Buy Star Cement, target Rs 171: Emkay Global Financial Services

Emkay Global Financial Services has a buy call on Star Cement Ltd. with a target price of Rs 171. The current market price of Star Cement Ltd. is Rs 128.7 Time period given by analyst is year when Star Cement Ltd. price can reach defined target. Star Cement Ltd., incorporated in 2001, is a mid-cap cement company with a market cap of Rs 5395.48 crore.

Investment rationale by Emkay Global
We have largely maintained our EBITDA/PAT estimates for FY19/20E. The company has received pending subsidies of Rs2.8bn in Q1FY19. We like the company due to its presence in North East (better growth opportunities), strong margin profile and superior return ratios. It has consistently delivered more than 2x EBITDA/tn vis-à-vis the average of other companies in our coverage universe. The North East region, where Star sells 65% of its volume, is a lucrative market with low competition (50% of capacity is controlled by two players), and has significant growth opportunities. Valuation at 10.1/7.9x FY19/20E EV/EBITDA offers comfort. We retain BUY with a TP of Rs171, valuing it at 10x FY20E EV/EBITDA