Economic gloom has not spared any industry and that includes something as core as cement. The sector is battling weak demand and despite its leadership position in the North East region, Star Cement has logged weak financial performance in FY20. While sales and profit recovered in the second quarter, its first quarter performance has left a dent. Subdued cement prices, elevated fuel cost and erratic monsoon are just a few factors that are hurting Star Cement’s financials. This is also reflecting in its stock price, which has corrected nearly 35% on the back of institutional selling from its 52-week high of Rs.137 in June.
But analysts at HDFC Securities Institutional Research continue to like the cement player for its positioning in the “lucrative NE region, which will further enhance as Star ramps-up clinker capacity in North East region.” They add that the cement maker’s operating margins will improve due to better coal availability and reduction in cost because of setting up of waste heat recovery. The report states that Star appears attractive at estimated FY21 Ebitda of 7.1x and have a ‘buy’ rating with a target price of Rs.135.
However, mutual funds are treading cautiously. They have reduced their overall stake from 8.70% in March to 8.41% in September. While the biggest, SBI MF has trimmed down from 5.78% to 5.77%, Sundaram Mutual Fund has reduced its holding from 1.98% to 1.74% over the same period. Similarly, foreign portfolio investors have cut their stake from 1.23% to 0.75%.
Along with institutional investors, promoters have been offloading shares, too. Between November 26 and 29, three promoter-led entities, which have chairman Sajjan Bhajanka and managing director Sanjay Agarwal on board, sold shares worth Rs.294 million. This is the largest promoter stake sale in the stock since January 2018, when they sold shares worth Rs.1.82 billion in a bulk deal to SBI MF. Apart from these disposals in November, promoters offloaded shares worth Rs. 3.9 million in FY20. Over the last two quarters, promoter stake has marginally reduced by 0.05% to 67.94%. After the latest stake sale, promoter stake now stands at 67.19%.