Despite the impressive quarterly performance, the stock declined 3.30% on February 06, 2026, closing at ₹215.25, reflecting investor concerns over stretched valuations and broader market weakness. The counter has underperformed significantly over the past six months, declining 18.36% against the Sensex's 3.77% gain, signalling persistent headwinds in the cement sector.
The quarter's performance marks a decisive inflection point for Star Cement, which had struggled with margin pressures throughout much of FY25. The company's ability to expand operating margins by 850 basis points year-on-year whilst simultaneously growing volumes reflects improving pricing power and operational efficiencies in its core North Eastern markets. Sequentially, net profit grew 4.13% from ₹71.95 crores in Q2 FY26, whilst revenue expanded 8.52% quarter-on-quarter, indicating sustained momentum.
Financial Performance: Margin Expansion Drives Profitability
Star Cement's Q3 FY26 results showcase a company that has successfully navigated the challenging operating environment that plagued the cement industry through FY25. Net sales of ₹880.00 crores represented a robust 22.43% year-on-year increase, significantly outpacing the company's 8.70% revenue growth in FY25. On a sequential basis, revenue grew 8.52% from ₹810.94 crores in Q2 FY26, driven by improved realisations and volume growth in the company's key markets.
The standout feature of the quarter was the dramatic margin recovery. Operating profit before depreciation, interest, tax and other income (PBDIT excluding OI) surged to ₹202.49 crores, nearly doubling from ₹104.23 crores in Q3 FY25. This translated into an operating margin of 23.01%, up from a mere 14.50% in the year-ago quarter—an expansion of 850 basis points. The margin improvement was driven by favourable input costs, particularly lower energy and logistics expenses, combined with firmer cement prices in the North Eastern region.
Profit before tax stood at ₹98.52 crores in Q3 FY26, a staggering 1,194.74% increase from ₹7.61 crores in Q3 FY25. After accounting for tax expenses of ₹24.32 crores at an effective rate of 24.69%, net profit reached ₹74.20 crores, up from ₹9.05 crores in the year-ago quarter. The PAT margin expanded to 8.43% from 1.26%, reflecting the operating leverage inherent in the cement business when volumes and realisations align favourably.
Employee costs remained well-controlled at ₹69.94 crores, representing 7.95% of sales, marginally higher than 8.44% in Q3 FY25. Depreciation charges of ₹91.18 crores were in line with the company's expanded asset base following significant capital expenditure in recent years. Interest costs increased to ₹12.15 crores from ₹9.80 crores year-on-year, reflecting higher debt levels to fund capacity expansion, though the company's interest coverage ratio remained robust at over 8 times.
| Quarter | Net Sales (₹ Cr) | Operating Margin % | Net Profit (₹ Cr) | PAT Margin % |
|---|---|---|---|---|
| Dec'25 | 880.00 | 23.01% | 74.92 | 8.43% |
| Sep'25 | 810.94 | 23.45% | 71.95 | 8.76% |
| Jun'25 | 911.99 | 25.02% | 98.45 | 10.76% |
| Mar'25 | 1,052.09 | 24.97% | 123.17 | 11.70% |
| Dec'24 | 718.76 | 14.50% | 9.06 | 1.26% |
| Sep'24 | 641.55 | 14.90% | 5.74 | 0.88% |
| Jun'24 | 751.01 | 15.46% | 31.04 | 4.13% |
Operational Excellence: Regional Dominance and Capacity Utilisation
Star Cement's operational performance in Q3 FY26 underscores its dominant position in the North Eastern cement market, where it commands significant market share. The company's manufacturing facilities in Lumshnong, Meghalaya, and Guwahati, Assam, are strategically positioned to serve the region's growing infrastructure and housing demand. The 22.43% year-on-year revenue growth suggests improved capacity utilisation and market penetration, particularly as government infrastructure spending in the region accelerates.
The company's return on equity (ROE) of 9.62% over the past five years, whilst modest, reflects the capital-intensive nature of the cement business and the impact of significant capacity expansion undertaken in recent years. The latest ROE of 10.06% shows marginal improvement, though it remains below the industry benchmark of 15%. Return on capital employed (ROCE) stood at 12.39% in the latest period, down from an average of 13.45%, indicating that the company's expanded asset base is yet to deliver optimal returns.
