HeidelbergCement India (HEIM) reported a performance beat mainly led by better-than-expected sales volume and realizations. EBITDA (excl. other operating income) stood at Rs1.09bn (-13% YoY and -13% QoQ), which is modestly higher than our estimate of Rs1bn. EBITDA/tonne stood at Rs887 in 2QFY22 vs. Rs1,127 and Rs1,060 in 2QFY21 and 1QFY22, respectively. Sales volume grew by a strong 11% YoY to 1.23mnT (+4% QoQ). Further, the average realization remained resilient at Rs4,624/tonne (-0.1% YoY and -0.5% QoQ), which was Rs44/tonne higher than our estimate. However, operating cost/tonne increased by 6.8% YoY and 4% QoQ to Rs3,737, mainly led by a sharp jump in the input cost/tonne (+14% YoY and +1.5% QoQ) and other expenditures/tonne (+19% QoQ). APAT stood at Rs596mn (-5% YoY and -13% QoQ), which is ahead of our estimate of Rs552mn. The focus to improve blended realization by increasing the sales of premium products (which currently account for 21% of trade volume) and cost rationalization measures undertaken in the recent past have already yielded the desired results. Hereon, a sizeable capacity expansion could be the key catalyst for the company, but there is still no visibility on the capacity expansion for the next two years. Hence, this could remain as a key drag for the stock. We increase the EBITDA estimates by 7%/1%/6% for FY22E/FY23E/FY24E mainly to factor the superior realizations in 1HFY22 and the recent rise in prices. Keeping the target EV/EBITDA multiple unchanged for FY24E at 8x, we maintain our SELL rating with a revised 12-month target price of Rs247.
Strong Sales Volume
Led by the sustained demand from projects segment and low base of 2% de-growth of last year aided HEIM to report a strong 11% YoY growth in sales volume to 1.23mnT. Notably, demand in the Central region remains better compared to others. We expect the company to register 7.8% volume CAGR through FY21-FY24E, mainly supported by a strong presence in the demand-rich Central region and sustained demand environment of the industry.
Better Realizations and Higher Volume Aid Performance Beat
As against the industry's realization decline of 3% QoQ, HEIM recorded a mere 0.5% sequential dip in the average realization to Rs4,624/tonne, which was Rs44/tonne higher than our estimate. This along with superior volume aided the company to report a modest performance beat. However, operating cost/tonne at Rs3,737 (+6.8% YoY and +4% QoQ) and an expectation to further increase, as cited by the management (up to Rs400/tonne), will play as the key headwind in the near term. However, the company expects to take the necessary price hike in the coming week to pass on the entire cost. We estimate EBITDA/tonne at Rs981/Rs994/Rs1,062 for FY22E/FY23E/FY24E, respectively.
Outlook & Valuation
The impact of elevated cost pressure was completely visible despite a better-than-expected performance. Notwithstanding return ratios of >20% (the best in cement industry) and a robust balance sheet, we do not find any reason for HEIM's valuation to get re-rated, mainly due to concerns relating to growth. Keeping the target EV/EBITDA multiple unchanged for FY24E at 8x, we maintain our SELL rating with a revised 12-month target price of Rs247. Notably, we have shifted to a 1-year target price, from the earlier 2-year. As we enter 2HFY22, instead of rolling forward the valuation, we maintain it based on FY24E earnings and shift to a 1-year target price of Rs247.
Link to the report
Shares of HeidelbergCement India Limited was last trading in BSE at Rs. 247.20 as compared to the previous close of Rs. 247.80. The total number of shares traded during the day was 19155 in over 1141 trades.
The stock hit an intraday high of Rs. 251.30 and intraday low of 239.10. The net turnover during the day was Rs. 4725641.00.