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Star Cement: Adani group is evaluating acquisition of Star Cement

ICICIdirect Research 06 Dec 2024 DISCLAIMER

As per the media reports, Adani Group is evaluating the acquisition of Star Cement to increase its exposure in North East region. However, the management of Star Cement has clarified that it is not engaged in any discussion with Adani Group

With a total capacity of 7.7 mtpa, Star Cement is primarily a north-eastern cement player with a leading market share of 26% at present in the region. Moreover, company is expanding its capacity by 4 mtpa in north-east to reach 11.7 mtpa by FY27E

Adani Cement (including Ambuja & ACC) has a total cement capacity of 97 mtpa at present (including recent acquisitions of Penna Cements and Orient Cement). With ~21 mtpa of organic expansions in process, Ambuja is expanding its capacity to 118 mtpa by FY26E and targets to reach 140 mtpa by FY28E

We believe that Ambuja remains focused on expanding its capacity aggressively across all the regions through organic/in-organic route and gain market share (aiming ~20% Pan India market share by FY28E vs 15% at present). Ambuja’s balance sheet position remains strong with Rs 10,000 crore of cash on books as of Sept 2024

We remain positive on Ambuja Cement and Star Cement considering the improving demand & pricing outlook in 2HFY25 and FY26E/27E

With double-digit volume growth (on aggressive capacity additions) and focus on cost reduction, Ambuja’s operational performance to improve substantially in the coming period. We have a target price of Rs 690 on Ambuja

Star Cement is also well placed to benefit significantly from upcoming expansions in high-growth north eastern markets coupled with focus on cost efficiencies. On FY26E basis, the company is trading at attractive valuation of $105/ton and 10x EV/EBITDA. We have a target price of Rs 255 on Star Cement

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