DSIJ Mindshare

Stock pick from the cement sector

The cement sector, which was struggling in the first half of FY12, has reported robust financial numbers for QE December 2011. This is reflected in the stock price movement of various companies in this sector. From December 2011 onwards, major cement companies such as ACC (up 25 per cent), Ambuja Cement (up 15 per cent), UltraTech (up 30 per cent), JK Cement (up 32 per cent), etc. have seen a good rise in their stock prices. However, there is one stock, Heidelberg Cements, which has remained quiet on the BSE. The scrip was up by just 8.5 per cent, and is available at a comparatively lower valuation as compared to other players. So, is this a good opportunity? Should investors enter this counter at a low level in a scenario which is looking much better than the first nine months of the fiscal?

Heidelberg Cement, a subsidiary of the Germany-based Heidelberg group, is one of the leading cement producers in the world. It presently has 3.1 MTPA of cement producing capacity in India, with exposure mainly in the central and western regions. The parent company is the third-largest cement producer in the world, with a presence in 40 countries and a total production capacity of 110 MT.

Heidelberg’s new capacity will be operational in H2 2012. The company posted a decent performance in the December 2011 quarter, and this coupled with a positive outlook for the cement sector ahead is what makes us recommend the stock.

For QE December 2011, the company’s topline witnessed a growth of 32 per cent on a YoY basis and stood at Rs 260.49 crore. The highlight of the result is the improvement on the bottomline front. Its net loss came down to Rs 1.8 crore as compared to the loss of Rs 8.16 crore reported in the previous quarter. This was mainly on the back of a pickup in volumes (up by 20 per cent on a QoQ basis) from infrastructure and construction activity, which occured in tandem with the hike in cement prices and improvement in realisations. Realisations increased by four per cent on a QoQ basis and by 19 per cent on a YoY basis to Rs 3423 per tonne across the central and western regions, resulting in better performance during the quarter.

Going forward, we expect the company to post strong numbers especially inthe coming quarter, mainly on account of a further pickup in demand and higher realisations. The company is in the process of commissioning a 3 MTPA cement plant by the second half of 2012, taking its total capacity to 6.1 MTPA. This will start contributing to the company’s revenues from in H2 CY12 onwards. Moreover, the best part here is that after the new capacity addition, the stock will be available at the lowest EV/tonne as compared to the other players. With the new capacity, the company’s EV/tonne stands at Rs 2198 against that of UltraTech (Rs 9396), ACC (Rs 9281), JK Cement (Rs 2829), and Madras Cements (Rs 5873). 

At a CMP of Rs 36.30, the stock is trading at a PE of 28x, with its CY11 EPS of Rs 1.29. This higher PE is on the back of the losses made in the last two quarters. However, if we look at the company on the basis of its EV/tonne, it is available at Rs 2198, which looks attractive as compared to other players. Given the kind of growth that we expect in the earnings from the new capacity, coupled with the improving economic situation and higher cement prices, we recommend that investors buy this scrip with an upside potential of 15-18 per cent in the next one year’s time.

Last Five Quarters Rs/Cr
Dec ' 11 Sep ' 11 Jun ' 11 Mar ' 11 Dec ' 10 
Sales  260.49 208.17 252.73 278.39 196.45
Other Income  0 0 0 0 0
Operating Profit  6.52 -3.33 27.1 47.32 2.17
Interest  1.11 1 0.88 0.85 1.84
Depreciation  8.5 7.74 7.6 7.55 7.53
Net Profit / Loss  -1.8 -8.16 13.16 25.99 -5.5
Equity Capital  226.62 226.62 226.62 226.62 226.62

Share Holding Pattern as on: 31/12/2011
Foreign Promoters 68.55
Mutual Funds and UTI 2.2
Banks Fin. Inst. and Insurance 1.6
FIIs 6.56
Private Corporate Bodies 5.34
NRIs/OCBs/Foreign Others 0.61
Government/Others 0.14
General Public 14.51
GRAND TOTAL 100

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