LKP Shares is bullish on HeidelbergCement India and has recommended buy rating on the stock with a target of Rs 66 in its November 19, 2010 research report.
“HeidelbergCement acquired controlling stake in a loss making sick unit Mysore Cement in 2006 form Birla’s, post that in 2008 it merged Indorama Cement with Mysore Cement. HeidelbergCement Group improved the productivity of the merged entity and wrote off all business losses on the books. Today Heidelberg has a robust unleveraged balance sheet, which we believe augurs well for its future expansion plans. Its entire expansion is based in the Damoh & Jhansi region of Central India. All its expansions are scheduled to be completed by March 2012, however we have assumed a delay of 3 months. The company has sketched out Rs 11-12 billion capex plan to be funded through debt and internal accruals. We believe the company would raise debt upto Rs 4.5-5.5 billion for the same sometime during the second halfnext year.”
“Its entire expansion is also based in Central India, aiming to improve its share & position in the most promising cement zone. Cement demand in the Central India is expected to grow at a CAGR of 12% for the period 2008 to 2012E and cement capacities is expected to increase at a CAGR of 11 %, thereby continuing to give cement demand an edge over cement supply in the central region. Prices in this region has also more or less been stable between Rs 150- 180 per 50kg bag for the past few months, we expect cement prices in the central region to remain stable here on with an upward bias.”
“HeidelbergCement gets most of it revenues from stable Central India where the operating rates are still as high as 85-90%. With the recent cement price hike, we maintain our optimistic stance on the cement sector and initiate coverage on HeidelbergCement. The stock is attractively valued at EV/TON USD 49 on its expanded capacity for CY12E. The stock is trading at an EV/EBITDA of 10.6x its CY12E earnings. We recommend BUYING this stock with an 18 months price target of Rs 66. At our price target the stock would trade at EV/TON of USD 65 on its CY12E expanded capacity, which is still at a discount to the replacement cost of USD 120-125 million per ton,” says LKP Shares research report.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
No comments:
Post a Comment