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Prabhudas Lilladher
HeidelbergCement (Buy)
CMP: ₹203.4
Target: ₹235
Heidelberg Cement reported Q4FY19 earnings in line with our estimates. Led by better than expected realisations partially offset by higher fuel costs, EBITDA/t arrived in line with our estimates at ₹959 (PLe:₹955), up 6.6 per cent y-o-y. Despite hardening of fuel prices, company managed to contain costs led by optimisation of logistics, rationalising employee cost, other fixed overheads and higher power generation from Waste Heat Recovery System (WHRS). Market has apprehensions on Heidelberg’s volume growth due to absence of capacity expansion. However, we believe that it can easily show volume growth in the range of 4-5 per cent for next couple of years through debottlenecking of capacity by 0.3-0.4 million tonnes and efficiency improvements.
We remain positive on demand outlook in Central region on the back of strong government spending in rural and affordable housing/infrastructure sector and better sentiments compared to other regions. To factor increased realisations, we upgrade our EBITDA estimates by 6.3 per cent/10.5 per cent for FY20e/FY21e. Led by strong outlook in Central region, quality operations and attractive valuations, we reiterate ‘buy’ with target price of ₹235 (Earlier ₹214), EV/EBITDA of 10x FY21e.
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