Star Cement (NSE: STARCEMENT) marks a new all-time high of Rs 219.50 today February 12th. The leading cement manufacturer has been experiencing a bullish trend for the last 3 weeks.
STAR CEMENT made a gap up opening and its price sored by 9% intraday marking a new high.
Shares of Star Cement closed higher at 4.4% 196.10 rupees.
The company posted an 66% rise in its net profit for Q3. The trading volume in STARCEMENT today was almost 5 times higher than usual.
STARCEMENT - Reasons behind the rally
There are several factors that contribute to the rise of infra stocks like Star Cement.
One major reason behind STARCEMENT’s rise is increased government spending on infrastructure.
The Indian government has announced plans to increase spendings on infrastructure like roads, railways, urban development, and housing for the middle class. This increased spending will lead to higher demand for cement further boosting STARCEMENT.
Star Cement and other cement manufacturing companies are expanding their production capacities to meet the possible rise in demand.
India’s overall economic outlook is positive, with the International Monetary Fund (IMF) expecting GDP growth of 6.8% in 2024. This positive outlook is also boosting investor sentiment towards infra stocks.
Good Q3 results for STARCEMENT
Looking at Star Cement’s standalone results, we can see very strong growth in total revenues. In 9 months, revenue has increased by over 60% from 61,700 lakhs to 1,05,900 lakhs. Net profit has also more than doubled during this period.
The consolidated results including all subsidiaries are also robust. Total group revenue has grown from 69,400 lakhs to 1,13,300 lakhs. Net profit has jumped by 66%.
This clearly indicates that Star Cement is currently in a very strong position. Its core cement business is performing exceptionally well. The performance metrics demonstrate consistency. So the long-term health of the company looks good.
STARCEMENT’s Valuation analysis
When conducting a discounted cash flow (DCF) analysis on Star Cement, we find that the stock’s intrinsic value is significantly above its current market price.
The detailed DCF valuation indicates the fair value of Star Cement shares is approximately ₹973. However, the stock is presently trading at just ₹208. This suggests it is undervalued by around 78% based on its calculated intrinsic worth.
In the DCF approach, the projected future cash flows are taken and adjusted for appropriate discount rates. This gives us the net present value, which in Star Cement’s case is almost 5 times the prevailing market price.
In simple terms, the analysis shows that Star Cement is fundamentally underpriced right now. The large gap between true value and market price presents an attractive buying opportunity for investors.
There is high upside potential in the stock as the market can be expected to close the valuation gap in the long run. For investors with a holding period of 2-3 years, Star Cement appears to be significantly undervalued at current levels.
Of course, readers should conduct their own research as well before reaching an investment decision. But the objective DCF analysis provides strong evidence that Star Cement is a compelling value pick in the cement sector currently. The risk-reward is skewed favorably for long-term investors.
STARCEMENT Sales growth over years
| Time Period | Sales Growth Rate |
|---|---|
| 1 Year | 23.15% |
| 3 Years | 15.11% |
| 5 Years | 13.06% |
STARCEMENT profit growth over years
| Time Period | Profit Growth Rate |
|---|---|
| 1 Year | -6.98% |
| 3 Years | -9.15% |
| 5 Years | -4.89% |
STARCEMENT's ROE over years
| Time Period | ROE (%) |
|---|---|
| 1 Year | 11.87% |
| 3 Years | 12.9% |
| 5 Years | 17.19% |
Final Words
In conclusion, Star Cement (NSE: STARCEMENT) has experienced a remarkable rally driven by several factors. Increased government spending on infrastructure projects in India, coupled with a positive economic outlook and robust quarterly results, has significantly boosted investor confidence in the company. Despite the recent surge in its stock price, detailed valuation analysis suggests that Star Cement remains fundamentally undervalued, presenting a compelling buying opportunity for long-term investors.
