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HeidelbergCement India - One-off costs impact profitability - ICICI Securities

Posted On: 2021-02-15 20:47:34 (Time Zone: Arizona, USA)

HeidelbergCement India's (HEIM) Q3FY21 EBITDA was flat YoY at Rs1.2bn impacted by one-off higher maintenance cost. EBITDA/te declined 3% YoY to Rs947/te as total costs/te grew 7% both YoY and QoQ. Volumes grew 3.7% YoY, while realisation was up 4.5% YoY. Net cash is likely to increase from current Rs2.2bn to ~Rs11bn 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 which could see further margin expansion, in our view. Factoring higher volumes owing to demand buoyancy, we increase our FY22-23E EBITDA by 1-5% & raise our target price to Rs265/sh (earlier: Rs230) based on unchanged 7xFY23E EV/E on half-yearly rollover. Maintain BUY. Key risk: lower demand / pricing.

- Revenue grew 8.4% YoY to Rs5.9bn (I-Sec: Rs5.7bn). Realisation grew 1% QoQ and 4.5% YoY to Rs4,669/te owing to price increases in the Central region. Volumes grew 3.8% YoY and 15% QoQ as share of non-trade sales increased from 15% to 20% QoQ. Management expects overall demand in Central region to remain strong led by steady recovery in IHB and rural segment as well as pick up in government infrastructure spends. Premium products' volumes rose 66% YoY and now constitute ~22% of trade sales in Q3FY21.

- EBITDA/te declined 3% YoY to Rs947/te as total cost/te increased 6-7% both QOQ and YoY to Rs3744/te. The company undertook planned shutdown of its largest kiln for replacement of 20km conveyor belt (which usually takes place once in 8-10yrs) and operated smaller 1600tpd older inefficient plant. This resulted in a significant increase in power and fuel costs and hence, raw material plus power & fuel cost/te rose by Rs150-170/te QoQ and YoY (Rs80-90/te impact one-off). Freight cost/te rose 4% QoQ (flat YoY) owing to higher diesel prices, while other expenses grew 11% YoY on higher maintenance costs. PAT was broadly flat YoY at Rs636mn.

- Cost savings initiatives: HEIM is looking to reduce its dependence on high cost grid power by sourcing more power from local sources. Company is also looking to source 5MW solar power plant by FY22 and increase AFR usage to 6-7% by Jun'21.

- Net cash is likely to increase from current Rs2.2bn to ~Rs11bn by FY23E given no major organic growth plans in the short term. HEIM repaid Rs1.25bn loan to parent company in the quarter and now has gross debt of Rs3.5bn including Rs2.3bn interest free loan. Company has mining leases in Amreli, Gujarat for proposed greenfield expansion but environmental clearance and land acquisition could take a couple of years. Likely relaxation of proposed mining regulations could pave the way for merger of Zuari Cement (also owned by promoter) with HEIM in India and could more than double HEIM's capacities. Both the companies are currently managed under the common leadership of Mr Jamshed Naval Cooper, MD & CEO.

Shares of HEIDELBERGCEMENT INDIA LTD. was last trading in BSE at Rs.236.4 as compared to the previous close of Rs. 229.9. The total number of shares traded during the day was 19136 in over 726 trades.

The stock hit an intraday high of Rs. 238.4 and intraday low of 228.65. The net turnover during the day was Rs. 4480047.

Source: Equity Bulls

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