Hold Heidelberg Cement; target of Rs 220: ICICI Direct

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ICICI Direct’s research report on Heidelberg Cement

Heidelberg Cement reported a mixed set of numbers with the topline missing our estimates but EBITDA, PAT broadly coming in line despite witnessing volume de-growth vs. our estimates. Revenues increased 1.8% YoY to Rs 534.7 crore (below I-direct estimate of Rs 561.7 crore). The revenue growth was driven by 6.7% growth in realisation to Rs 4415/t (above I-direct estimate of Rs 4,337/t) while volume came in at 1.21 MT (vs. I-direct estimate of 1.3 MT), posting 4.6% YoY de-growth. On the margin front, EBITDA margins remained flat YoY and expanded ~80 bps QOQ to 21.7% (vs. I-direct estimate of 21.2%) supported by strong realisations growth. On an absolute level, EBITDA was at Rs 116.2 crore, increasing 1.7% YoY (vs. I-direct estimate of Rs 119.3 crore. Adjusted PAT increased 18% YoY from Rs 51.6 crore to Rs 60.9 crore (vs. I-direct estimate of Rs 59 crore) in Q4FY19, mainly by higher other income (up 81% YoY to 20.2%).

Outlook

Heidelberg continues to have a strong retail presence. With firm pricing in its region led by efficient operations of Heidelberg Cement India, we maintain a positive outlook on the company’s profitability. However, capacity issues for the longer term would continue to persist. Considering rich valuations, the upside, however, remains limited. Valuing the company at 9.5x FY21E EV/EBITDA, we have a HOLD rating with a TP of Rs 220/share.

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