Buy Heidelberg Cement India; target of Rs 235: Prabhudas Lilladher

Prabhudas Lilladher's research report on Heidelberg Cement India

Heidelberg cement (HEIM) reported Q4FY19 earnings in line with our estimates. Led by better than expected realisations partially offset by higher fuel costs, EBITDA/t arrived in line with our estimates at Rs959 (PLe:Rs955), up 6.6% YoY. Despite hardening of fuel prices, company managed to contain costs led by optimisation of logistics, rationalizing employee cost, other fixed overheads and higher power generation from Waste Heat Recovery System (WHRS). Market has apprehensions on HEIM's volume growth due to absence of capacity expansion. However, we believe that it can easily show volume growth in the range of 4-5% for next couple of years through debottlenecking of capacity by 0.3mn-0.4mn tonnes and efficiency improvements.

Outlook

Led by strong outlook in Central region, quality operations and attractive valuations, we reiterate BUY with TP of Rs235 (Earlier Rs214), EV/EBITDA of 10x FY21e.