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Heidelberg Cement

The Indian growth story would be incomplete without involving a cement company. Our pick on the cement sector is a subsidiary of one of the world's largest companies. Heidelberg in India has till now expanded presence majorly via acquisitions. Namely, that of Zuari and Mysore Cements.

Heidelberg operates under its flagship brand of MYCEM Cement and across the Central and Central Rural Markets. The company has a 5.4MT manufacturing capacity and an increasing market share in the states of Madhya Pradesh, Uttar Pradesh, Bihar, Haryana and Uttarakhand. We only wanted an exposure to these markets where the scope of infra development is immense and the cement generally sells at higher rates than In rest of the country. As in most of our investments, we chose which markets within the industry to keep an exposure.

Fundamental Outlook

Heidelberg Cements has managed to trim debt from 1357 Cr in March' 2013 to 646Cr in Sept' 2018, which has translated to direct margin expansion of 4 times. The sales have consistently grown at 41% CAGR (5 Years). The current market capitalisation of 3422 Cr is at a PE multiple of 17times (calculated with future earnings- FY19 of PAT 200Cr).

The company maintains a healthy dividend outflow of close to 30% which allows us to either reinvest in the company or diversify our portfolio.

The government spending on roads, infra and sustainable housing is at all time highs. Specifically in the markets of UP and Bihar where population is very high we see the company grow faster than its peers.

However, it would be wrong to compare the company with larger, more diversified players like Ultratech, ACC, Ambuja etc.

The company continues to trade at a 11% discount to its EV. We are optimistic about further expansion and growth plans from its mother company which happens to also be one of the worlds largest Cement manufacturer in the world.

We have a near term target of Rs. 200/ share, placing it at a PE multiple of 22 times which is still much lower than its 5 year average PE of 38.05 times.

For more information on Heidelberg, read our research report here

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