Star Cement targets H2 FY27 volume recovery as capacity expansion accelerates

Investment View and Valuation

In its August 11, 2026 result update, ICICI Securities retained its BUY recommendation on Star Cement and revised its target price to Rs 245, based on 10x FY28E EV/EBITDA. The current market price was Rs 198.

The broker views Star Cement as a leading cement manufacturer with a strong North-East franchise, where it has around 27% market share, and an expanding presence in eastern states including West Bengal and Bihar. The company currently has cement capacity of 9.7 million tonnes per annum and clinker capacity of 6.1 million tonnes per annum.

Q1 FY27 Financial Performance

Star Cement reported a subdued Q1 FY27, reflecting elections in Assam and an early monsoon in the North-East. Revenue rose 3.4% year-on-year to Rs 942.9 crore as sales volume increased 4.5% year-on-year to 1.35 million tonnes, while net realisation was broadly flat year-on-year. Revenue declined 19.7% sequentially from Q4 FY26.

Total cost per tonne rose 4.8% year-on-year, driven by higher power and fuel costs and negative operating leverage. Lower subsidy income, higher packing costs and shutdown expenses also affected profitability.

Volume Growth and Operating Outlook

Management lowered FY27E volume-growth guidance to 8-9% from 11-12% because flood-related disruption in Assam is expected to affect Q2 FY27 demand. Assam represents around 60% of Star Cement's market. Management expects double-digit volume growth from Q3 FY27 as demand normalises.

ICICI Securities expects Star Cement's volume growth to recover in H2 FY27E and estimates around 10% volume CAGR over FY26-FY28E, in line with industry growth. Management stated that the company did not lose market share in its key North-East market despite lower quarterly volumes.

Management guides for FY27E EBITDA per tonne of around Rs 1,500-1,600, although Q2 FY27 could be around Rs 1,400 because of maintenance shutdown costs, lower volume and weaker fixed-cost absorption. ICICI Securities expects operational performance to improve from H2 FY27E through demand recovery, higher renewable-power and waste-heat-recovery contribution, captive coal arrangements, freight-cost optimisation and operating leverage. The broker estimates EBITDA per tonne of Rs 1,665 in FY28E, compared with Rs 1,703 in FY26.

Operating Metrics and Pricing

• Trade share was approximately 80%, while premium-product contribution was 15.9%.
• Lead distance was around 210 km, and the clinker factor was 66.5%.
• Green-power share, including waste heat recovery systems, was around 33%.
• The conversion factor was around 1.55.
• Cement prices were broadly stable in the North-East and non-North-East markets during Q2 FY27, with a marginal increase of around Rs 3 per bag from Q1 FY27. Bihar prices increased by around Rs 10 per bag.

Fuel cost rose to Rs 1.55 per kcal in Q1 FY27 from Rs 1.33 per kcal in Q4 FY26 due to greater spot-coal procurement. Management expects fuel cost to reduce to around Rs 1.45 per kcal in Q2 FY27 and improve further in Q3-Q4.

Capacity Expansion and Capital Expenditure

Capacity expansion is a central growth driver. Star Cement is commissioning around 5 million tonnes per annum in North India, comprising around 2.5 million tonnes each in Rajasthan and Haryana, expected by Q4 FY28E or Q1 FY29E.

The Nimbol integrated project includes 3.3 million tonnes per annum of clinker capacity, 2-2.5 million tonnes per annum of grinding capacity and a 2-2.5 million tonnes per annum split grinding unit in Haryana. Project cost is estimated at Rs 2,600-2,700 crore.

The company is also evaluating either a 2 million tonnes per annum Bihar grinding unit or a West Bengal expansion. It plans a 2 million tonnes per annum Jorhat grinding unit with a new clinker line at Umrangso. These projects could take cement capacity to 18.7 million tonnes per annum by FY29E from 9.7 million tonnes per annum currently.

Management reiterated capex guidance of around Rs 500 crore for FY27E and Rs 1,500 crore for FY28E. It also reiterated revenue guidance of around Rs 150 crore from building solutions, including AAC blocks and ready-mix concrete.

Financial Estimates

ICICI Securities forecasts revenue CAGR of around 11% and EBITDA and profit after tax CAGR of around 9% over FY26-FY28E.

Key Risks

• Demand slowdown, including disruption affecting Assam demand in Q2 FY27.
• Delays in capacity expansion.
• Higher commodity prices.
• Intense competition.
• Management expects FY27E subsidy income of around Rs 115 crore versus Rs 145 crore previously. Assam government restrictions could affect the timing of subsidy receipts.