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HEIM fails to manage ‘Price-Volume’ balance and consequently, its EBITDA slips in red and
valuations slip further into discount. While arguably, there is little to lose at EV/T of
USD34, we fear the stock could pose as a ‘value trap’. We prefer to wait and watch for
one more quarter as we are hopeful that it would regain its lost balance.
EBITDA turns red
HEIM has delivered muted performance as its EBITDA is in red after nine quarters with a
loss of Rs59mn vs. profit of RS181mn (Y-o-Y) and Rs47mn Q-o-Q. Aggressive volume growth
(14.2% Y-o-Y against the industry average growth of ~4% was the killer as the P-V equation
fell apart. Its net realizations declined by 16.4% (Y-o-Y) against the regional fall of 4-5%.
Ironically, HEIM was able to deliver positive EBIUTDA in 3QCY10 which in our onion was
relatively more challenging than 4QCY10 in terms of pricing volatility. By striking the right
balance between volume-price, it had surmounted the pressure. In 4QCY10, it failed to
strike the balance between P-V (Price-Volumes) which is indeed disturbing. Even so when
viewed against the relatively conservative management.
Valuation discount widens further
HEIM has always traded at a 50% discount to peer Mangalam across Business Cycles (FY95-
2010) primarily due to its lower EBITDA/T than peers (Rs300/T lower than competition).
Conspicuously, its valuation discount had reversed in CY09 when for the first time (since
CY04) its EBITDA/T crossed Rs700/T (although was lower than competition. HEIM’s EV/T
traded at 6% premium to MGC in CY09. It’s muted performance in 4QCY10 has revered the
trend-EV/T trades at 30% discount to peer MGC at USD34/T.
Needs to deliver to regain investor confidence
At USD34/T, there is little to lose. If one were to ascribe an EV/T of USD45/T, the implied
value=Rs51/share; upside of 34% from CMP. While the downside is limited, the slippage in
managing the P-V equation has dented our confidence. We prefer to wait and watch for one
quarter and then modify our rating suitably. We recommend Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HEIM fails to manage ‘Price-Volume’ balance and consequently, its EBITDA slips in red and
valuations slip further into discount. While arguably, there is little to lose at EV/T of
USD34, we fear the stock could pose as a ‘value trap’. We prefer to wait and watch for
one more quarter as we are hopeful that it would regain its lost balance.
EBITDA turns red
HEIM has delivered muted performance as its EBITDA is in red after nine quarters with a
loss of Rs59mn vs. profit of RS181mn (Y-o-Y) and Rs47mn Q-o-Q. Aggressive volume growth
(14.2% Y-o-Y against the industry average growth of ~4% was the killer as the P-V equation
fell apart. Its net realizations declined by 16.4% (Y-o-Y) against the regional fall of 4-5%.
Ironically, HEIM was able to deliver positive EBIUTDA in 3QCY10 which in our onion was
relatively more challenging than 4QCY10 in terms of pricing volatility. By striking the right
balance between volume-price, it had surmounted the pressure. In 4QCY10, it failed to
strike the balance between P-V (Price-Volumes) which is indeed disturbing. Even so when
viewed against the relatively conservative management.
Valuation discount widens further
HEIM has always traded at a 50% discount to peer Mangalam across Business Cycles (FY95-
2010) primarily due to its lower EBITDA/T than peers (Rs300/T lower than competition).
Conspicuously, its valuation discount had reversed in CY09 when for the first time (since
CY04) its EBITDA/T crossed Rs700/T (although was lower than competition. HEIM’s EV/T
traded at 6% premium to MGC in CY09. It’s muted performance in 4QCY10 has revered the
trend-EV/T trades at 30% discount to peer MGC at USD34/T.
Needs to deliver to regain investor confidence
At USD34/T, there is little to lose. If one were to ascribe an EV/T of USD45/T, the implied
value=Rs51/share; upside of 34% from CMP. While the downside is limited, the slippage in
managing the P-V equation has dented our confidence. We prefer to wait and watch for one
quarter and then modify our rating suitably. We recommend Neutral.
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