Leverage Concerns: Rising Debt Levels
Star Cement's balance sheet reflects the impact of aggressive capacity expansion, with long-term debt rising sharply to ₹314.04 crores in FY25 from ₹72.10 crores in FY24. The debt-to-equity ratio increased to 0.16 from near-zero levels, though it remains comfortable. However, the half-yearly debt-equity ratio reached 0.21, the highest in recent periods, warranting close monitoring. Interest costs in H1 FY26 grew 22.35% year-on-year to ₹23.21 crores, reflecting the higher debt burden. Whilst the company's interest coverage ratio of 21.60 times remains exceptionally strong, rising interest costs could pressure margins if not offset by volume growth.
Fixed assets surged to ₹2,408.09 crores in FY25 from ₹1,398.89 crores in FY24, reflecting substantial capital expenditure to expand capacity. Current assets stood at ₹1,034.66 crores, providing adequate liquidity, though cash flow from operations of ₹296.00 crores in FY25 was significantly lower than ₹489.00 crores in FY24, reflecting working capital pressures. The company's sales-to-capital-employed ratio of 0.96 indicates that it requires substantial capital to generate each rupee of sales, typical for the cement sector but highlighting the importance of maintaining high capacity utilisation.
Industry Context: Cement Sector Recovery Gains Momentum
Star Cement's strong Q3 FY26 performance aligns with broader recovery trends in India's cement sector, which has benefited from moderating input costs and improving demand from infrastructure and housing segments. The government's continued focus on infrastructure development, particularly in the North Eastern region under various connectivity and development schemes, has provided a tailwinds for regional players like Star Cement.
The cement industry witnessed price stability in Q3 FY26 after a prolonged period of weakness, enabling manufacturers to expand margins. Energy costs, which account for a significant portion of cement manufacturing expenses, moderated during the quarter, providing relief to producers. Additionally, improved logistics and distribution efficiency contributed to margin expansion across the sector.
Regional Advantage: North East Focus
Star Cement's concentrated presence in the North Eastern region provides both opportunities and risks. The region's underdeveloped infrastructure presents significant growth potential as government spending accelerates under various development initiatives. However, the company's heavy reliance on this geography exposes it to regional economic cycles and competitive pressures. The company's ability to maintain its market leadership position whilst defending margins against larger national players will be critical to sustaining growth momentum.
The cement sector's competitive dynamics remain challenging, with large national players possessing greater scale advantages and pricing power. Star Cement's regional focus allows it to compete effectively in its core markets, but expansion beyond the North East would require substantial capital and could dilute margins. The company's strategy appears focused on consolidating its regional dominance rather than aggressive pan-India expansion, a prudent approach given its capital constraints.
Peer Comparison: Valuation Premium Despite Weaker Scale
Star Cement's financial metrics and valuation multiples reveal a mixed picture when compared to industry peers. The company's ROE of 9.62% is higher than several regional peers, including The Ramco Cement (6.62%), JSW Cement (3.93%), and Nuvoco Vistas (2.43%), but trails JK Lakshmi Cement's impressive 15.08%. This suggests that whilst Star Cement generates reasonable returns on equity, there remains scope for improvement, particularly as new capacity ramps up.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Star Cement | 28.75 | 2.89 | 9.62% | 0.16 | 0.46% |
| The Ramco Cement | 147.51 | 3.62 | 6.62% | 0.61 | 0.17% |
| JSW Cement | 162.28 | 2.51 | 3.93% | 1.76 | NA |
| India Cements | NA (Loss Making) | 1.39 | 0.67% | 0.13 | NA |
| Nuvoco Vistas | 32.25 | 1.35 | 2.43% | 0.61 | NA |
| JK Lakshmi Cement | 18.90 | 2.44 | 15.08% | 0.41 | 0.85% |
From a valuation perspective, Star Cement trades at a P/E ratio of 28.75 times, significantly below inflated multiples of The Ramco Cement (147.51x) and JSW Cement (162.28x), but above JK Lakshmi Cement's 18.90x. The company's price-to-book ratio of 2.89x is higher than the peer average of approximately 2.30x, suggesting the market assigns a premium to Star Cement's regional dominance and growth prospects. However, this premium appears unjustified given the company's modest ROE and limited geographic diversification.
Star Cement's debt-to-equity ratio of 0.16 is amongst the lowest in the peer group, providing financial flexibility for future growth initiatives. However, the company's dividend yield of 0.46% is uncompetitive compared to JK Lakshmi Cement's 0.85%, reflecting a policy of retaining earnings to fund expansion rather than rewarding shareholders through dividends. With a market capitalisation of ₹8,843 crores, Star Cement ranks sixth amongst the peer group, limiting its ability to compete aggressively on scale with larger rivals.
