According to reports from HDFC Securities, Star Cement delivered 5% year-on-year consolidated volume growth in Q1 FY27, driven by higher offtake outside the Northeast Region (NER) while NER sales remained flat. The brokerage has maintained its Buy rating on the cement manufacturer but has reduced the target price to ₹250 per share from ₹270, based on 12 times September 2028E consolidated EBITDA. The management noted that Q2 FY27 volume growth is likely to remain flat year-on-year, with the decline in July being offset by traction in August and September. As per the latest company update, Q2 FY27 started off on a weak note amid heavy floods in the NER, leading to volume decline in July, but growth came back in August and even September volumes are higher YoY.
As reported by HDFC Securities, the brokerage estimates Star Cement to deliver 12% volume CAGR over FY26-29E. The company is expected to continue delivering industry-best margins of over ₹1,400 per MT until FY28E, with margins moderating to ₹1,234 per MT in FY29E due to initial operating losses in the north and rising competition in the NER. On the margin front, it expects a flattish margin quarter-on-quarter as a slight decline in fuel costs (Q1 base was higher) will offset higher packing costs, with even NSR expected to be flat. The brokerage expects EBITDA to remain largely unchanged over FY26-29E with approximately 0% CAGR. According to the latest analysis, Star's blended NSR is expected to remain flattish QoQ, as slight pricing pressure is offset by higher incentives QoQ, with the company confident of delivering a flattish margin of ~₹1,400/MT.
According to the brokerage's analysis, Star Cement is currently focused on its 5 million MT greenfield unit in the north, which is expected to be operational by FY29E and contribute to volume growth from FY29 onward. The company expects various ongoing initiatives to reduce logistics costs by approximately ₹100 per MT from the start of FY28E. Regional competition in the northeast region is likely to remain subdued until FY29E, benefiting incumbent leaders Star Cement and Dalmia Bharat. The latest update reveals that Star is geared for executing its greenfield north operations, with the company expecting the whole project to become operational in FY29E. Additionally, it is looking to install wagon tippler in Siliguri (West Bengal) by March 2027, along with the addition of green trucks in the fleet, which could drive ~₹100/MT in logistics cost savings from the start of FY28.
As reported by HDFC Securities, the brokerage expects Star Cement's net debt to EBITDA ratio to peak at approximately 2.3x in FY29E. The management noted that Q2 FY27 volume growth is likely to remain flat year-on-year, with the decline in July being offset by traction in August and September. On the margin front, it expects a flattish margin quarter-on-quarter as a slight decline in fuel costs will offset higher packing costs. The latest financial projections show that Star may spend ~₹5-15 billion in FY27/28 on these projects, with the company estimating cumulative capex outgo of ₹40 billion for FY27-29E. For its planned 2mn MT GU capacity in the east, the company is awaiting the new West Bengal industrial policy to decide if it will take up brownfield expansion at Siliguri or set up a greenfield SGU in Begusarai (Bihar), which is expected to be commissioned in FY30E.
According to HDFC Securities, both Star Cement and Dalmia Bharat continue to generate robust ₹1,500-2,000/MT of EBITDA margin in the NER, aided by higher regional pricing, healthy incentive accruals, and limited competition from new entrants until late FY29. Three new entrants have planned greenfield capacities in the NER: Shree Cement (1mn MT by end of FY28), JK Lakshmi (1.5mn MT by the end of FY29), and Ambuja Cements (>3mn MT by late FY29E/early FY30E). Hence, until FY29E, competitive intensity will remain low, supporting strong margins for regional leaders. The NER will continue to remain a lucrative market for Star Cement for the next three years, with the company's NER margin expected to cool off from ~₹2,000/MT in FY26 to ~₹1,650/MT in FY29E due to lower incentives and expected higher competition. In the eastern region outside NER, Star's margin is expected to hover ~₹600-700/MT, while the upcoming north operations will see FY29/30E margins remain subdued at (₹200)/₹400 per MT due to initial ramp-up.
