Star Cement Ltd
NSE:STARCEMENT

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Star Cement Ltd
NSE:STARCEMENT
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Price: 182.54 INR -1.19%
Market Cap: 73.8B INR
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Discount Rate

STARCEMENT Cost of Equity
Discount Rate

10.2%
Cost of Equity
6.95%
Risk-Free Rate
0.8
Beta
4.06%
ERP

STARCEMENT's Cost of Equity, calculated using the formula Risk-Free Rate + Beta x ERP, stands at 10.2%. The Beta, indicating the stock's volatility relative to the market, is 0.8, while the current Risk-Free Rate, based on government bond yields, is 6.95%, and the ERP, measuring the extra return over the risk-free rate required by investors, is 4.06%.

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STARCEMENT WACC
Discount Rate

10.35%
WACC
1.89%
Debt Weight
18.66%
Cost of Debt
10.2%
Cost of Equity

STARCEMENT's Weighted Average Cost of Capital (WACC) is calculated as the weighted average of its cost of equity and cost of debt, adjusted for tax. The WACC stands at 10.35%. This includes the cost of equity at 10.2%, calculated as Risk-Free Rate + Beta x ERP, and the cost of debt at 18.66%, reflecting the interest rate on STARCEMENT's debt adjusted for tax benefits. The weight of debt in the capital structure is 1.89%.

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What is STARCEMENT's discount rate?

STARCEMENT 's current Cost of Equity is 10.2%, while its WACC stands at 10.35%. The selection of the appropriate discount rate is contingent on the type of cash flows being discounted.

For Equity Valuation: When valuing equity, especially in scenarios where you are discounting cash flows to equity holders (such as Net Income, Earnings Per Share (EPS), or Free Cash Flow to Equity), the Cost of Equity should be used.

For Firm Valuation: In contrast, when valuing the entire firm and discounting cash flows available to both debt and equity holders (like Free Cash Flow to the Firm), the Weighted Average Cost of Capital (WACC) is the appropriate rate."

How is Cost of Equity for STARCEMENT calculated?

The Cost of Equity represents the return a company must offer investors to compensate for the risk of investing in its stock. It's calculated using the Capital Asset Pricing Model (CAPM), which combines the risk-free rate, the stock's beta, and the equity risk premium (ERP).

This model considers the inherent risk of investing in the stock compared to a risk-free investment and the market's overall risk.

Here is how we calculate the cost of equity for STARCEMENT

Cost of Equity
10.2%
=
Risk-Free Rate
6.95%
+
Beta
0.8
x
ERP
4.06%

How is WACC for STARCEMENT calculated?

WACC, or Weighted Average Cost of Capital, is a calculation that reflects the average rate of return a company is expected to pay its security holders to finance its assets. It is a critical measure in financial analysis for valuing a company’s entire operations.

The WACC formula combines the costs of equity and debt, weighted by their respective proportions in the company's capital structure.

Here is how we calculate WACC for STARCEMENT

WACC
10.35%
=
Cost of Equity
10.2%
x
Equity Weight
98%
+
Cost of Debt
18.66%
x
Debt Weight
2%
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