Star Cement’s lower valuations reflect concerns on operating margins

With the government clearing freight subsidy claims of around ?50 crore, the Star Cement Ltd stock is in the spotlight. Shares of the North-East-based cement producer jumped nearly 10% intraday on NSE on Thursday. However, it has given up most of those gains and is up only about 2% since the development. The government incentivizes, in the form of subsidies, cement producers operating in hilly and backward states. Other companies are also entitled to it. No wonder then that the euphoria didn’t last and the stock gave up the gains. The company’s December quarter results were a mixed bag. Margins took a hit after it stopped receiving a transport subsidy. Said analysts. “In Q3FY19, the company witnessed a dip in margins from 37.8% to 29.5%, mainly led by end of transport subsidy from January 2018. We believe margins of 25-26% will be the new normal for the company in the coming years," ICICI Direct Research said in a report on 6 February.