HeidelbergCement India: Recommendation Review

We had recommended HeidelbergCement India to investors in DSIJ Vol. 27, Issue No. 6 (dated 11th March, 2012), when the scrip was trading at Rs 36. We reviewed the counter again in DSIJ Vol. 27, Issue No. 14, (dated 1st July, 2012), when the scrip was trading at Rs 30. At that point, we had asked investors to hold on to the scrip as we expected it to touch at least the Rs 40-42 levels. Our conviction was backed by factors like the company’s new capacity  being operationalised in June 2012 and its decent performance in the March 2012 quarter, coupled with its lower valuation on an EBITDA/tonne basis and the positive outlook for the cement sector. After our first review, the scrip touched Rs 41 on 14th August, 2012, when we asked investors through our ‘Book Profit’ SMS service to book profits for an upside of 13.88 per cent that the investment provided.

On the financial front, the company has reported strong numbers for the June quarter 2012. The net sales of the company grew by 21 per cent on a YoY basis to Rs 307.69 crore during the quarter and the net profit grew by 46 per cent to Rs 11.43 crore. This was on the back of a jump in cement dispatches during the quarter as well as firm cement prices. The margins also improved by 200 basis points to 13 per cent.

As per our analysis, the scrip has moved smartly over the last six months to yield decent returns for investors. However, with the revival of the monsoon, we may see a slowdown in the cement demand and a consequent fall in cement prices over the short term. Both these factors will impact the financial performance of the company in the September 2012 quarter. Therefore, it would be prudent to book profits in the counter at the current price.