Heidelberg Cement India Ltd

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About the Company

HeidelbergCement India Limited is is a subsidiary of HeidelbergCement Group, Germany. The Company has its operations in Central India at Damoh (Madhya Pradesh), Jhansi (Uttar Pradesh), and in Southern India at Ammasandra (Karnataka).

Q2FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a very poor quarter reporting 12.41% lower revenue and 88% lower profit on YoY basis.
2. The company delivered an EBITDA of Rs 476 per ton which is 50% lower
3. The company continues to operate on negative net operating working capital, and net debt stands at about 109 million as of date.
4. Company’s Green power % of total power is 34% as of the September quarter. Hence the company is less dependent on outside power.
5. Sales volume in terms of rail and road is 50-50.
6. The company’s trade sale is 83%.
7. Every quarter the company has around 5 crores GST incentive.
8. Company has 6 million ton cement capacity currently, and capacity utilizations is around 80%.
9. Paid a dividend of 9 per share.

Investor Conference Call Highlights 

1. The company has slipped on the volume by 19% on a year-on-year basis and 10% on a quarter-on-quarter basis due to weather-related problems in central India – UP and MP.
2. There is a significant increase in fuel costs.
3. The company has been able to save on power costs because it is now sourcing third-party power and green power which is a little cost-efficient on power.
4. Ammasandra plant operates 90% on green power.
5. The company has put up a power plant, thermal with this solar power plant in the Narsingarh plant.
6. The company is working on a little bit of debottlenecking of plants with a view to reducing fuel consumption, which will happen in the next year. The company will do a debottlenecking of Line 2 and Line 3 both starting with Line 3 first and then going to Line 2.
7. The debottlenecking will also add cement and clinker capacity. The management stated added capacity can be 3 lakh tons of clinker and 4.5 lakh tons of cement for both line 2 and line 3 put togather. They will start first phase in FY24 and second in FY25.
8. Consumption split of coal and petcoke is 31% and 69%. Petcoke consumption has increased due to cheaper costs.
9. The company has  launched a new product called Mycem Primo, which’s bag’s price is 15 to 20 Rs higher than a normal bag. Management stated the target to increase the price of these bags by Rs. 5 to Rs. 7 every year. They started with Rs 20 and currently, it’s Rs. 40 per bag, and next year they have a target to make it Rs 45 per bag.
10. The fuel consumption cost for the company is around Rs. 700-714 per Gigajoule; Rs. 3.13 per kilocalorie.
11. Gujarat expansion plan is in the process of getting environmental clearance. Management stated it may take next May/June to get it done. The plant is expected to start in FY27.
12. The management expects pend-up demand of cement in next 2-3 months.
13. The management gave CAPEX outlook:
    The company’s replacement CAPEX is 50% of its costs and depreciation, it is about 50 crores.
    Another CAPEX will be there for line 2 and for debottlenecking of line 3 in FY24. The approx range given was 50-55 crores.
14. The management stated that after Diwali there should be some price increases the company should be able to push through which depends on the order books. If the company see the order books getting overflowing, it can charge higher price.
15. Management stated in central India, the total demand on market price is 58 million. They expect the demand growth of 8-8.5%, which comes around 5 million growth in the cement in Central India alone, in FY24 due to elections.
16. The company’s Gujarat expansion plant will have capacity of 3.5 million tons in phase one, and another 3 million will be there in phase two. Management stated 200 million euros CAPEX spending for phase one.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. It had a poor quarter with revenues falling by 12% YoY & EBIDTA margins were down 10.8% to 9.4% from 20.2% due to higher input costs & fuel costs. Like everyone else in the cement industry, HCIL is also facing the threat of coal supply disruption with costs of its raw materials increasing drastically. The management believes that input costs will remain at elevated levels even in the coming quarters and an increase in realizations is going to be an uphill task due to poor demand from the market. The company remained unable to pass on the rise in RM costs due to poor demand in Q2. It remains to be seen how the company will face increased competition from pan India players and the raw materials and power cost inflation. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a very poor quarter reporting revenue growth of 2% YoY and profit de-growth of 33% YoY.
2. The share of green power was at 23%.
3. Capacity utilisation for FY22 was 76%.
4. The company’s EBIDTA per tonne stands at Rs 961 per tonne which is down by 21% YoY.
5. Sales volumes decreased by 1% YoY whereas gross realizations increased by 2.4% YoY.
6. Total costs per tonne were up 13.6% YoY. 
7. EBIDTA margins decreased by 597 bps YoY to 20.2%. The biggest reason for this fall was rise in power & fuel costs & input cost inflation.
8. The company has net cash balance of Rs 134.4 Cr.
9. MYCEM accounted for 21% of trade volumes.
10. Trade segment accounted for 80% of total sales having a de growth of 296 bps YoY.
11. Road volume stood at 46% whereas coal as a % of power mix stood at 62%.
12. The board has recommended a dividend of Rs.9 per share.

