Heidelberg Cement India - Focusing on profitable growth - ICICI Securities

HeidelbergCement India's (HEIM) Q4FY21 EBITDA was up 19% YoY at Rs1.5bn, in line with our estimates. EBITDA/te increased 4% YoY (+28% QoQ) to Rs1,215/te aided by income pertaining to SGST incentive of Rs148mn from the government of Madhya Pradesh. Total cost/te grew 2% YoY and declined 4.5% QoQ. Volumes grew 15% YoY while realisation declined marginally, both YoY and QoQ. Net cash is likely to increase from current Rs2.3bn to ~Rs9bn by FY23E given no major organic growth plans in the short term. HEIM is a play on fast-growing, better-priced and highly consolidated Central India market, which could see further margin expansion, in our view. We broadly maintain our FY22E-FY23E EBITDA. Given strong profitability and return ratios, we raise our target multiple to 8x EV/E (earlier: 7x) and raise our target price to Rs290/sh (earlier: Rs265) based on 8x FY23E EV/E. Maintain BUY. Key risks: lower demand / pricing.

- Revenues grew 14% YoY to Rs5.8bn. Realisation declined marginally by 0.6% both QoQ and YoY to Rs4,643/te. Volume growth was lower at 15% YoY (down 1% QoQ) on low base as the company strives to sustain profitability. Management stated that covid second wave has impacted rural demand with overall volumes likely to get impacted during Q1FY22. However, it expects the impact in Central India to be less compared to other markets. Premium product volumes rose 29% YoY and constituted ~19% of trade volumes in Q4FY21.

- EBITDA/te increased 4% YoY to Rs1,215/te aided by income pertaining to SGST incentive of Rs148mn from the government of Madhya Pradesh. Cost/te increased 2% YoY to Rs3,577/te. Raw material plus power and fuel costs increased by 12% YoY at Rs1,933/te led by higher fuel prices. The upcoming 5MW solar plant will reduce the company's dependence on grid power. Freight cost/te was up 2.3% YoY and 7.1% QoQ owing to higher diesel prices. Employee cost was up 11% YoY and 18% QoQ on account of increments. PAT (adjusted for reversal of DTL of Rs541mn) was up 30% YoY at Rs859mn.

- Net cash is likely to increase from current Rs2.3bn to ~Rs9bn by FY23E given no major organic growth plans in the short term. HEIM repaid the second tranche of NCDs worth Rs1.25bn during the year. Of the gross borrowing of Rs3.5bn as at Mar'21, Rs1.2bn of NCDs are due for repayment in Dec'21 and the remaining Rs2.3bn of interest-free loan is due for repayment beyond FY22. OCF generation in FY21 was strong at Rs4.2bn. HEIM completed the disbursement of inter-corporate loan of Rs1.5bn to Zuari Cement Ltd at an interest rate of 7.64% p.a. Recent MMRDA amendment would allow transfer of mining lease without additional royalty and this could act as an enabler for merger with Zuari Cement, in our view.

Shares of HEIDELBERGCEMENT INDIA LTD. was last trading in BSE at Rs.254 as compared to the previous close of Rs. 251.4. The total number of shares traded during the day was 54012 in over 1174 trades.

The stock hit an intraday high of Rs. 257.6 and intraday low of 253.1. The net turnover during the day was Rs. 13775434.

Source : Equity Bulls

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