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Hold Heidelberg Cement India; target of Rs 215: Prabhudas Lilladher

February 24
12:25 2020

Prabhudas Lilladher’s research report on Heidelberg Cement India

Heidelberg cement (HEIM) reported EBITDA below ours/consensus estimates by 10%/13% with miss across the fronts. Volumes dropped sharply by 5.5% YoY. While, higher prices helped it to expand EBITDA/t by 10% YoY. HEIM’s EBITDA/EPS grew at a CAGR of 26%/68% over FY16-FY20, predominantly led by strong revival in region’s pricing. EBITDA/t grew at CAGR of 23% while volumes grew marginally at a rate of 2.5%. Region is going to see sizeable capacity addition (12-14mnt) over next couple of years coupled with entry of three new players. HEIM is expanding capacity by 15% to 6.3mnt (to become operational by Q4FY21 in phases) through debottlenecking. However, we believe that contraction in margins would offset volume growth largely.

Outlook

Hence, we expect EPS to grow at a CAGR of 2% over FY20e-FY22e. Given the peaked out margins and slow earnings growth, we downgrade the stock to Hold with TP of Rs215, EV/EBITDA of 8.5x FY21e.

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