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We hosted Heidelberg Cement India Ltd (Unrated) at our DB Access India
conference. The key takeaways from the meeting are
1) Heidelberg Cement India Ltd (HCIL) expects demand to grow at 7.5 to
8.5% on the back of revival in demand from housing segment and the
Government's thrust on infrastructure. With minimal incremental supply
pending commissioning, HCIL expects the utilization levels to only get
tighter.
2) In this environment, HCIL envisages to become a 15 mn tonne player (in
line with parent's vision) by 2015 from the current 6 mn tonne operation.
They expect to achieve this through both organic and inorganic expansions.
3) Cost of new capacity addition, meanwhile, has increased by US$ 10-20/
t for brownfield expansions (excluding captive power) to US$ 120-140.
4) More importantly, the greenfield capacities, according to HCIL make
sense only at a retail price of INR 325-350 per 50 kg bag given the current
cost trends. Gestation period meanwhile has increased to 36 months for
brownfield expansions (48-60 months for Greenfield expansions).
5) While cost inflation in the form of higher coal, power and freight (including
the recent railway freight hike) have kept margins under check, HCIL expects
the improving demand supply scenario and the economies of scale
from the upcoming 3 mn tonne expansion (commercial production expected
by 2QCY12) to help improve EBITDA margins to its target levels of
25-30% and RoEs to 20+%.
We continue to remain positive on the Sector given the improving utilization
scenario. At the current valuations, our key overweights are ACC (Buy) and
Grasim (Buy) in our coverage universe.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We hosted Heidelberg Cement India Ltd (Unrated) at our DB Access India
conference. The key takeaways from the meeting are
1) Heidelberg Cement India Ltd (HCIL) expects demand to grow at 7.5 to
8.5% on the back of revival in demand from housing segment and the
Government's thrust on infrastructure. With minimal incremental supply
pending commissioning, HCIL expects the utilization levels to only get
tighter.
2) In this environment, HCIL envisages to become a 15 mn tonne player (in
line with parent's vision) by 2015 from the current 6 mn tonne operation.
They expect to achieve this through both organic and inorganic expansions.
3) Cost of new capacity addition, meanwhile, has increased by US$ 10-20/
t for brownfield expansions (excluding captive power) to US$ 120-140.
4) More importantly, the greenfield capacities, according to HCIL make
sense only at a retail price of INR 325-350 per 50 kg bag given the current
cost trends. Gestation period meanwhile has increased to 36 months for
brownfield expansions (48-60 months for Greenfield expansions).
5) While cost inflation in the form of higher coal, power and freight (including
the recent railway freight hike) have kept margins under check, HCIL expects
the improving demand supply scenario and the economies of scale
from the upcoming 3 mn tonne expansion (commercial production expected
by 2QCY12) to help improve EBITDA margins to its target levels of
25-30% and RoEs to 20+%.
We continue to remain positive on the Sector given the improving utilization
scenario. At the current valuations, our key overweights are ACC (Buy) and
Grasim (Buy) in our coverage universe.
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