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Reliance Securities
HeidelbergCement India (Buy)
CMP: ₹103
Target: ₹145
HeidelbergCement India (HCIL) has reported 3 per cent decline in top-line to ₹384 crore in the second quarter of FY17 vis-à-vis our estimates of ₹415 crore mainly owing to lower than estimated sales volume. Though its sales volume declined by 5.7 per cent y-o-y and 18 per cent q-o-q, operating performance has been relatively better than estimates with EBITDA rising by 36 per cent y-o-y.
While we cut our EBITDA estimates by 14 per cent and 10 per cent for FY17 & FY18, respectively mainly to factor in visible decline in sales post demonetisation drive and sharp upsurge in fuel cost, we retain our positive stance on the stock mainly due to likely de-leveraging of balance-sheet (pared down debt by ₹45 crore in the first half of 17) and improvement in operating performance, which would aid improvement in return ratios.
Outlook & Valuation
With no meaningful capacity addition coming in Central region in next 2-3 years, we believe HCIL would hit a sweet spot to improve its financials in ensuing years, on the back of healthy demand outlook owing to possible uptick in government spending in Uttar Pradesh and Madhya Pradesh and firm pricing environment.
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