Heidelberg Cement- Substantial Undervaluation BSE 500292; CMP Rs 52 At CMP of INR 52, the stock is trading at an EV/tonne of USD 41 (on current capacity of 3.1 mtpa), which is a steep discount to large-sized pan India companies (which are trading at USD 110-135/tonne) and other similar sized companies within the sector. Vision to reach 15-20 mtpa by 2014 The company aims to achieve 15-20 mtpa of capacity by 2014. It is looking at both organic growth and inorganic opportunities to achieve this target. India remains a focus market for Heidelberg (Global); hence, the parent is likely to continue to fund its subsidiary's domestic expansion initiatives. Capacity to expand to 6.0 mtpa from 3.1 mtpa currently by March 2012 HCIL currently has a capacity of 3.1 mtpa and is working on a 2.9 mtpa brownfield expansion that is likely to come on-stream by March 2012. Total expansion cost is pegged at ~INR 9.0-9.5 bn, which is estimated to be funded through a mix of internal accruals and debt. The company is also considering a few options for acquisitions in West India for clinker support (at present, it purchases clinker for the ~1 mtpa Raigad grinding unit in Maharashtra) Accumulated losses wiped off; net cash at INR 4.9 bn Heidelberg (Global) infused ~INR 3.6 bn in August 2006 in HCIL (erstwhile Mysore Cement; MCL), which helped the company repay total outstanding debt of ~INR 3 bn. During Q1CY09, HCIL had absorbed all its accumulated losses (at the time of acquisition, MCL's unabsorbed losses stood at INR 3.5 bn). As on December 31,2009, HCIL had net cash of INR 4.9 bn. HCIL sells ~70% of its output in central India (55% - UP, 35% - MP) that has witnessed healthy YTD demand growth (UP – 20.8%, MP – 13.7%). Demandsupply balance is likely to be less impacted in central and eastern India vis-à-vis South and West. 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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