(HEIM IN) Rating: BUY CMP: Rs159 TP: Rs200 July 31, 2018 Q1FY19 Result Update Change in Estimates Target Reco Change in Estimates Current Previous FY19E FY20E FY19E FY20E Rating BUY BUY Target Price 200 180 Sales (Rs. m) 20,709 22,186 21,006 22,197 % Chng. (1.4) - EBITDA (Rs. m) 4,335 4,673 3,883 4,109 % Chng. 11.6 13.7 EPS (Rs.) 8.8 10.3 8.3 9.6 % Chng. 5.9 7.8 Key Financials FY17 FY18 FY19E FY20E Sales (Rs. m) 16,876 18,607 20,709 22,186 EBITDA (Rs. m) 2,490 3,289 4,335 4,673 Margin (%) 14.8 17.7 20.9 21.1 PAT (Rs. m) 759 1,294 1,993 2,345 EPS (Rs.) 3.3 5.7 8.8 10.3 Gr. (%) 114.5 70.5 54.0 17.7 DPS (Rs.) - - - - Yield (%) - - - - RoE (%) 8.2 12.9 17.9 18.7 RoCE (%) 8.3 13.8 20.5 22.6 EV/Sales (x) 2.5 2.2 1.9 1.6 EV/EBITDA (x) 17.3 12.4 8.9 7.6 PE (x) 47.5 27.9 18.1 15.4 P/BV (x) 3.7 3.4 3.1 2.7 Key Data HEID.BO HEIM IN 52-W High / Low Rs.190 / Rs.109 Sensex / Nifty 37,494 / 11,320 Market Cap Rs.36bn/ $ 525m Shares Outstanding 227m 3M Avg. Daily Value Rs.58.47m Shareholding Pattern (%) Promoter s 69.39 Foreign 11.74 Domestic Institution 5.97 Public & Others 12.90 Promoter Pledge (Rs bn) - Stock Performance (%) 1M 6M 12M Absolute 14.6 1.7 22.3 Relative 8.3 (2.2) 5.3 Strong control on energy cost drove the beat; Remains the best play on Central region Heidelberg cement (HEIM) reported strong set of Q1FY19 earnings with highest ever EBITDA/t of Rs915 (PLe:Rs793), up 76% YoY/1.7% QoQ. Beat was largely on the back of lower than expected energy costs. We increase our FY19e/FY20e EPS estimates by 6%/8% to factor in lower costs and higher realisations. Demand outlook remains upbeat on Central region on the back of strong govt spending on low cost housing and infrastructure sector, revival of private spending in rural areas and normalization of sand availability. Our BUY rating on HEIM remains intact given the strong outlook on Central region, quality operations and attractive valuations. Reiterate BUY with TP of Rs200, EV/EBITDA of 10x FY20e. Lower than expected energy cost drove the beat: Volumes grew 15% YoY to 1.27m tonnes (t), in line with our estimates. Volume growth benefitted by higher demand from rural UP and low base due to sand shortage and demonetisation. Realisations rose 2.4% QoQ/Rs100 (+8.2% YoY/Rs322) at Rs4,237 (PLe:Rs4,239). Led by increased generation by Waste Heat Recovery (WHR) plant and procurement of power through lower cost arrangements, power cost fell by 1%/Rs14 YoY to Rs932, below our estimates of Rs1,050. Total costs fell 2% YoY to Rs3,322 beating our estimate of Rs3,446. EBITDA doubled YoY to Rs1.16bn (PLe:Rs1.0bn). PAT rose 2.2x YoY to Rs511mn (PLe:Rs467mn). Key earnings call highlights: 1) Demand in Central region to grow at ~7% in FY19e 2) 59%/26%/16% of demand coming from IHB/Infrastructure/Commercial segment 3) Pet coke prices rose 13-16% QoQ to Rs11,500-12,000/t 