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Maintain ADD on Heidelberg Cement - Cost pass-through efforts to protect margin - HDFC Securities

Posted On: 2021-10-23 09:03:13 (Time Zone: IST)


We maintain ADD on Heidelberg Cement (HEIM) with an unchanged target price of INR 250/share (8.5x Sep'23E consolidated EBITDA). We like HEIM for its strong retail positioning, robust margin, and healthy balance sheet. Delays in major capacity additions would, however, subdue its sales growth beyond FY24E, thereby restricting valuation rerating. In Q2FY22, while revenue rose 12% YoY to INR 5.76bn, EBITDA/APAT fell 8/5% YoY to INR 1.16bn/ 0.6bn respectively, due to rising cost inflation. Unitary EBITDA cooled off 17/15% YoY/QoQ to INR 946/MT. The company guided that cement prices would increase by ~INR 100/bag during H2 to pass on the soaring energy costs.

Q2FY22 performance: Sales volume rose 11% YoY to 1.23mn MT (+4% QoQ) on strong demand recovery. This also led to flattish NSR QoQ despite the impact of monsoon. Opex rose 4% QoQ, mainly led by higher other expenses (~INR 150/MT QoQ) while all line items remained flattish QoQ (despite rising energy costs). The share of low-cost green power increased to 27% in Q2 vs 23% QoQ. Thus, unitary EBITDA cooled off 15% QoQ to INR 946/MT. On a YoY basis, energy cost inflation drove down unitary EBITDA by 17%. During H1FY22, HEIM generated OCF of INR 2.03bn, out of which INR 0.2bn was spent on Capex and INR 1.8bn as dividend; thus, debt and net debt remained the same as in Mar'21.

Management commentary and outlook: HEIM has increased cement prices by INR 20-25/bag so far in October. It plans to raise prices by another INR 75-100/bag over the next 4-5months to pass on the soaring energy costs. HEIM guided that its opex would surge by ~INR 300-400/MT QoQ in Q3FY22 and is expected to rise further in Q4. Additionally, sourcing of fuel and fly ash is becoming challenging. It guided for a total Capex of INR 550- 600mn (INR 400-500mn - maintenance capex, INR 160mn - AFR projects) for FY22E. With the onboarding of 22mn kWh annual solar PPA from Q3FY22, HEIM's share of green power consumption should expand to 30%+, reducing its blended power cost. We expect the industry to pass on the soaring costs, given the increased industry consolidation. We keep our estimates unchanged for FY22/23/24E. We maintain our ADD rating on the stock with an unchanged target price of INR 250/sh, valuing it at 8.5x the Sep'23E EBITDA.

Shares of HeidelbergCement India Limited was last trading in BSE at Rs. 241.30 as compared to the previous close of Rs. 241.10. The total number of shares traded during the day was 9287 in over 632 trades.

The stock hit an intraday high of Rs. 246.95 and intraday low of 240.55. The net turnover during the day was Rs. 2267180.00.


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