Axis Securities has maintained a BUY recommendation on Star Cement Limited, reaffirming confidence in the company’s expanding capacity base, margin trajectory, and long-term demand outlook across East and North-East India. The brokerage has set a target price of Rs 320, implying a 45% upside from current levels.

Strong Quarter Reinforces the Investment Case

Star Cement delivered a standout operational and financial performance in Q3FY26, exceeding market expectations on profitability despite revenue landing broadly in line with estimates. The quarter marked a turning point, underscoring the benefits of higher volumes, cost efficiencies, and a favorable pricing environment.

Consolidated revenue rose 22% year-on-year to Rs 880 Cr, driven by a 16% expansion in cement volumes. EBITDA surged 94% YoY to Rs 202 Cr, while net profit jumped sharply to Rs 73 Cr, compared with just Rs 9 Cr in the same quarter last year. The magnitude of earnings growth highlights the operating leverage embedded in the business.

Margins Expand Sharply on Cost Discipline and Scale Benefits

The most notable highlight of the quarter was margin expansion. Star Cement reported an EBITDA margin of 23%, a dramatic improvement from 14.5% a year earlier and ahead of Axis Securities’ estimates.

EBITDA per tonne climbed 68% YoY to Rs 1,562, supported by improved realizations and a decline in production costs. Blended realizations increased 6% YoY to Rs 6,790 per tonne, while overall cost per tonne fell 5% YoY to Rs 5,228, aided by lower raw material and fuel costs.

Management expects margins to remain resilient, with EBITDA margins projected in the 22–23% range over the medium term, supported by pricing stability and rising capacity utilization.

Capacity Expansion Anchors the Growth Narrative

Star Cement’s expansion strategy remains firmly on track. The Silchar grinding unit is expected to be commissioned by Q4FY26, taking total installed capacity to 9.7 million tonnes per annum (mtpa) from the current 7.7 mtpa.

The company is targeting a 12% volume CAGR over FY25–FY27E, leveraging new capacity and robust regional demand. Additionally, management is evaluating a 2 mtpa cement plant in Begusarai, Bihar, and a larger clinker and grinding complex in Rajasthan, which would further strengthen geographic diversification.

These projects, while capital-intensive, are expected to enhance long-term competitiveness and market share.

Demand Environment Remains Supportive in Core Markets

The demand outlook for cement in East and North-East India continues to improve, supported by government-led infrastructure spending and sustained housing activity.

East India cement demand is projected to grow at an 8–9% CAGR over FY25–FY28, while the North-East is expected to maintain healthy growth despite infrastructural constraints. Star Cement’s strong regional footprint positions it well to capture incremental demand.

Management has guided for 12–15% volume growth in FY26, with similar momentum expected into FY27.

Diversification Adds Stability to Earnings

Beyond cement, Star Cement is gradually building a portfolio of value-added products. The AAC block facility in Guwahati has become operational, with FY26 revenue expected in the Rs 75–80 Cr range, alongside construction chemicals and ready-mix concrete operations.

These segments provide incremental margins and reduce earnings volatility, particularly during periods of cement price fluctuations.

Financial Snapshot Highlights Earnings Momentum

EBITDA and PAT are expected to grow at CAGRs of 34% and 59%, respectively, over FY25–FY27E, reflecting scale benefits and operating efficiency.

Valuation Still Attractive Despite Rerating

At the current market price of Rs 220, Star Cement trades at 10x FY26E and 9x FY27E EV/EBITDA, which Axis Securities considers attractive given the company’s growth visibility and improving return ratios.

The brokerage has marginally revised its valuation multiple to 13x FY27E EV/EBITDA, resulting in a revised target price of Rs 320.

This valuation implies meaningful upside while factoring in execution risks associated with large-scale expansion.

Key Risks Investors Should Monitor

While the outlook remains constructive, risks persist. Any slowdown in infrastructure spending, weaker-than-expected realizations, or sharp increases in fuel and freight costs could pressure margins.

Additionally, delays in commissioning new capacities or higher-than-planned capex could impact return metrics in the near term.

Investment View: BUY with a Long-Term Lens

Axis Securities continues to view Star Cement as a compelling regional cement play, supported by strong execution, rising profitability, and structural demand tailwinds.

With improving margins, expanding capacity, and a visible earnings runway, the stock offers an attractive risk-reward profile for medium- to long-term investors.