Sell Heidelberg Cement India Ltd for the Target Rs. 175 by Axis Securities Ltd
Mixed Earnings; Maintain SELL Est. Vs. Actual for Q1FY26: Revenue – BEAT; EBITDA Margin – MISS; PAT – MISS Change in Estimates post Q1FY26 (Abs) FY26E/FY27E: Revenue: 1%/1%; EBITDA: -2%/-4%; PAT: -4%/-8%
Recommendation Rationale
• Volume Growth:
The company reported a volume growth of 11% YoY in Q1FY26, driven by better demand in its operating region, which was above expectations. Consequently, we revise our volume growth guidance marginally higher to. 4.9 mtpa from 4.8 mtpa. The company is expected to achieve a volume growth of 3% CAGR over FY24-FY27E.
• Decline in Realisation:
Realisation on a QoQ basis declined by 2% to Rs 4,765, which was below the expectation of Rs 4,925. We, therefore, pencil in a lower margin for FY26E and revise our estimates downward.
Sector Outlook:
Positive Company Outlook & Guidance: Key demand drivers such as Housing and infrastructure are expected to continue supporting cement consumption. The company has guided volume growth of 6–7% in FY26.
Current Valuation: 9x FY27E EV/EBITDA (Earlier Valuation: 9x FY27E EV/EBITDA)
Current TP: Rs 175 /share (Earlier TP: Rs 175/share)
Recommendation: We maintain our SELL rating on the stock
Alternative BUY Ideas from our Sector Coverage: UltraTech Cement Ltd (TP-13,840/share),
Dalmia Bharat (TP-2,550/share), ACC Ltd (TP-2,260/share)
Financial Performance
Heidelberg Cement reported a mixed set of numbers in Q1FY26, with volume and revenue largely above expectations, while EBITDA, EBITDA margin, and PAT fell short. Revenue, EBITDA, and PAT grew by 12%/13%/21% YoY, respectively, driven by better volume. Net profit stood at Rs 48 Cr, up 21% YoY, but below our expectation of Rs 62 Cr. The quarter’s volume was recorded at 1.25 Mn TPA, reflecting an 11% YoY increase. EBITDA per tonne was up 2% QoQ to Rs 706. Blended realisation per tonne stood at Rs 4,765, down 2% QoQ. Operating costs declined 2% QoQ to Rs 4,055 per tonne. Outlook
The company reported robust volume growth during the quarter; however, the QoQ decline in realisation came as a surprise. While efforts are underway to de-bottleneck existing clinker capacity to enable future volume gains, we remain cautious. Though there was a marginal improvement in operating performance YoY, we prefer to wait for a sustained improvement before revisiting our assessment.
Valuation & Recommendation
The stock is currently trading at 15x/12 FY26E/27E EV/EBITDA. We maintain our SELL rating on the stock with a TP of Rs 175/share, implying a downside of 19% from the CMP.
Key Result Highlights
• Capacity Expansion: The company is debottlenecking its clinker capacity at its MP plant with a capital cost of Rs 70 Cr, aiming to increase clinker capacity by 2 Lc tonnes annually. This facility is expected to become operational in Q1FY26. It has acquired limestone mines in Central India and is in the process of locating land for setting up the plant. Heidelberg is awaiting environmental clearance from the Gujarat government for setting up a Greenfield plant in the state.
• Volume: The company reported an 11% YoY increase in volumes. Blended cement accounted for 98% of total sales during the quarter.
• Pricing: Cement realisation declined by 2% QoQ, reaching Rs 4,765/tonne.
• Power/Fuel: Power and fuel costs decreased by 3% YoY to Rs 1,235/tonne. The company increased consumption of non-grid power to the extent of 50% by increasing usage of multiple sources of power, such as Waste Heat Recovery, power purchase through long-term power purchase agreements and spot power purchases on energy exchange.
• Freight: Freight costs inched higher by 1% YoY to Rs 732 per tonne on selling Cement in far markets.
• Debt/Cash: As of 30 th Jun’25, the company reported a cash and bank balance of Rs 570 Cr and remains net debt-free.
• Capex: Capex guidance for FY26 stands at Rs 60 Cr.
Key Risks to Our Estimates and TP
• Lower realisation and demand in its key market and a delay in capacity expansion.
• Higher input costs may impact margins.
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