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Operating performance remains subdued

Heidelberg (HEIM) reported weak set of numbers for 3QFY24 as EBITDA came in 25% below our expectation owing to sequential increase in operating costs. In spite of the increased competition in the central region, company reported decent volume growth of 10.3% YoY. However, with elections code of conduct on the verge of kicking in, we believe demand to remain subdued till 2QFY25 exerting near term pressure on volume growth. The lack of meaningful capacity addition coupled with increasing competition would likely constrain HEIM’s growth going forward. Our long term rationale remains unchanged as we expect the stock to underperform the sector owing to the absence of the long term capital allocation plan. We have tweaked our FY25/FY26 EBITDA estimates downward by 7.9%/7.8% and now bake in 5.2% revenue and 11.1% EBITDA CAGR for the company over FY23-26. We maintain our Sell rating on the stock with a revised target price of Rs167 (Rs168 earlier).

3QFY24 results summary

HEIM reported revenue of Rs6bn, up 12.4 % YoY. Volumes at 1.21mn mt increased by 10.3% YoY against our expectation of 8% growth. Realizations at Rs5,026 was up 3.2% QoQ. Operating costs/mt of Rs4,484 is down 2.4% YoY and up 4.9% QoQ. All the cost components inched upwards on a YoY basis while Power & fuel costs declined by 16.7% YoY to Rs1,310/mt. EBITDA at Rs655mn is up 76% YoY on weak base of past year but 25% below our estimate. EBITDA/mt as a result came in at Rs542/mt against our expectation of Rs734/mt. As at 3QFY24, the cash & bank balance stood at Rs5.7bn as against interest free borrowings of Rs 1.3bn.

Valuations imply acquisition premium

HEIM stock is up 20% over the last 3 months. At CMP it is trading at 9.5X FY26 EV/EBITDA but asset based valuation is still at US$85/mt. Given the recent acquisition/merger deals in the cement industry, HEIM is considered an acquisition target and hence the stock is factoring in acquisition premium. We continue to value the stock at 7x Sep25 EV/EBITDA given weak volume growth ahead in the absence of any capex plans.

Maintain Sell with TP of Rs167

We have assigned lowest EV/EBITDA multiple within our coverage of 7x for HEIM owing to lack of capacity addition and sub-par volume growth. We have tweaked our FY25/FY26 EBITDA estimates downward by 7.9%/7.8% and now bake in 5.2% revenue and 11.1% EBITDA CAGR for the company over FY23-26. We maintain our sell rating on the stock.

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