Prabhudas Lilladher's research report on Heidelberg Cement India
Heidelberg Cement India (HEIM) reported EBITDA above our estimates by 6% due to lower than expected employee cost and other expenses. Cost increased mere 2%/Rs63 YoY against our estimate of increase by 8%/Rs290. Beat on cost partially offset by lower increase in realisations. Realisations grew 2.4%/Rs110 YoY (+1.5%/Rs70 QoQ) against our estimate of 5%/Rs240 YoY (+4%/Rs200 QoQ). HEIM’s EBITDA/EPS grew at a CAGR of 25%/66% over FY16-FY20, predominantly led by strong revival in region’s pricing. EBITDA/t grew at CAGR of 23% while volumes grew marginally by 1.4% due to lack of capacity. Strong prices in the region has resulted in meaningful surge in volumes from other regions. Admittedly, increased competition from other regions and new capacities added in the Central region would bring down realisations in the region. However, we believe that HEIM’s recently added 1mnt capacity (equivalent to 20%) in Q4FY20 and ongoing cost reduction programs would materially offset the impact of softness in realisations.
Outlook
Driven by quality operations and strong outlook on the central region, we maintain ACCUMULATE rating with TP of Rs191, EV/EBITDA of 7x FY22e.
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