HeidelbergCement India (HEIM) reported a strong performance in 3QFY19 driven by higher realisation which was up ~8.5% YoY/flat QoQ at Rs4,316/tn (better thanour estimate) because of higher trade sales and contribution from premium products (~9% in total sales). This was accompanied by volume gain of ~6% YoY at 1.29mnmt backed by strong demand in Uttar Pradesh (UP), HEIM’s key market, as Madhya Pradesh (MP) took a breather because of assembly elections. Effectively, revenues grew ~15% YoY to ~Rs5.58bn (above our estimate). Commendably, operating costs stayed flat YoYat Rs3,411/tn following cost control measures by HEIM with focus on energy (contribution from waste heat recovery system or WHRS) and logistics expenditure (Rs38mn railway rebate). Effectively, EBITDA grew ~59% YoY to ~Rs1.22bn driven by realisation gains and controlled cost inflation (9MFY19 EBITDA grew 55% YoY). EBITDA margin jumped by 600bps YoY from 15.7% in 3QFY18 to 21.7% in 3QFY19 (primarily driven by realisation gain). The robust performance led HEIM to report EBITDA/mt of Rs947, up ~50% YoY but down 9% QoQ (below our estimate of Rs1,066/tn). This is the third consecutive quarter of EBITDA/tn hovering ~Rs1,000 for HEIM. With no surprises in depreciation and lower interest expenses, APAT doubled YoY from Rs276mn to Rs586mn in 3QFY19. HEIM had a consistent strong performance for the past four quarters. The presence in relatively better pricing regions like Central India, focus on retail segment sales (trade segment) and cost benefits from the combination of effective measures taken by HEIM and synergies of scale will continue to guard its earnings. We still believe HEIM has limited headroom for incremental cement despatches as it moves upwards of 90% capacity utilisation and may only retain its existing market share (even lose market share), and the realisation gain that helps cost inflation pass-through will continue to be stronger and guard HEIM’s earnings. This has prompted us to revise our EPS estimates upwards for FY19/FY20/FY21 to Rs9.8/Rs11.5/Rs12.8, respectively, (Rs8.1/Rs10.2/Rs11.5, respectively, earlier). Factoring in the same and assigning the replacement cost valuation of Rs7.5bn/mnmt (taking away the 12% discount assigned earlier) based on September 2020E forward capacity, we have arrived at a fair value for HEIM that encourages us to upgrade the rating on the stock to Buy (from Accumulate earlier) with a revised target price (TP) of Rs177 (from Rs151 earlier). At our TP, the stock trades at EV/EBITDA of 6.7x September 2020E earnings.