Valuation Analysis: Premium Unjustified by Fundamentals
Star Cement's current valuation appears stretched relative to its fundamental performance and growth prospects. Trading at a P/E ratio of 28.75 times trailing twelve-month earnings, the stock commands a premium to its historical average and appears expensive given the industry P/E of 40x masks several loss-making or marginally profitable peers. The company's PEG ratio of 0.54 suggests the valuation is reasonable relative to growth expectations, but this metric must be viewed cautiously given the cyclical nature of the cement business.
The stock's price-to-book ratio of 2.89x is elevated for a company generating a ROE of just 9.62%. Typically, stocks trading above 2.5x book value should demonstrate ROEs exceeding 15% to justify the premium. Star Cement's inability to consistently deliver double-digit returns on equity raises questions about the sustainability of its current valuation. The company's EV/EBITDA multiple of 11.70x appears reasonable for the sector, though it reflects expectations of sustained margin improvement that may prove challenging to achieve.
The company's valuation grade has deteriorated over recent months, moving from "Fair" in November 2024 to "Expensive" and eventually "Very Expensive" by late November 2024. As of February 2026, the stock remains classified as "Very Expensive", suggesting limited upside potential at current levels. The stock's 30.14% decline from its 52-week high of ₹308.10 reflects this valuation concern, though it remains 9.43% above its 52-week low of ₹196.70.
Based on the company's current earnings trajectory and industry dynamics, a fair value estimate for Star Cement would be approximately ₹180-190 per share, implying 16-17% downside from the current price of ₹215.25. This estimate assumes a sustainable P/E multiple of 22-24x, more aligned with the company's modest ROE and limited geographic diversification. Investors should exercise caution at current levels and await a more attractive entry point.
Shareholding Pattern: Stable Promoter Base, Modest Institutional Interest
Star Cement's shareholding pattern reveals a stable promoter base with limited institutional participation. Promoter holding stood at 57.62% in Q3 FY26, marginally up from 57.59% in Q2 FY26, indicating continued confidence from the founding family. The promoter group, led by Sajjan Bhajanka (12.02%), Prem Kumar Bhajanka (10.22%), and other family members, maintains firm control over the company's strategic direction.
| Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 57.62% | 57.59% | 57.66% | +0.03% |
| FII | 2.47% | 2.96% | 2.24% | -0.49% |
| Mutual Funds | 4.33% | 4.33% | 4.87% | 0.00% |
| Other DII | 0.15% | 0.05% | 0.06% | +0.10% |
| Non-Institutional | 35.43% | 35.07% | 35.17% | +0.36% |
Foreign institutional investor (FII) holding declined to 2.47% in Q3 FY26 from 2.96% in the previous quarter, suggesting reduced appetite from global investors. This 0.49 percentage point sequential decline is concerning, as it indicates that sophisticated institutional investors are reducing exposure despite the company's improved quarterly results. FII holding remains low at just 2.47%, well below levels seen in larger, more liquid cement stocks.
Mutual fund holding remained flat at 4.33% in Q3 FY26, unchanged from Q2 FY26, after declining from 4.87% in Q1 FY26. The absence of incremental buying by domestic institutional investors despite strong quarterly results suggests scepticism about the sustainability of margin improvement. With only six mutual funds holding positions in the stock, institutional coverage remains limited, constraining liquidity and potentially contributing to price volatility.
The non-institutional category, comprising retail and high-net-worth investors, increased marginally to 35.43% from 35.07%, indicating modest retail interest. However, the overall institutional holding of just 6.96% is significantly below industry averages, limiting the stock's appeal to large institutional portfolios. The low institutional participation also raises concerns about corporate governance oversight and limits the stock's inclusion in major indices.
Stock Performance: Significant Underperformance Across Timeframes
Star Cement's stock price performance has been disappointing across most timeframes, with the counter underperforming both the broader market and its sectoral peers. The stock declined 3.30% on February 06, 2026, closing at ₹215.25, compared to the Sensex's 0.32% gain, resulting in a negative alpha of 3.62%. Over the past week, the stock fell 2.00% against the Sensex's 1.59% gain, underperforming by 3.59%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.00% | +1.59% | -3.59% |
| 1 Month | -2.47% | -1.74% | -0.73% |
| 3 Months | -12.52% | +0.32% | -12.84% |
| 6 Months | -18.36% | +3.77% | -22.13% |
| YTD | -4.40% | -1.92% | -2.48% |
| 1 Year | +0.28% | +7.07% | -6.79% |
| 3 Years | +88.40% | +38.13% | +50.27% |
| 5 Years | +112.28% | +64.75% | +47.53% |
The most concerning aspect of Star Cement's performance is the sharp underperformance over the past six months, with the stock declining 18.36% whilst the Sensex gained 3.77%, resulting in a negative alpha of 22.13%. This significant underperformance coincides with the stock's valuation grade deteriorating to "Very Expensive", suggesting investors have lost confidence in the company's ability to sustain margin improvements. The three-month return of -12.52% against the Sensex's 0.32% gain further underscores this trend.
