Hold Heidelberg Cement; target of Rs 220: ICICI Direct

ICICI Direct's research report on Heidelberg Cement

Heidelberg Cement reported strong Q1FY20 results with volumes displaying resilience to soft demand. Revenues increased 8.5% to Rs 582.4 crore (above I-direct estimates of Rs 510 crore) contributed entirely by realisations growing 9.3% YoY to Rs 4630/t. While we expected volumes to decline to 1.14 MT. They broadly remained flat at 1.26 MT. The company clocked an EBITDA/t of Rs 1200/t for the quarter (vs. I-direct estimate of Rs 848/t) while margins expanded 430 bps YoYb to 25.9% on the back of strong realisations. EBITDA witnessed 30% YoY growth to ~Rs 151 crore (above I-direct estimate of Rs 96.8 crore) led by margin expansion. PAT jumped 54% YoY to Rs 79 crore piggybacking on a strong operational performance and higher other income.

Outlook

Heidelberg continues to have a strong retail presence and very low exposure towards government projects. While we maintain a positive outlook on the company’s profitability, capacity issues for the longer term would continue to persist. We have a HOLD rating on the stock valuing the company at ~9x FY21E EV/EBITDA, implying a target price of Rs 220/share.