HeidelbergCement India - Realisation / margin disappoints - ICICI Securities

HeidelbergCement India's (HEIM) Q1FY22 EBITDA at Rs1.3bn (up 21% YoY) was higher than our / consensus estimates led by higher volumes, which grew 38% YoY and declined only 5% QoQ. However, realisation remained flat QoQ (vs our / consensus expectation of 3% QoQ increase) and declined 2% YoY resulting in EBITDA/te declining 12% YoY to Rs1,107/te. Total cost/te rose 2.7% YoY (flat QoQ) mainly due to higher fuel and packaging cost. Net cash is likely to increase from the current Rs2.3bn to ~Rs8bn by FY23E given no major organic growth plans in the short term. Factoring in lower realisation / margin, we reduce our FY22E-FY23E EBITDA by 2-6%. We downgrade the stock to ADD from BUY and lower our target price to Rs280/sh (earlier: Rs290/sh) based on unchanged 8x Jun'23E EV/E on quarterly rollover. Key risk: Lower demand / pricing.

- Revenue grew 35% YoY to Rs5.5bn. Volume growth was better at 38% YoY (down only 5.4% QoQ) on low base to 1.18mnte implying 74% utilisation. HEIM witnessed strong ordering from the government and hence, contribution from the non-trade segment remained flat QoQ at 17% in Q1FY22. However, realisation declined 2% YoY (remained flat QoQ) to Rs4,648/te owing to volume push into new markets at lower prices and also due to pricing pressure led by higher inter-region movement. Prices in Jul'21 continue to remain stable; however, monsoon continues to remain a drag on prices.

- EBITDA/te declined 12% YoY to Rs1,107/te on account of lower realisation and higher cost/te. The increase in cost/te was partially offset by income pertaining to SGST incentive of Rs40.3mn from the government of Madhya Pradesh. Cost/te increased 2.7% YoY (remained flat QoQ) to Rs3,588/te. Raw material plus power and fuel costs increased by 12% YoY and 6% QoQ at Rs2,050/te led by higher fuel prices. Freight cost/te declined 4.6% YoY and 5.1% QoQ owing to increasing share of rail and freight rebate, despite increasing diesel costs. PAT was up 40% YoY at Rs687mn.

- Management expects strong demand growth in its key markets led by higher rural housing and infrastructure demand driven by government capex. It believes 2022 elections in Uttar Pradesh will drive infrastructure projects in the near term. Demand from Madhya Pradesh is also expected to be strong.

- Net cash to increase to Rs8bn in FY23 from the current Rs2.3bn as no major expansion is currently under execution. Proposed Gujarat expansion is still awaiting environmental clearance and land acquisition is still pending. Proposal if any, to merge other group entity Zuari Cement with HEIM is still under consideration.

Shares of HEIDELBERGCEMENT INDIA LTD. was last trading in BSE at Rs. 258 as compared to the previous close of Rs. 259.55. The total number of shares traded during the day was 17391 in over 903 trades.

The stock hit an intraday high of Rs. 262.5 and intraday low of 256.55. The net turnover during the day was Rs. 4504696.

Source : Equity Bulls

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