**[investwise]** Heidelberg Cement-Investor Ignorance Cannot Continue For Too Long

 

Heidelberg Cement-Ignorance Cannot Be Bliss BSE 500292   Three years ago, Heidelberg of Germany, bought out the stake of SK Birla group in the erstwhile Mysore Cement. Through a capital infusion of roughly Rs 500 crore, Heidelberg was made debt free.   Three years later, that is 2010, Heidelberg has returned to payment of full tax after recovering all accumulated losses and unabsorbed depreciation, and yet has Rs 490 crore of cash in hand.   If this is not serious cash flow generation then what?   Today, Heidelberg operates cement capacities of 3.01 mn tpa which the market is valuing at roughly USD 40 per tonne of installed capacity. Replacement cost for a new Cement plant is USD 100 per tonne. On this valuation benchmark alone Heidelberg stock should quote at 3 times today's price.   More importantly, with Rs 490 crore in cash and zero debt any further proposed expansion will cost about half the amount that any other competitor will have to fork out. Additional 3 mn tpa of capacity will cost only Rs 1000 crore on a net basis, while in CY12 operating capacity would be rising to 6 mn tpa, and on existing margins after tax profits of Heidelberg would have risen to Rs 300 crore per annum or an EPS of Rs 13 per share.   Heidelberg has aggressive growth and acquisition plans which include acquisitions of grinding capacities in the Western states, raising existing capacity to 6 mn tpa by 2012 March, and ultimately raising Cement capacity to 15 mn tpa by 2015.   Thus, Heidelberg would have raised it's installed capacity to double by 2012 and then more than double over the next three years ie 2015. In all total manufacturing capacity would have risen 5 times in the next 5 years.   Investors have long ignored the stock, but how long can a corporate with cash of Rs 490 crore on it's books and valuation at a mere $ 40 per tonne be ignored.   If Heidelberg is not a growth stock, then what else is?   BUY   Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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