Heidelberg Cement Q2 Review - Price Hikes To Offset Cost Pressure: Centrum Broking
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Centrum Broking Report
Heidelberg Cement India reported better than expected Ebitda of Rs 1.17 billion (CentrumE: Rs 1.02 billion), down 11% QoQ/8% YoY. Ebitda/t, at Rs 946, was down 15% QoQ/17% YoY. This was primarily due to higher than expected volume growth and lower dip in realization.
On a QoQ basis, HEIM recorded 4% volume growth in a seasonally weak quarter coupled with marginal drop in realization (lower than 1.5-2% QoQ decline for the industry).
HEIM’s earnings were hit by higher power & fuel cost, which was up 13.5% QoQ. As a result, Ebitda fell 11% QoQ (7.5% YoY) to Rs 1.17 billion and EBITDA/t fell 15% QoQ/17% YoY to Rs 946.
We expect sharp hike in cement prices in Q3FY22, which should more than offset higher power & fuel cost, thereby improving margins. We increase our FY22E/FY23E EBITDA by 17.5%/4.6% to factor in higher cement prices, offsetting cost increases.
We raise our target price to Rs 225 (earlier Rs 212), based on 7x FY23E EV/Ebitda. With limited growth beyond FY23, the stock should trade at a discount to its peers.
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