Investor Conference Call Highlights:

1. The company had a clinker factor of 61.4%, CO2 is 511 Kg per ton of cement while the water positivity rate stood at 4.4X.
2. The management expects weak April month sales due to the construction slowdown.
3. The management states that Since March, there has been an increase of around Rs.20- 25 per bag of cement
4. The company’s debottlenecking initiatives will yield results by April-May of next FY.
5. The management expects environmental clearances in Gujarat to take 1-1.5 Years meanwhile it will then take 2 years to get the plant up & running.
6. The new reduced diesel prices will help result in a cost reduction of Rs.2 per bag.
7. The company expects to incur Rs.100 Cr capex in FY23 out of which Rs.50-60 Cr will be maintenance capex.
8. The management believes that prices have remained stagnant despite high inflation in costs due to excess capacity in the industry where the players want to keep their plants running leading to no price hikes.
9. 100% of the coal requirement was sourced domestically.
10. The lead distance remains unchanged at 360-375 Km.
11. The company doesn’t expect any market share loss despite not adding any capacities in the next 2 years as its current utilisation rates stand at 72% for the full year & if the market grows at 6-7-8% for the next 2 years, even then the company will reach utilisation rates of only 90%.
12. The company expects price competition to not intensify post the Adani – Lafarge deal due to higher cost of acquisition leading to higher cost of capital & requirement of larger profits.

Analyst’s View:

Heidelberg Cement is one of the leading cement makers in South and Central India. It had a poor quarter with revenues increasing by 8% YoY & EBIDTA margins were down 597 bps to 20.2% due to higher input costs & fuel costs. Like everyone else in the cement industry, HCIL is also facing the threat of coal supply disruption with costs of its raw materials increasing drastically. The management believes that input costs will remain at elevated levels even in the coming quarters and an increase in realizations is going to be an uphill task due to poor demand from the market. The company remained unable to pass on the rise in RM costs due to poor demand in Q4. It remains to be seen how the company will face increased competition from pan India players and the raw materials and power cost inflation. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q3FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a very poor quarter reporting revenue degrowth of 8% YoY and profit de-growth of 53% YoY.
2. The share of green power was at 20%.
3. Capacity utilisation for this quarter was 73%.
4. The company’s EBIDTA per tonne stands at Rs 607 per tonne which is down by 36% YoY.
5. Sales volumes decreased by 11.1% YoY whereas gross realizations increased by 1.8% YoY.
6. Total costs were up 12.7% YoY. The major increase was in other expenses which rose 36.8% YoY.
7. EBIDTA margins decreased by 750 bps to 12.8%. The biggest reason for this fall was rise in power & fuel costs & input cost inflation.
8. The company has net cash balance of Rs 181.1 Cr.
9. MYCEM accounted for 22% of trade volumes.
10. Trade segment accounted for 77% of total sales having a degrowth of 219 bps YoY.

Investor Conference Call Highlights:

1. The company is targeting a contribution of AFR to 8-9% TSR
2. The company’s 5.5 MW solar power project will be operational within 1 month.
3. The management states that the cause for higher power costs was also due to low sales volume which reduced the ability to produce electrical power by 2 Gigajoules.
4. Raw material prices hiked due to an increase in prices of granules & an increase in fuel price for the transfer of clinker from Damoh to Jhansi.
5. Coal to pet coke contribution is 70:30 however decreased use of pet coke as pet coke’s prices have risen sharply but the higher usage of normal coal leads to higher sweetener consumption.
6. The company expects power tariffs to increase in the coming quarters.
7. The management expects price hikes in the coming quarter as current input costs are very high and are expected to remain at elevated levels in the coming months.
8. The company has taken normal sustainable CAPEX which is almost 35% to 40% of its annual depreciation & amounts to Rs.50 Cr. It is further incurring a capex of Rs.16 Cr stretched over 2 years on the AFR project.
9. During fiscal year 21- 22, the company’s total CAPEX will be in the range of Rs.75 crores, out of that it has incurred Rs. 50- 55 crores in nine months and balance in the remaining three months.
10. To retain its market share, the company is looking at the Greenfield project in Gujarat which is expected to get started in FY23 after Govt. approvals.
11. The company s not planning to add any new capacity in Central India other than 0.5MT through debottlenecking as it already increased its capacity by 1MT in the last quarters & has sufficient headroom to increase its utilization in the existing capacities.
12. The clinker to cement conversion ratio was 61.5%.
13. The company is unable to pass on price hikes due to poor demand in the market.
14. Grid & non-Grid mix of power consumed was at 32:68.
15. The lead distance was at 350 Km in Q3.
16. The current capacity is 6.25 MTPA.

