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Star Cement receives Rs80cr towards subsidies claim

Company will utilise the funds for pre-payment of loans; total long term borrowing for the company as on December 31 2017 stood at Rs551cr
Star Cement has informed that it has received Rs80.26cr towards Subsidies claim from the Central Government and this amount shall be utilized towards pre-payment of loans. The company has a long term debt of Rs551cr as on December 31 2017. Further, as on Q3FY18, total subsidy (including freight and capital) backlog for the company stood at ~Rs720cr and the company was expecting Rs150cr in Q4FY18E itself and then and a major portion of the outstanding amount in FY19E. However, the reported amount received is much lesser than anticipated.

Star has a capacity of 4.4MTPA (planning to increase by ~2MTPA by FY20E end) in NE located at proximity to the key raw materials. Company is also expanding in the nearby markets (West Bengal, Bihar and Jharkhand). It enjoys ~23% market share in North East, premium pricing (of Rs30-40/bag) and more than 2x EBITDA/tn vis-à-vis peers.

We remain upbeat on Star given (a) low competition in NE market, (b) strong dealership network (~2,600 dealers) and (c) various fiscal benefits. We estimate revenue and PAT CAGR of 5% (due to subdued FY18E performance) and 30% respectively over FY17-20E with ~650bps EBITDA margin expansion. Further, expected receipt of subsidy and strong cash flow generation, will make the company almost debt-free by FY20E.

Star Cement Ltd is currently trading at Rs128.75 up by Rs0.45 or 0.35% from its previous closing of Rs128.30 on the BSE.