Star Cement targets FY30 capacity expansion as near-term costs pressure earnings

Investment View and Valuation

In its August 11, 2026 result update, Anand Rathi Research maintained its BUY rating on Star Cement but reduced the target price to Rs265 from Rs290. The target is based on 11 times FY28E EV/EBITDA.

The broker views Star Cement as a leading North-East cement player, with about 26 per cent regional market share and current capacity of 9.7 million tonnes per annum. Capacity expansion remains the central long-term driver, with planned capacity of 16.7 million tonnes per annum by FY29E and approximately 18-20 million tonnes per annum by FY30E. Anand Rathi expects this expansion to diversify Star Cement's footprint, improve capacity utilisation and reinforce its presence in existing markets.

Q1 FY27 Financial Performance

Q1 FY27 performance was soft, with earnings affected by weaker operating conditions and higher costs. Cement sales volume including clinker rose 4.5 per cent year-on-year to 1.35 million tonnes. North-East volume grew 0.5 per cent year-on-year to 871,000 tonnes, while volume outside the North-East increased 21.4 per cent to 431,000 tonnes. Clinker sales declined 30 per cent year-on-year to 52,000 tonnes.

Cost Pressures and Margin Outlook

The earnings pressure reflected elevated costs associated with the West Asia conflicts, reduced availability of FSA coal because of diversion to power plants, and political donations. Per-tonne power and fuel cost increased 2.9 per cent year-on-year, raw-material cost increased 1.2 per cent and freight cost increased 3.7 per cent.

Management indicated that FSA coal's share had fallen to 45 per cent, while spot coal accounted for around 30 per cent. Fuel consumption cost of Rs1.55 per GCV in Q1 FY27 is guided to decline to Rs1.45 per GCV in Q2 FY27 as FSA coal supply and railway-rake availability improve.

Volume Guidance and Cost-Saving Initiatives

Management revised FY27 cement-volume growth guidance to 8-9 per cent from 10-12 per cent, following election-related weakness in Q1 FY27 and the expected impact of Assam flooding in Q2 FY27. This compares with the broker's cited industry growth expectation of 7 per cent.

Management expects cement prices to remain stable after the June exit, with pent-up demand in H2 FY27 and cost-saving measures supporting EBITDA per tonne of Rs1,500-1,600. However, near-term profitability is expected to remain under pressure.

• A Silchar railway siding is expected by October-November 2026.
• A wagon tippler at Siliguri is expected to generate estimated savings of Rs150 per tonne on fly-ash and clinker transport.
• Higher renewable-energy use and group captive power schemes are planned.
• Electric vehicles will be introduced on selected routes.

Capacity Expansion and Capital Expenditure

Expansion plans include a 2 million tonne Bihar grinding unit, which could be redirected to West Bengal if that state's new industrial-policy benefits are more attractive; a 3 million tonne cement and 3.3 million tonne clinker integrated unit at Nimbol, Rajasthan; and a 2 million tonne Haryana grinding unit.

Land acquisition for Nimbol and Haryana is complete, while environmental clearance and public hearings are under way. The proposed Jorhat, Assam expansion and Umrangso clinker line will be assessed against market demand and business conditions.

Management expects FY27E and FY28E capex of Rs5-6bn and Rs15bn respectively. Funding is expected through debt, internal accruals and/or a QIP, with peak net debt to EBITDA guided at 1.5-1.6 times.

Estimates, Incentives and Key Risks

A change in Assam's Industrial Incentive Scheme reduced FY27 incentive guidance to Rs1.15bn from Rs1.45-1.5bn. Outstanding incentives were Rs1.3bn as of June 30, 2026. Management expects this headwind to become less significant from Q3 FY27 as the prior year's GST-related base effect normalises.

Anand Rathi forecasts revenue, volume and EBITDA CAGRs of 7 per cent, 10 per cent and 6 per cent respectively over FY26-FY28E. The key risks identified are rising operating costs and a demand slowdown.