has built on its strong network of partners. This has resulted in deeper penetration and higher market share. Additionally, higher proportion of trade sales has resulted into higher cement realisation per ton.

Cement production in the eastern regions is expected to grow at a CAGR of 7-8 per cent in the next five years. Per capita cement consumption in the east is the lowest at 131 kg per capita as against the national average of 225 kg per year. This implies huge potential for growth.

In terms of financials, the company’s interest cost has come down significantly over the last few years from Rs 52.46 crore in FY18 to around Rs 9.34 crore in FY20 – a reduction of 82.19 per cent. Net sales have increased from Rs 1,629.11 crore in FY18 to Rs 1,843.86 crore in FY20, showing a total increase of 13.18 per cent. Freight cost has been optimised due to improved road condition and better availability of vehicles. For the quarter ended March 2020, the company’s gross sales increased 2.8 per cent to Rs 549.38 crore in Q4FY20 from Rs 534.43 crore in Q4FY19.

Total expenditure for Q4FY20 stood at Rs 424.76 crore as against Rs 407.58 crore in Q4FY19, showing an increase of 4.22 per cent. PBIDT, excluding other income, showed a decrease of 1.77 per cent to Rs 124.61 crore in Q4FY20 from Rs 126.85 crore in the same quarter last year. PAT for Q4FY20 stood at Rs 86.84 crore as against Rs 91.59 crore in the same quarter last year, showing a decrease of 5.18 per cent. PAT margin for Q4FY20 stood at 15.81 per cent as against 17.14 per cent in the same quarter last year. The stock is trading at a PE multiple of 16.89x and a PB of 3.30x. By virtue of these factors, we recommend our reader-investors to BUY this stock.

Rate this article:
No rating
Comments are only visible to subscribers.

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR