Reliance Securities
HeidelbergCement (Buy)
CMP: ₹142.65
Target: ₹220
HeidelbergCement is one of the world’s largest building materials companies. With the takeover of the Italian cement producer Italcementi, HeidelbergCement became the Number One in aggregates production, Number Two in cement, and Number Three in ready-mixed concrete. Both companies complement each other perfectly: on the one hand due to major similarities in product areas and organisation structures, and on the other hand due to their different geographical footprints without major overlaps. In the significantly expanded HeidelbergCement Group, around 59,000 employees work.
HeidelbergCement’s 1HFY19 performance remained strong and surpassed the estimates due to better-than-expected sales volume, superior realisation and cost saving measures. While capacity constraint seems to the key hurdle for HCIL as of now to get re-rated, we are hopeful that it would get the same in the medium term.
Looking ahead, we expect visible de-leveraging of balancesheet (repaid ECB of ₹75 crore in 1HFY19) and healthy operating efficiencies are expected to result in improvement in return ratios.