Heidelberg Cement - An MNC subsidiary with stellar growth prospects - Consortium

Heidelberg Cement India (HCIL) is well poised to capture growth on account of well timed capacity expansion and better market mix. Doubling of cement capacity to 6 mn tonnes would drive the earnings during CY13-14E. Return ratios are expected to see a significant improvement going forward (RoE 20% in CY14E from 5.4% in CY12E). Free cash flow (FCF) is expected to be positive in CY14E after four years of negative trend. We initiate coverage with a Buy rating.

With no more new capacities coming up in Central India till 2015 and additional "pre-election demand" coming in from MP through 2013, we expect Heidelberg to fully capitalize on its well timed expansion.

In addition to volume growth, operational efficiencies and economies of scale will facilitate a ~120% CAGR in EBITDA and 108% CAGR in EPS through CY12-14.

"Targeted growth in emerging markets" feature in "management priorities 2012/13" for Heidelberg AG. Asia-Pacific contributes to close to a quarter of its sales and nearly half its EBITDA, Western and Northern Europe exposure is limited to ~30% of sales and ~15% of EBITDA. Heidelberg AG reported sales of € 10.5 bn, EBITDA of € 1.8 bn and net attributable profit of € 0.2 bn in Jan-Sept2012. Its net debt/equity stands at a comfortable 0.5x.

Source : Equity Bulls

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