Hold Heidelberg Cement India; target of Rs 195: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Heidelberg Cement India

Heidelberg Cement India (HEIM) reported EBITDA below our estimates by 8% due to lower than expected volumes and higher fixed costs. Despite higher capacity (due to debottlenecking) and recovery in central region’s demand, HIEM’s volumes fell 2.3% YoY against our muted expectation of 3% YoY growth. Cost reduced mere 0.6%/Rs20 YoY against our estimate of fall by 3.3%/Rs120. HEIM’s EBITDA/EPS grew at a CAGR of 25%/66% over FY16-FY20, predominantly led by revival in prices post consolidation in the central region. EBITDA/t grew at CAGR of 23% while volumes grew marginally by 1.4% due to capacity constraints. Strong prices in the region has attracted meaningful surge in volumes from other regions. Increased supplies due to inflow from other regions and commencement of new capacities would keep prices under pressure. HEIM recently expanded capacity by 15% to 6.3mnt through debottlenecking.

Outlook

However, we believe that contraction in margins would considerably neutralise the volume growth. Hence, we expect EBITDA to grow at a CAGR of 4% over FY20-FY23e. Given the peaked out margins and slow earnings growth, we downgrade the stock to Hold with TP of Rs195, EV/EBITDA of 7x FY22E.

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