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Net sales were down 14% QoQ on account of lower volume and realisation  

Net sales, at Rs5bn, was down 14% QoQ/down 12% YoY on account of lower volume and realization/t during the quarter. Blended cement prices decreased (down 4.6% QoQ/up 8% YoY to Rs5,061/t) for HEIM due to seasonally weak demand. Demand in Uttar Pradesh and Madhya Pradesh was affected due to weather related issues (heavy rains and flooding in UP)., leading to ~10% QoQ/~19% YoY fall in volume in Q2FY23 to 1.0mt. HEIM took price hike of Rs5?6/bag in late September and early October.

CoP higher by 3% QoQ; EBITDA/t of Rs476 

Operating cost was up 3% (Rs135/t) QoQ to Rs4,585/t primarily due to increase in raw material cost. Power & Fuel cost stood flat QoQ at Rs1,895/t. As pet coke becomes cheaper than coal and availability is also high, HEIM used 69% petcoke in its fuel mix. Logistics cost was up 2.5% QoQ to Rs680/t. The increase in cost, lower volume and realization/t resulted in 50% QoQ fall in EBITDA during the quarter. As a result, EBITDA/t decreased sharply by Rs379 (44% QoQ) to Rs476.

A step head in greenfield capacity in Gujarat 

Management is trying to add 0.3mtpa clinker and 0.5mtpa grinding capacity via debottlenecking and project is expected to be completed by April 2023. It has received Mining Lease and environment clearances to set up greenfield cement capacity in Gujarat and has applied to receive Terms of Reference (ToR) which is expected to receive by June 2023. Post statutory clearances and after that, capex will start on setting up the phase 1 of 3.5mtpa plant which will take further 2 years to complete.

Margins to improve in Q3FY23; Downgrade to Reduce

We expect margins to improve in Q3FY23 due to price hike and lower fuel cost. Management’s focus remains and does not expect to sell its cement business in India. HEIM has a strong balance sheet with cash of Rs2.2bn and interest free debt. It is working on expansion but at initial stage and will come by FY26 only. We recommend ADD with a target price of Rs187, valuing it at 7.5x FY24E EV/EBITDA.

 

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