4) Prepaid Rs750mn debt in Q1FY19; will prepay another Rs750mn in Q2FY19 5) Net debt fell 28% QoQ to Rs3.37bn; Net debt/ebitda reduced to 0.7x from 1.29x in Q4FY18 6) Rs10/t expected reduction in freight cost due to increase in axle load of trucks from Jul 18 7) Generation from WHR increased by 17% YoY and contributed 20% of power requirement, up from 9% in Q4FY18 and FY18 8) Capacity utilisation reached to 92% up from 85% in Q4FY18 9) Premium products volume rose 40% YoY; constitutes 11% of total sales and commands a premium of Rs10/bag over its normal product 10) Started sourcing ~50% of Karnataka plant s power requirement through renewable (Solar) PPA at 30-35% cheaper than Grid prices Kamlesh Bagmar kamleshbagmar@plindia.com 91-22-66322237 Amit Khimesra amitkhimesra@plindia.com 91-22-66322244 July 31, 2018 1
Q1FY19 Result Overview (Rs mn) Y/e March (Rs mn) Q1FY19 Q1FY18 YoY gr. (%) Q4FY18 FY19E FY18 YoY gr. (%) Net Sales 5,369 4,314 24.4 5,254 20,709 18,607 11.3 Raw Material 1,080 968 11.6 853 4,714 3,703 27.3 % of Net Sales 20.1 22.4 16.2 22.8 19.9 Staff Costs 306 294 4.0 327 1,286 1,202 7.0 % of Net Sales 5.7 6.8 6.2 6.2 6.5 Power & Fuel 1,180 1,042 13.3 1,304 4,599 4,439 3.6 % of Net Sales 22.0 24.1 24.8 22.2 23.9 Freight 828 624 32.7 862 3,096 2,836 9.2 % of Net Sales 15.4 14.5 16.4 14.9 15.2 Other Expenses 814 812 0.3 765 2,680 3,139 (14.6) % of Net Sales 15.2 18.8 14.6 12.9 16.9 Total Expenditure 4,209 3,740 12.5 4,112 16,374 15,318 6.9 EBITDA 1,160 575 101.9 1,143 4,335 3,289 31.8 Margin (%) 21.6 13.3 21.7 20.9 17.7 Depreciation 255 250 2.2 254 1,034 1,012 2.2 Other income 103 121 (14.8) 117 331 487 (32.1) EBIT 1,008 446 126.0 1,005 3,631 2,765 31.4 Interest 219 198 10.8 172 565 745 (24.1) PBT 789 248 218 833 3,066 2,020 51.8 Extraordinary income/(expense) - - - - 57 PBT (After EO) 789 248 218 833 3,066 2,077 47.6 Tax 278 88 217 312 1,073 745 44.1 % PBT 35.2 35.3 37.4 35.0 35.9 Reported PAT 511 160 218.7 521 1,993 1,332 49.6 Adjusted PAT 511 160 218.7 521 1,993 1,295 53.9 Source: Company, PL Operating Metrics Y/e March (Rs mn) Q1FY19 Q1FY18 YoY gr. (%) Q4FY18 FY19E FY18 YoY gr. (%) Volume (mn te) 1.3 1.1 15.0 1.3 4.9 4.7 6.0 Net Realisations (Rs/te) 4,237 3,915 8.2 4,137 4,200 4,000 5.0 EBITDA/ te (Rs/te) 915 521 75.6 900 879 707 24.3 Source: Company, PL July 31, 2018 2
Financials Income Statement (Rs m) Net Revenues 16,876 18,607 20,709 22,186 YoY gr. (%) 3.7 10.3 11.3 7.1 Cost of Goods Sold 3,607 3,586 3,992 4,317 Gross Profit 13,270 15,021 16,717 17,869 Margin (%) 78.6 80.7 80.7 80.5 Employee Cost 1,148 1,202 1,286 1,376 Other Expenses 1,289 1,354 1,446 1,519 EBITDA 2,490 3,289 4,335 4,673 YoY gr. (%) 18.0 32.1 31.8 7.8 Margin (%) 14.8 17.7 20.9 21.1 Depreciation and Amortization 992 1,012 1,034 1,052 Balance Sheet Abstract (Rs m) Non-Current Assets Gross Block 20,751 21,325 21,687 