Over a one-year period, the stock delivered a marginal return of 0.28%, significantly lagging the Sensex's 7.07% gain and the cement sector's 7.31% return. This 7.03% underperformance versus the sector average indicates company-specific challenges beyond broader industry headwinds. The stock's risk-adjusted return of 0.01 over one year, compared to the Sensex's 0.61, highlights the unfavourable risk-reward profile, with high volatility of 28.47% generating minimal returns.
On a longer-term basis, Star Cement has delivered strong returns, with three-year gains of 88.40% outperforming the Sensex's 38.13% by 50.27 percentage points. The five-year return of 112.28% also exceeded the Sensex's 64.75%, demonstrating the stock's ability to generate wealth over extended periods. However, recent underperformance raises questions about whether the stock's best days are behind it, particularly as valuation multiples have expanded without commensurate improvement in fundamental metrics.
Technical Analysis: Bearish Trend Intensifies
Star Cement's technical indicators paint a decidedly bearish picture, with the stock entering a bearish trend on February 06, 2026, at ₹222.90, deteriorating from its previous "Mildly Bearish" classification. The stock is currently trading below all key moving averages, including the 5-day (₹219.27), 20-day (₹216.35), 50-day (₹220.05), 100-day (₹237.08), and 200-day (₹236.73) moving averages, indicating pervasive selling pressure across timeframes.
Technical indicators across weekly and monthly timeframes are predominantly negative. The MACD (Moving Average Convergence Divergence) is bearish on the weekly chart and mildly bearish on the monthly chart, suggesting downward momentum. Bollinger Bands indicate bearish conditions on both weekly and monthly timeframes, with the stock trading near the lower band, signalling continued downside potential. The KST (Know Sure Thing) oscillator is bearish weekly and mildly bearish monthly, confirming the negative trend.
The stock faces immediate support at ₹196.70, its 52-week low, approximately 8.6% below current levels. A break below this level could trigger further selling pressure. On the upside, immediate resistance lies at ₹216.35 (20-day moving average), followed by major resistance at ₹237.08 (100-day moving average) and ₹236.73 (200-day moving average). The stock would need to reclaim these moving averages convincingly to signal a trend reversal.
Delivery volumes have increased significantly, with the trailing one-month average of 1.49 lakh shares representing 68.42% of total volumes, up from 53.49% in the previous month. This 98.77% increase in delivery volumes suggests genuine investor interest rather than speculative trading, though the negative price action indicates this interest is primarily from sellers rather than buyers. The stock's high beta of 1.35 indicates it is more volatile than the broader market, amplifying both gains and losses.
Investment Thesis: Cyclical Recovery Insufficient to Justify Premium
Star Cement's investment thesis rests on several pillars: dominant market position in the North Eastern region, improving operating margins, and exposure to government infrastructure spending. However, these positives are offset by stretched valuations, modest returns on capital, limited geographic diversification, and rising debt levels. The company's proprietary Mojo score of 37/100 with a "SELL" rating reflects these concerns, having declined from a "HOLD" rating in December 2025.
The company's quality grade of "Average" reflects its inconsistent financial performance and modest profitability metrics. Whilst the five-year sales growth of 15.58% is healthy, EBIT growth of just 9.71% indicates margin pressures have constrained profitability expansion. The average ROE of 9.62% and ROCE of 13.45% are below industry benchmarks, suggesting the company's capital deployment has been suboptimal. The recent positive financial trend in Q3 FY26 is encouraging, but sustainability remains questionable given the cyclical nature of the cement business.
