HeidelbergCement (DE:HEIG) India Ltd (NS:HEID) (The Indian subsidiary of the German Giant)
The Indian growth story would be incomplete without involving a cement company especially so after The Vote on Account (interim budget' 2019) which will very positively impact the liquidity and increase savings of the middle and lower income group population, with the IT exemptions and lower GST on a lot of items. The same we believe would translate into the domestic home and infra spendings. 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.
Fundamental Outlook
Heidelberg Cements has managed to trim debt from 1357 Cr in March' 2013 to 646 Cr 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 capitalization of 3422 Cr is at a PE multiple of 17 times (calculated with future earnings- FY19 of PAT 200 Cr).
The company maintains a healthy dividend outflow of close to 30% which allows it to either reinvest in the company or diversify our portfolio. The government spending on roads, infra, and sustainable housing are at all-time highs. Specifically, in the markets of UP and Bihar where the 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 Cement Ltd (NS:ULTC), ACC (NS:ACC), Ambuja Cements Ltd. (NS:ABUJ) etc. The company continues to trade at an 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.