22,056 Tangibles 20,751 21,325 21,687 22,056 Intangibles - - - - Acc: Dep / Amortization 1,980 2,992 4,027 5,079 Tangibles 1,980 2,992 4,027 5,079 Intangibles - - - - Net fixed assets 18,771 18,332 17,661 16,977 Tangibles 18,771 18,332 17,661 16,977 Intangibles - - - - EBIT 1,499 2,277 3,301 3,621 Margin (%) 8.9 12.2 15.9 16.3 Net Interest 898 745 565 396 Other Income 535 487 331 383 Capital Work In Progress 221 - - - Goodwill - - - - Non-Current Investments 344 344 344 344 Net Deferred tax assets (530) (831) (1,229) (1,699) Other Non-Current Assets - - - - Profit Before Tax 1,136 2,075 3,066 3,608 Margin (%) 6.7 11.2 14.8 16.3 Total Tax 374 745 1,073 1,263 Effective tax rate (%) 32.9 35.9 35.0 35.0 Profit after tax 762 1,330 1,993 2,345 Minority interest - - - - Share Profit from Associate - - - - Adjusted PAT 759 1,294 1,993 2,345 YoY gr. (%) 114.5 70.5 54.0 17.7 Margin (%) 4.5 7.0 9.6 10.6 Extra Ord. Income / (Exp) 3 36 - - Reported PAT 762 1,330 1,993 2,345 YoY gr. (%) 115.3 74.5 49.8 17.7 Margin (%) 4.5 7.1 9.6 10.6 Other Comprehensive Income - - - - Total Comprehensive Income 762 1,330 1,993 2,345 Equity Shares O/s (m) 227 227 227 227 EPS (Rs) 3.3 5.7 8.8 10.3 Current Assets Investments - - - - Inventories 1,396 1,269 1,702 1,823 Trade receivables 126 188 170 182 Cash & Bank Balance 142 1,100 1,849 3,162 Other Current Assets 194 194 194 194 Total Assets 24,076 24,410 25,008 25,881 Equity Equity Share Capital 2,266 2,266 2,266 2,266 Other Equity 7,403 8,188 9,499 11,026 Total Networth 9,670 10,454 11,765 13,292 Non-Current Liabilities Long Term borrowings 7,053 5,753 4,253 2,753 Provisions 217 227 243 260 Other non current liabilities - - - - Current Liabilities ST Debt / Current of LT Debt - - - - Trade payables 1,914 2,266 2,440 2,614 Other current liabilities 4,631 4,817 5,015 5,201 Total Equity & Liabilities 24,077 24,410 25,008 25,881 July 31, 2018 3
Cash Flow (Rs m) Key Financial Metrics Year PBT 1,136 2,075 3,066 3,608 Per Share(Rs) Add. Depreciation 992 1,012 1,034 1,052 EPS 3.3 5.7 8.8 10.3 Add. Interest 880 745 565 396 CEPS 7.7 10.2 13.4 15.0 Less Financial Other Income 535 487 331 383 BVPS 42.7 46.1 51.9 58.7 Add. Other (193) (125) (174) (224) FCF 13.9 15.1 14.7 16.8 Op. profit before WC changes 2,815 3,708 4,492 4,832 DPS - - - - Net Changes-WC 1,044 513 (133) 134 Return Ratio(%) Direct tax (245) (444) (675) (794) RoCE 8.3 13.8 20.5 22.6 Net cash from Op. activities 3,614 3,777 3,685 4,172 ROIC 5.6 9.5 15.0 18.3 Capital expenditures (446) (353) (363) (369) RoE 8.2 12.9 17.9 18.7 Interest / Dividend Income 44 125 174 224 Balance Sheet Others - - - - Net Debt : Equity (x) 0.7 0.4 0.2 0.0 Net Cash from Invt. activities (402) (228) (189) (145) Net Working Capital (Days) (8) (16) (10) (10) Issue of share cap. / premium - - - - Valuation(x) Debt changes (2,215) (1,300) (1,500) (1,500) PER 