ICICI Securities

HeidelbergCement (Add)

Target: ₹280

CMP: ₹242.25

HeidelbergCement India’s (HEIM) Q2-FY22 EBITDA at ₹120 crore (down 8 per cent y-o-y) was higher than our/consensus estimates led by higher volumes, up 11 per cent y-o-y and 4 per cent q-o-q. Realisation remained flat q-o-q and y-o-y while total cost/te rose 6.8 per cent y-o-y and 4.1 per cent q-o-q resulting in EBITDA/te declining 16.8 per cent y-o-y and 14.6 per cent q-o-q to ₹946/te.

While investor concerns around sharp cost increases seem valid, industry has demonstrated strong pricing resilience in the past. Our recent channel checks suggest companies have increased prices by ₹15-20/bag across regions.

Domestic as well as international coal prices have increased with domestic supplies being restricted for the use of power plants. HEIM currently holds coal inventory for 30 days. Increase in crude prices has resulted in higher packing costs. Diesel prices also continue to move on an upward trajectory.

Factoring in cost inflation, we reduce our FY22-FY24 EBITDA by 3-7 per cent.

Net cash to increase to ₹800 crore in FY23 from the current ₹230 crore as no major expansion is currently under execution. Company is likely to incur replacement capex of ₹40-50 crore and capex towards building AFR capacities to the tune of ₹10-15 crore, taking the total capex to ₹55-60 crore in FY22.

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