Maintain BUY on Heidelberg Cement - Superior margin sustained - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

Heidelberg Cement's (HEIM) revenue fell 2% YoY to Rs 5.14bn, as sales volume fell 2% (focus on better pricing sales). However, healthy realisation and low opex further boosted EBITDA/APAT by 3/7% YoY to Rs 1.26/0.62bn. Balance sheet remains strong - with negative cash conversion of 22 days and net cash on books increasing to ~Rs 1.8bn. We continue to like HEIM for its retail presence in the lucrative central market, increased volume growth visibility, superior margin and return ratios and a net cash balance sheet. We maintain BUY with an unchanged target price of Rs 234/sh (8.5x Sep'22E EBITDA).

Results highlights: Sales volume fell 2% YoY to 1.11mn MT, (lower vs our expectations of 5% growth), despite its operating region reporting healthy retail demand as HEIM focused on better pricing. Even on a high base of last year, NSR firmed up 1% YoY, despite being down 2.5% QoQ (seasonal correction). Operating expenses cooled off 1% YoY (flat QoQ) due to lower fuel prices, while moderated by higher other expenses. Thus, unitary EBITDA buoyed 5% YoY to Rs 1,137/MT and drove up EBITDA/APAT. Interest expense fell 29% YoY on account of debt reduction and lower interest rates, thus boosting APAT growth. In Sep'20, its cash conversion cycle firmed up from negative 15 days to negative 22 days YoY. Amid, low Capex outgo, net cash balance rose to Rs 1.8bn from Rs 1.0bn in Mar'20.

Outlook: We maintain our earnings estimates. We expect the recent capacity debottlenecking and demand recovery 2HFY21-onwards to drive 4% volume CAGR during FY20-23E. Along with a strong margin, this should drive 7% EBITDA CAGR, sustaining its superior profitability. We maintain our BUY rating with an unchanged target price of Rs 234/sh (8.5x Sep'22E EBITDA).

Shares of HEIDELBERGCEMENT INDIA LTD. was last trading in BSE at Rs.185.35 as compared to the previous close of Rs. 190.05. The total number of shares traded during the day was 8258 in over 267 trades.

The stock hit an intraday high of Rs. 189.35 and intraday low of 184.05. The net turnover during the day was Rs. 1539053.

Source : Equity Bulls

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