Heidelberg Cement - New plant to spearhead growth; Hold - Anand Rathi

We expect Heidelberg Cement to deliver 10% revenue growth yoy, led by similar trends in realisations. We estimate PAT of Rs.82m vs Rs.75m qoq and a loss of Rs.18m yoy. With trial runs having started at the Damoh unit, commissioning is expected by early Jan'13. Our earnings estimates for CY13-14 are under review and will be tweaked after the commissioning. Due to limited upside based on our fair value, we ratain Hold rating.

- Dispatch capped by capacity constraints. Cement dispatches in 4QCY12 are likely to be flat yoy (up 14% qoq) to 0.74m tons, largely due to capacity constraints (annual capacity of 3.1m tons) and lower demand in the industry. Average realisation is expected to rise 10% yoy (down 3% qoq) to Rs.3,790 a ton. Accordingly, revenue is estimated to rise 10% yoy and qoq.

- Flat EBITDA yoy; PAT positive. EBITDA is expected to be firm qoq at Rs.198m (while rising significantly yoy), led by growth in realisations. We estimate EBITDA/ton of Rs.266 (against Rs.303 in 3QCY12 and Rs.41 in 4QCY11). PAT is expected to be Rs.82m vs Rs.75m in the previous quarter and a, Rs.18m loss in the year-ago quarter.

- New capacity. Trial runs at the new 3m-ton plant at Damoh and at the grinding units have started. We expect the commissioning to be completed by early Jan'13 with commercial production to start anytime after that. The impact from the increase in interest and depreciation will therefore also be seen from Jan'13. We will tweak our earnings estimates on the commissioning of the plant.

- Valuation. Strong volume growth in CY13-14, the company's foothold in the high-utilisation markets of the Central and West regions, positive FCF, increase in RoE are fundamental positives. At our price target of Rs.58, the stock would trade at 6x CY13e EV/EBITDA. The target price implies an EV/ton of US$60 and a PE of 9x. Risks: Low cement offtake or price declines in the Central region.

Source : Equity Bulls

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