Analyst’s View:

Heidelberg Cement is one of the leading cement makers in South and Central India. It had a poor quarter with revenues decreasing by 8% YoY & EBIDTA margins were down 750 bps to 12.8% due to higher input costs & fuel costs.. Like everyone else in the cement industry, HCIL is also facing the threat of coal supply disruption with costs of its raw materials increasing drastically. The management believes that input costs will remain at elevated levels even in the coming quarters and increase in realizations is going to be an uphill task due to poor demand from the market. The company remained unable to pass on the rise in RM costs due to poor demand in Q3. It remains to be seen how the company will face increased competition from pan India players and the raw materials and power cost inflation. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q2FY22 Updates

Financial Results & Highlights

Detailed Results:

1. The company had reported revenue growth of 12% YoY and profit de-growth of 13% YoY.
2. The share of green power has risen to 27%.
3. Capacity utilisation for this quarter was 78%.
4. The company’s EBIDTA per tonne stands at Rs 946 per tonne which is down by 17% YoY.
5. Sales volumes increased by 11% YoY whereas gross realizations decreased by 0.1% YoY.
6. Total costs were up 6.7% YoY. The major increase was in other expenses which rose 36.8% YoY.
7. EBIDTA margins decreased by 411 bps to 20.5%. The biggest reason for this fall was rise in power & fuel costs.
8. The company has net cash balance of Rs 79.6 Cr.
9. MYCEM accounted for 21% of trade volumes.
10. Trade segment accounted for 83% of total sales.

Investor Conference Call Highlights:

1. When the new solar power plant comes online, the company will have a 30% green power share.
2. The Company’s EBIDTA per tonne has decreased primarily due to higher costs of pet coke, coal, fly ash, packaging, and diesel.
3. Sourcing from non-grid sources has risen to 40% of the total sourcing of power.
4. Sales Realizations have not increased due to a higher base in the previous year.
5. The company will pay Rs 120 Cr towards debt repayment after which the company won’t have any interest-bearing debt.
6. Heidelberg commands a premium of Rs 35-40 in its premium product.
7. Road volumes contribute 45% of total volumes.
8. The management states that good demand is expected from U.P. due to state elections.
9. Due to the China crisis, the supply of equipment for new capacities can be delayed across the industry according to the management.
10. The management expects the cement bag’s prices to increase from Rs 360 to Rs 400 per bag by November and Rs 500 per bag by the start of FY22 in Central India.
11. The major reason for the anticipated price increases is said to be that cement companies should start passing the power and fuel cost rise which they are absorbing currently which should lead to higher average market price.
12. The management states that HCIL saw a decline in EBITDA/ton vs the competition seeing growth in it because the base of last year was very high.
13. Despite the commodity price rises, the management expects the demand for cement to remain robust due to the stable demand for construction and infrastructure development.
14. Lead distance is 350 Km.
15. The company has a coal mix of 70% of which is sourced domestically.
16. The management expects increased prices of coal going forward due to lower production of coal and very high demand from China.
17. The management expects the industry to grow by 10-12% in FY22.
18. The management expects the margins to increase in the future so that the industry players would be able to meet its investment requirements for ESG compliances.
19. The management expects to achieve EBIDTA per tonne of Rs1300-1400 after the price increases subject to no further increase in diesel and fuel prices.
20. WHRS contributes 23% of total power requirements.
21. The company is doing a recurring capex of Rs 40 Cr and Rs 16 Cr on Alternative fuel projects.

