Heidelberg Cement - ICICI Securities Fundamental Top Picks for 2015

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Heidelberg Cement (MYSCEM) Target Price: | 105 (28% upside)
• Heidelberg Cement is a player in the central regional that contributes over
~94% of its total revenues. The company has recently doubled its cement
capacity to 6 MT from 3 MT in CY13 at a total capex of | 1570 crore. With
a revival in demand along with stabilisation of new capacity, we expect its
margin to reach over 15% by CY16E with capacity utilisation of over 85%
during the same period
• After scaling up capacity, the company is now focusing towards cost
reduction. It has installed a conveyor belt between its limestone reserves
and clinker units, which are 20 km away (at | 200 crore) to transport
limestone to its clinkerisation unit, which is currently being transported by
trucks. This would help the company in achieving cost savings of about
~| 45-50/tonne. Further, to reduce its power costs, the company is
currently setting up a 13 MW waste heat recovery plant (capex of | 150
crore), which will be commissioned by early 2016E. Considering the
benefit of conveyor belt, economies of scale coupled with better
utilisations, we expect operating margins to improve to 14.8% in CY15E
and 15.4% in CY16E from 6.3% in CY13
• A healthy operating environment coupled with strong promoter back-up
(Heidelberg AG: world’s third largest producer) allay our concerns with
regard to its debt servicing ability. The D/E currently stands at 1.2x
• Given the scope for margin expansion along with better demand-supply
matrix, we expect the company to report a net profit of | 104.4 crore in
CY16E. We expect EBITDA/tonne of | 662/tonne in CY16E from
| 260/tonne in CY13. On an EV/tonne basis, the stock is trading at
$86/tonne (on capacity of 5.4 MT), which leaves scope for further upside
once its operating matrix improves fully. Hence, we remain positive on
the stock with a target price of | 105/share (i.e. valuing at 9.5x CY16E
EV/EBITDA, $100/tonne on capacity of 5.4 MT)