Buy Heidelberg Cement For Target Rs. 266 - HDFC Securities
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Major maintenance work inflated opex during 3Q
Heidelberg Cement’s (HEIM) 3QFY21 revenue grew by 9% YoY to INR 5.95bn led by both higher sales volume and realisation. However, EBITDA came in flat YoY at INR 1.20bn as input cost inflated (due to OLBC maintenance work at Damoh). Further, the higher tax outgo led to APAT falling 2% YoY to INR 0.64bn. Net cash balance increased to INR 2.2bn in Dec’20 vs net debt of INR 71mn in Mar’20. We continue to like HEIM for its retail presence in the lucrative central market, increased volume growth visibility and a net cash balance sheet. We maintain BUY with an unchanged target price of INR 266/share (8.5x Dec’22E EBITDA).
* Results highlights: Sales volume grew 4/15% YoY/QoQ to 1.27mn MT. Utilisation for the quarter was at 80% (on expanded capacity after debottlenecking) vs 92% YoY. NSR firmed up 1% QoQ, on ~80% QoQ rise in premium cement sales, thus driving up NSR 4% YoY. Unitary opex rose 7/7% QoQ/YoY, led by a sharp increase in unitary input costs as major maintenance work of OLBC at Damoh (taken up in two parts, second work to happen in 1HFY22) inflated costs by ~INR 100/MT (one off). Thus, unitary EBITDA fell 3/17% YoY/QoQ to INR 947/MT, leading to a flat EBITDA YoY (down 5% QoQ). Interest expense continued to fall, now down 35% YoY, driven by continued debt reduction. Other income and depreciation rose marginally YoY. Tax rate rose to 31% vs 25% YoY. APAT, hence, fell 2% YoY due to higher tax outgo. Net cash balance rose to INR 2.2bn in Dec’20 vs net debt of INR 71mn in Mar’20. Amid low capex spend and working capital controls.
* Outlook: We maintain our earnings estimates. We expect HEIM to deliver 7% CAGR during FY20-23E, on ramp-up of its recent capacity enhancements. Along with a strong margin, this should drive 9% EBITDA CAGR, sustaining its superior profitability. HEIM is working on increased AFR usage in its MP plant and will also debottleneck its clinker capacity by 1mn MT. Its Greenfield expansion in Gujarat is at least three years away. We maintain our BUY rating with an unchanged target price of INR 266/sh (8.5x Dec’22E EBITDA).
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