Heidelberg Cement : Buy , 25 % Upside
Call & Research Report by Anand Rathi Research
Report Date: 1 June 2021
CMP Rs. 251 Target price Rs. 313
The complete-lockdown-hit low-base quarter aided its Q4 volume
growth; rising input costs, however, slashed Heidelberg’s operating
performance. Its focus remains on brand positing and increasing the
share of premium cement along with reducing the share of grid power.
While the Zuari-merger evaluation and clearance of the Gujarat
expansion continues, management is exploring expansion opportunities
in the Central region. We retain our Buy, with a TP of Rs313 (earlier
Rs288) Lower EBITDA/ton on rising costs. On the low base, firm realisations and 15% y/y volume growth, revenue rose 14% to Rs5.8bn. However
EBITDA/ton declined 8% y/y to Rs1,066 on input cost pressures, whereas
EBITDA grew 5% y/y to Rs1.3bn due to healthy volume growth. A reversal
of the Rs541.1m deferred tax liability, Rs148.5m accrued SGST incentive and
lower interest cost pushed PAT up 111% y/y to Rs1,400m.
Less grid power dependence; exploring expansion opportunities in
Central India. The company reduced its dependence on grid power to 63%
(vs 66% the quarter prior). The coming 5.5MW Narsingarh solar power plant and AFR will enhance the share of green power through savings in costs. While the license and clearance process is ongoing for its Gujarat expansion, the company is exploring expansion opportunities in Central India through mine auctions, etc. It is evaluating the new mining law for the Zuari merger.
Outlook, Valuation. Management said Central India demand would fall less
than in other regions in Q1 FY22 and prices would be firm enough to cover
cost rises. The SGST incentive from the MP government will continue for the next few years. The B/S is healthy with negative net operating working capital and net debt free (net D/E ~(0.1)x on 31st Mar’21). We expect revenue/ EBITDA/PAT to clock 10%/14%/11% CAGRs over FY21-23. We retain our Buy rating, at a higher target of Rs313, 10x FY23e EV/EBITDA. Risks: Higher petcoke, diesel prices; demand slowdown.
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