47.5 27.9 18.1 15.4 Dividend paid - (546) (682) (818) P/B 3.7 3.4 3.1 2.7 Interest paid (933) (745) (565) (396) P/CEPS 7.7 10.2 13.4 15.0 Others - - - - EV/EBITDA 17.3 12.4 8.9 7.6 Net cash from Fin. activities (3,147) (2,591) (2,747) (2,714) EV/Sales 2.5 2.2 1.9 1.6 Net change in cash 64 958 749 1,313 Dividend Yield (%) - - - - Free Cash Flow 3,140 3,424 3,322 3,804 Quarterly Financials (Rs m) Y/e Mar Q2FY18 Q3FY18 Q4FY18 Q1FY19 Net Revenue 4,200 4,839 5,254 5,369 YoY gr. (%) 9.3 24.8 15.8 24.4 Raw Material Expenses 676 1,206 853 1,080 Gross Profit 3,524 3,633 4,402 4,288 Margin (%) 83.9 75.1 83.8 79.9 EBITDA 818 754 1,143 1,160 YoY gr. (%) 42.3 (7.7) 51.5 1.5 Margin (%) 19.5 15.6 21.7 21.6 Depreciation / Depletion 255 253 254 255 EBIT 563 502 888 905 Margin (%) 13.4 10.4 16.9 16.9 Net Interest 188 186 172 219 Other Income 83 167 117 103 Profit before Tax 513 483 833 789 Margin (%) 12.2 10.0 15.8 14.7 Total Tax 181 165 312 278 Effective tax rate (%) 35.2 34.2 37.4 35.2 Profit after Tax 333 318 521 511 Minority interest - - - - Share Profit from Associates - - - - Adjusted PAT 296 318 521 511 YoY gr. (%) 79.5 387.4 95.7 218.7 Margin (%) 7.1 6.6 9.9 9.5 Extra Ord. Income / (Exp) 37 - - - Reported PAT 333 318 521 511 YoY gr. (%) 101.7 (987.2) 40.7 218.7 Margin (%) 7.9 6.6 9.9 9.5 Other Comprehensive Income - - - - Total Comprehensive Income 333 318 521 511 Avg. Shares O/s (m) - - - - EPS (Rs) - - - - Key Operating Metrics Volume (mn te)-cement 4 5 5 5 Cement Realisation (Rs/te) 3,772 4,000 4,200 4,285 EBITDA (Rs/ te) 557 707 879 903 RM cost (Rs/ te) 734 771 809 834 Power, Oil & Fuel (Rs/ te) 967 981 933 937 Freight Charges (Rs/ te) 535 610 628 647 July 31, 2018 4
Price Chart Recommendation History (Rs) 175 147 119 90 62 Aug-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 No. Date Rating TP (Rs.) Share Price (Rs.) 1 10-Aug-17 BUY 160 113 2 14-Sep-17 BUY 160 125 3 09-Oct-17 BUY 160 120 4 27-Oct-17 BUY 180 156 5 17-Nov-17 BUY 180 166 6 13-Dec-17 BUY 180 166 7 10-Jan-18 BUY 190 164 8 08-Feb-18 BUY 195 161 9 12-Feb-18 BUY 195 162 10 15-Mar-18 BUY 195 154 Analyst Coverage Universe Sr. No. CompanyName Rating TP (Rs) Share Price (Rs) 1 ACC BUY 1,750 1,311 2 Ambuja Cement Accumulate 250 208 3 Coal India BUY 340 261 4 Heidelberg Cement India BUY 180 139 5 Hindalco Industries Accumulate 260 207 6 Hindustan Zinc Accumulate 340 277 7 Jindal Steel & Power BUY 330 209 8 JK Lakshmi Cement Accumulate 381 314 9 JSW Steel BUY 450 317 10 NMDC Accumulate 145 105 11 Shree Cement Hold 17,235 15,978 12 Steel Authority of India Hold 86 81 13 Tata Steel BUY 727 566 14 The Ramco Cements Hold 790 704 15 Ultratech Cement Hold 4,000 3,849 PL s Recommendation Nomenclature (Absolute Performance) Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly July 31, 2018 5
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