From a valuation perspective, the "Very Expensive" grade is a significant red flag. The stock's P/E ratio of 28.75x and P/BV ratio of 2.89x appear unjustified given the company's modest ROE and limited growth visibility. The bearish technical trend compounds these concerns, with the stock trading below all key moving averages and showing no signs of bottoming. The combination of expensive valuation and negative technical momentum creates an unfavourable risk-reward profile for investors.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Regional Market Leadership: Dominant position in North Eastern cement market with established distribution network and brand recognition
- Margin Recovery: Operating margins expanded 850 bps YoY to 23.01% in Q3 FY26, demonstrating operational leverage and pricing power
- Strong Interest Coverage: EBIT-to-interest ratio of 21.60x provides comfortable debt servicing capacity despite rising borrowings
- Stable Promoter Holding: Promoter stake of 57.62% ensures alignment with minority shareholders and strategic continuity
- Infrastructure Tailwinds: Positioned to benefit from government spending on North Eastern infrastructure development
- Low Leverage: Debt-to-equity ratio of 0.16 provides financial flexibility for future expansion
- Capacity Expansion: Recent capex of over ₹1,000 crores positions company for volume growth as new capacity ramps up
⚠️ KEY CONCERNS
- Stretched Valuation: P/E of 28.75x and P/BV of 2.89x appear expensive given modest ROE of 9.62% and limited growth visibility
- Geographic Concentration: Heavy reliance on North Eastern region exposes company to regional economic cycles and limits diversification
- Rising Debt Burden: Long-term debt surged to ₹314 crores in FY25; interest costs up 22.35% in H1 FY26
- Weak Returns on Capital: ROE of 9.62% and ROCE of 13.45% below industry benchmarks, indicating suboptimal capital deployment
- Limited Institutional Support: Total institutional holding of just 6.96% constrains liquidity and limits index inclusion
- Bearish Technical Trend: Stock trading below all moving averages with negative momentum across indicators
- Competitive Pressures: Faces competition from larger national players with superior scale and pricing power
Outlook: What Lies Ahead for Star Cement
Star Cement's near-term outlook hinges on its ability to sustain the margin improvement demonstrated in Q3 FY26 whilst ramping up utilisation of recently expanded capacity. The company's focus on the North Eastern region provides insulation from intense competition in other markets but also limits growth potential. Government infrastructure spending in the region will be a key driver of demand, though execution risks and project delays could impact volume growth.
POSITIVE CATALYSTS
- ✓ Sustained cement price increases in North Eastern markets
- ✓ Improved capacity utilisation driving operating leverage
- ✓ Moderation in energy and logistics costs
- ✓ Acceleration of government infrastructure projects in the region
- ✓ Market share gains from unorganised sector
RED FLAGS TO MONITOR
- ⚠ Margin compression if cement prices soften
- ⚠ Further increase in debt levels and interest costs
- ⚠ Continued FII and mutual fund selling
- ⚠ Delay in government infrastructure project execution
- ⚠ Aggressive capacity addition by competitors in the region
The key risk to the bullish case is valuation—at current levels, the stock offers limited margin of safety even if the company delivers on operational expectations. The bearish technical trend and declining institutional interest suggest the market has already priced in the cyclical recovery, leaving little room for upside surprises. Investors should monitor quarterly margin trends, capacity utilisation rates, and debt levels closely to assess whether the Q3 FY26 performance represents a sustainable inflection point or a temporary cyclical upturn.
The Verdict: Cyclical Recovery Insufficient to Justify Premium Valuation
Score: 37/100
For Fresh Investors: Avoid initiating positions at current levels. The stock's "Very Expensive" valuation grade, bearish technical trend, and modest return on equity of 9.62% create an unfavourable risk-reward profile. Wait for a meaningful correction towards ₹180-190 levels, representing 16-17% downside, before considering entry. The company's Q3 FY26 margin recovery, whilst impressive, does not justify the current P/E of 28.75x and P/BV of 2.89x given limited geographic diversification and rising debt levels.
For Existing Holders: Consider reducing positions or booking profits, particularly for those sitting on substantial gains from the three-year and five-year periods. The stock's 30% decline from its 52-week high of ₹308.10 reflects justified valuation concerns. Whilst the company's regional dominance and margin recovery are positives, the bearish technical trend, declining institutional interest, and stretched multiples suggest further downside risk. Use any rallies towards ₹225-230 as exit opportunities.
Fair Value Estimate: ₹180-190 (16-17% downside from current levels of ₹215.25)
Rationale: Star Cement's impressive Q3 FY26 results demonstrate operational recovery, but stretched valuations, modest returns on capital, and bearish technical momentum outweigh the positives. The stock's "Very Expensive" valuation grade and "SELL" rating from proprietary analysis reflect fundamental concerns about sustainability of margin improvement and limited geographic diversification. With a Mojo score of just 37/100 and declining institutional support, the risk-reward profile remains unfavourable at current levels.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
