Buy Heidelberg Cement, target price Rs 207: Anand Rathi

Anand Rathi has given a buy rating to Heidelberg Cement with a target price of Rs 207 based on 9.2 times FY22e EV/EBITDA. The share price moved up by 3.16 per cent from its previous close of Rs 166.05. The last traded stock price is Rs 171.30.

According to the brokerage, Heidelberg’s EBITDA and PAT grew ~9 per cent each on the firm pricing environment and efficient cost-optimisation, despite a 10 per cent volume loss. Revenue dipped ~4.7 per cent year on year. Through debottlenecking, the company expanded capacity to 6.26m tons in Q4. Its strong net-debt-free balance sheet, prudent working-capital control and strong operating-efficiency will continue to augur well, according to the brokerage.

Investment Rationale

Management said prices would be firm on low volumes following a Rs 10 price hike, post-lockdown. The brokerage says the company continues to operate at negative working capital. Besides NCDs of Rs 1.25 billion repaid in FY20, the management spoke of repaying Rs 1.25 billion in FY21 and Rs 1.2 billion in FY22 from internal accruals. The brokerage expects a net D/E of -0.2 times in FY21 (vs. -0 times in FY20). Issues such as migrant labour, logistics, fly-ash availability, liquidity crunch, etc., would continue in the short run. The brokerage retains its buy rating, at a higher target of Rs 207.

Risks: Higher petcoke and diesel prices, extension of the lockdown.

Financials

For the quarter ended March 31, 2020, the company reported standalone sales of Rs 509.29 crore, down -6.79 per cent from last quarter sales of Rs 546.40 crore and down -4.74 per cent from last year's same quarter sales of Rs 534.65 crore. The company reported net profit after tax of Rs 66.29 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 69.39 per cent stake in the company as of March 31, 2020, while FIIs held 10.41 per cent, DIIs 8.48 per cent and public and other 11.71 per cent.