Buy Heidelberg Cement; volume growth continues to surprise

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Updated: July 29, 2015 10:17:39 AM

Operational savings from the ramp-up of the new capacity and from the conveyor belt are being seen in the performance of Heidelberg Cement, and are expected to persist through Q2 FY16.

Operational savings from the ramp-up of the new capacity and from the conveyor belt are being seen in the performance of Heidelberg Cement, and are expected to persist through Q2 FY16. (REUTERS)Operational savings from the ramp-up of the new capacity and from the conveyor belt are being seen in the performance of Heidelberg Cement, and are expected to persist through Q2 FY16. (REUTERS)

Operational savings from the ramp-up of the new capacity and from the conveyor belt are being seen in the performance of Heidelberg Cement, and are expected to persist through Q2 FY16. We expect the margins and utilisations to improve, aided by a price rise in the region and robust volume growth. We maintain a buy, with a revised target  price of R99 (earlier R108), based on 9x FY17e EV/ebitda; the implied  PE is 19x and the EV/tonne is $100.

Volumes grew 14%y-o-y (up 8% q-o-q) to the highest ever, of 1.18 million tonnes, leading to better-than-
estimated 7% revenue growth. Realisations dipped 6% y-o-y (and 1% q-o-q), to R3,660 a ton. The drop in realisations stemmed from the overall dip in cement prices in the central region. The company made inroads into new markets in central India while gaining market share in existing markets.

Ebitda/tonne came in at R378; it fell from R612 a year ago and R575 the prior quarter, chiefly because of the fall in realisations and higher costs. Ebitda declined 29% yoy, below our estimate mainly because of the higher freight cost pulled down by the rise in rail freight and higher other expenditure . Lower Ebitda and a higher tax rate led to net profit of R340 crore below our estimate.

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