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HeidelbergCement India - Sustaining strong profitability - ICICI Securities

Posted On: 2020-10-26 23:01:51

HeidelbergCement India's (HEIM) Q2FY21 EBITDA grew 3% YoY to Rs1.26bn with EBITDA/te increasing 5% YoY to Rs1,137/te - broadly in-line with our estimates. Given high focus on profitability, QoQ realisation decline was restricted to 2.4% QoQ (I-Sec: 3.5% QoQ). However, this resulted in marginally lower volumes, which declined 2% YoY. Cash conversion was strong at 110% of EBITDA with negative working capital during H1FY21. HEIM generated FCF of Rs2.4bn post capex spend of Rs133mn in H1FY21. HEIM is a play on fast growing, better priced and highly consolidated Central India which could see further margin expansion, in our view. We broadly maintain our FY21E-FY23E estimates with an unchanged target price of Rs230/share based on 7x Sep'22E EV/E. Maintain BUY.

- Revenue declined 1% YoY to Rs5.1bn (I-Sec: Rs5.4bn). Realisation declined 2.4% QoQ (up 1% YoY) to Rs4,627/te owing to monsoon seasonality. While volumes declined 2% YoY to 1.11mnte (I-Sec: 1.17mnte), it grew 29% QoQ with demand improvement in Q2FY21. Management mentioned that overall demand in Central region was better led by steady recovery in IHB and rural segment as well as pick-up in government infrastructure spends especially in Uttar Pradesh. Trade sales were at 85% of total sales marginally down from 86% QoQ and 88% YoY. Premium products' volumes rose 20% YoY to ~13% of trade sales in Q2FY21.

- Management expects demand and prices to improve further in Q3FY21 and beyond: Our channel checks suggest demand has further improved 5-10% MoM in Oct'20 and prices in Central region have increased by Rs10-15/bag w.e.f. Oct'20 mainly to mitigate the recent cost increases.

- EBITDA/te increased 5% YoY to Rs1,137/te, in-line with our estimates. Total cost/te declined 0.6% YoY / remained flat QoQ at Rs3,500/te. Raw material plus power & fuel cost/te declined 4% YoY (flat QoQ) owing to 900bps decline in the share of grid power to 60% and lower petcoke prices. While freight cost/te stood flat YoY (declined 10% QoQ) despite share of road volume increasing 400-500bps YoY/QoQ to 49%, other expenses/te (which includes handling cost as well) increased 7% YoY and 15% QoQ. PAT increased 7% YoY to Rs624mn (I-Sec: Rs660mn).

- HEIM is a play on fast growing, better priced and highly consolidated Central India. Its recent debottlenecking by >15% to 6.26mnte provides volume growth visibility in near term, while it intends to scale up its size in the medium term along with parent company's support. HEIM sells 100% blended cement with 85% trade volumes. Increasing share of premium products, commissioning of 5MW solar plants, improving blending ratio and rationalising fixed costs, still remain profitability levers for HEIM. We expect HEIM's EBITDA/te to increase to Rs1,263/te by FY23E from Rs1,122/te in FY20 (Rs1,200/te in H1FY21).

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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