Heidelberg Cement came out with strong set of numbers on the back of improved realisations and better cost control
measures. While the topline was inline with our estimates at INR 3050 mn (+22.6% YoY & +7.3% QoQ), bottomline exceeded
our expectations by registering a YoY growth of 46.4% to INR 193 mn. Realisation during the last quarter improved by 15.1%
YoY outpacing the 11.5% increase in operating cost/tn, which resulted in 283 bps improvement in EBIDTA margin to 12.1%.
HCIL is all set to commission its additional 2.9 mtpa capacity from September 2012 onwards. We retain our BUY rating on the
stock with a target of INR 50/share.
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HCIL reported a healthy revenue growth of 22.6% YoY to INR 3050
mn, led by volume growth of 6.5% to 0.77 mt coupled with 15.1%
improvement in cement realisations to INR 3941/tn. Strong demand
in Central & Western region enabled the company to operate at
almost full capacity utilisation levels (93% in Q2CY11). Going
forward we expect HCIL to clock volume CAGR of 29% over CY11 -
CY13E led by increased capacity from Sept 2012.
Sharp improvement in margins
EBIDTA margins expanded by 283 bps YoY & 398 bps on QoQ basis
to 12.1% led by firm cement prices. Freight cost increased by only
3.7% QoQ to INR 523/tn, due to shift in rail:road mix from 49:51 to
61:39. (June Quarter witnessed full impact of the ~20% increase
in rail freight announced in March 2012). Power & Fuel cost
increased at a slower pace by 2.3% QoQ to INR 1003/tn due to
optimization of power consumption.
EBIDTA/tn improved by 50.2% YoY & 64.9% QoQ to INR 478 in
Q2CY11. Net profit rose by 46.4% YoY & 68.6% QoQ to INR 193 mn.
New capacities on track
HCIL's new additional capacity of 1 mpta grinding unit in Damoh
(MP) & 1.9 mtpa grinding unit in Jhansi (UP) remains on track and is
all set to commission operations from September 2012. This
expansion is well timed as it will enable the company to maintain its
market share and enjoy the economies of scale. HCIL is also setting
Relative Prince Performance
July 24, 2012 RESULT UPDATE - Q2CY12
up a conveyor belt from limestone mines to the clinkerisation unit
(20 kms), which will lead to ~30% savings in transportation cost.
Increasing usage of pet coke
HCIL has increased its usage of pet coke from 20% of its total fuel
requirement in CY11 (balance 80% through linkage coal/imported
coal) to ~35% in the last quarter due to decline in prices of pet coke.
Banking on central region to drive growth
HCIL is focussing on central region to drive growth. We expect the
central region to outperform the industry with an estimated
demand growth of ~10% in CY12. MP has witnessed a YoY growth
of 22% in the last quarter and we expect this growth momentum to
sustain due to state elections due next year. While currently it
sells ~65% of its total production in this region, HCIL expects this
share to increase to 85% post expansion.
Outlook & Valuation
We remain positive on the cement sector and HCIL which has
strong foothold in Central & Western India is well placed to benefit
from the growth opportunities in these regions. Increasing cement
capacity, savings on transportation front and higher utilisation
levels places HCIL on a superlative growth path. At the CMP of INR
33, the stock trades at P/BV of 0.8x & EV/ EBIDTA of 5.0x its CY13E
earnings and EV/tonne of $34 (CY13E capacity). We have changed
our estimates to factor in improving margins and retain our BUY
rating on the stock with a target of INR 50/share.
Shareholding (%) Mar-12
Promoters 68.55
FIIs 7.28
DIIs 3.80
Others 20.37
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