Star Cement expansion targets 18-20 MTPA despite FY27 cost pressure

Investment View and Valuation

In its August 11, 2026 result update, Anand Rathi Research retained its BUY rating on Star Cement but reduced the target price to Rs 265 from Rs 290. The broker views Star Cement as a leading North-East cement player, with approximately 26% market share and current cement capacity of 9.7 MTPA.

The core long-term thesis is the planned capacity expansion to approximately 18-20 MTPA by FY30E. Anand Rathi expects this expansion to diversify the company’s geographical presence, strengthen its existing markets and improve capacity utilisation. The Rs 265 target price is based on 11 times FY28E EV/EBITDA.

Q1 FY27 Financial Performance

Star Cement reported a soft Q1 FY27, with profitability affected by elevated operating costs and lower fuel supply agreement coal availability.

Cost Pressures and Operational Levers

The weak profitability reflected elevated costs related to the West Asia conflicts, lower availability of fuel supply agreement coal because of coal diversion to power plants, and political donations. The fuel supply agreement coal share fell to 45%, requiring Star Cement to source approximately 30% of its requirement from the spot market.

Management guided fuel consumption cost to decline to Rs 1.45 per GCV in Q2 FY27 from Rs 1.55 in Q1 FY27, supported by improved fuel supply agreement coal and railway-rake availability. Other operating levers include electric vehicles on selected routes, a Silchar railway siding expected by October-November 2026, and a wagon tippler at Siliguri, which is expected to save Rs 150 per tonne on fly ash and clinker transportation. Green-energy share stood at 33%, with group captive power schemes planned for Q3 or Q4.

Demand Outlook and Incentive Headwind

Management revised FY27 cement-volume growth guidance to 8-9% from 10-12%, compared with estimated industry growth of 7%. The revision followed election disruption in Q1 FY27 and Assam floods in Q2 FY27. Cement prices remained stable after the June exit.

Management expects pent-up H2 FY27 demand and cost-saving actions to support EBITDA per tonne of Rs 1,500-1,600, although near-term profitability is expected to remain under pressure.

The Assam Government’s revised Industrial Incentive Scheme reduced FY27 incentive guidance to Rs 1,150 million from Rs 1,450-1,500 million. Outstanding incentives stood at Rs 1,300 million as of June 30, 2026. Management expects this headwind to become less significant from Q3 FY27 as the prior-year GST-related base effect normalises.

Capacity Expansion and Capital Expenditure

The announced expansion is expected to lift cement capacity to 16.7 MTPA by FY29, while the longer-term plan targets approximately 18-20 MTPA by FY30E.

• A proposed 2 MTPA Bihar grinding unit could be redirected to West Bengal if the new industrial policy is more attractive.
• The Nimbol integrated unit will comprise 3 MTPA of cement capacity and 3.3 MTPA of clinker capacity.
• A 2 MTPA grinding unit is planned in Haryana.
• Land has been acquired for the Nimbol and Haryana projects, while environmental clearance and public hearings are under way.
• The Jorhat North-East expansion and Umrangso clinker line will be assessed against market demand and business conditions.

FY27 and FY28 capital expenditure is estimated at Rs 5,000-6,000 million and Rs 15,000 million, respectively. Expansion may be funded through debt, internal accruals and/or a qualified institutional placement. Peak net debt to EBITDA is guided at 1.5-1.6 times.

Broker Estimates and Key Risks

Anand Rathi reduced its FY27E and FY28E sales estimates by 3.2% and 4.8%, respectively. EBITDA estimates were reduced by 5.8% and 4.9%, while profit after tax estimates were cut by 13.4% and 14.8%.

The broker forecasts revenue, volume and EBITDA CAGRs of 7%, 10% and 6%, respectively, over FY26-FY28E.

Key risks: Rising operating costs and a demand slowdown.