Analyst’s View:

Heidelberg Cement is one of the leading cement makers in South and Central India. It had a mixed quarter with revenues increasing by 11% YoY but EBIDTA margins were down 400 bps to 20% due to higher input costs. The company is seeing good growth in its Mycem cement bags with their contribution to further increase from 21% to 25% in the coming quarters. Like everyone else in the cement industry, HCIL is also facing the threat of coal supply disruption with costs of its raw materials increasing drastically. The management is looking to maintain production at current levels and is planning to increase realization per tonne by passing on the cost increases to the customers in the coming quarter. It remains to be seen how the company will face the threat of 3rd covid wave along with increased competition from pan India players and the raw materials and power cost inflation. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward

Q1FY22 Updates

Financial Results & Highlights

*Contains negative tax charge of Rs 9.6 Cr

Detailed Results:

1. The company had 36% YoY rise in revenues and a 41% YoY rise in profits due to the low base in Q1FY21.
2. Capacity utilization for Q1 was at 74%. The share of green power was at 23%.
3. EBITDA/ton for Q1 was at Rs 1107 which was down 12% YoY. The drop was mainly due to rise in fuel prices and packaging costs.
4. The company also saw volume growth of 38% YoY in Q1 due to low base in Q1FY21. Volumes were down only 5% QoQ despite the 2^nd wave of COVID in Q1.
5. EBITDA margin for Q1 fell 285 bps YoY to 23.8% in Q1.
6. Gross realizations fell 1.9% YoY to Rs 4648/ton in Q1.
7. Mycem accounted for 20% of trade volumes. The trade sales accounted for 83% of total sales.
8. The cash & cash equivalents for the company were at Rs 230 Cr as of 30^th June 2021.

Investor Conference Call Highlights:

1. The company is looking to reach its ESG goal of bringing carbon dioxide emissions to 500 kgs per ton of cement manufactured by 2025. The current number is at 511 kgs which is much lower than the average world figure of 640 kgs and the Indian average of 580 kgs.
2. The company is probably the only industry player to make blended cement only.
3. The company is looking to start using alternative fuel at the Narsingarh plant in Q2 or Q3.
4. 45% of volumes were road volumes. High petcoke prices caused the usage of normal coal to rise to 65% of total power costs.
5. The premium quality cement Mycem saw 88% YoY growth in volumes.
6. The management states that the company is aiming to keep trade sales at a minimum of 85% of sales. The figure was lower in Q1 due to some govt projects increasing nontrade sales temporarily.
7. The company expects good demand from UP due to high govt spending as it is an election year in the state.
8. The power consumption is around 72-73 units or kWh per ton of cement according to the management.
9. Petcoke price is at Rs 16000-16500 while normal coal is at Rs 8500. The coal is mostly sourced from domestic open markets.
10. The energy cost per unit was close to Rs 6.2-6.3 according to the management in the last 9 quarters.
11. The management states that waste heat recycling has provided 16 million units of energy in FY21.
12. The management states that increasing the usage of coal forces them to change the recipe for making cement and increases the requirement for high-grade limestone.
13. Clinker production in Q1 was at 690+ tons.
14. After the new 5 MW solar power unit comes online, the grid dependency for power should go down to 30% according to the management.
15. The prices in central India have fallen in the market due to other players starting to sell their surplus volumes in the region. Although HCIL’s product prices have always been above the average market prices for similar products, it will also have to do downward price adjustment in case of excess supply in the market.
16. There has not been any new update on the progress of the Gujarat expansion project.
17. The management states that HCIL carries 75000-85000 tons of clinker at any given time as inventory.
18. The management states that most pan-India cement players have seen a rise in realizations due to improvement in the South Zone while the Central zone has remained flat.
19. The company has a target of reaching 25% volumes from premium cement. It will not be looking to increase this further than 25% as the further expansion will most probably come only at the cost of dropping prices for this product.
20. The management expects industry prices to get better by Q3 or Q4 once the impact of subsequent waves of COVID gets smaller and smaller.
21. The management doesn’t expect any new capex to be done in FY22.
22. The lead distance in Q1 was 350 km.
23. The company always carries only 30 days of fuel inventory.
24. The total capacity of HCIL including Zuari is at 14 MTPA currently and it can go up to 20 MTPA in the next 5 years according to the management.

Analyst’s View:

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a decent quarter with a mild fall in realization and volumes in Q1 despite the 2^nd wave of COVID-19. The company has done well to maintain EBITDA/ton above Rs 1100 despite rising fuel and petcoke prices YoY. It has also seen good growth in Mycem which has grown 88% YoY and accounts for 20% of total volumes. But the company has not been able to grow in realizations as compared to other pan-India cement players due to the Central zone remaining flat in Q1. It remains to be seen whether the company will be able to match the competition which is operating in a much larger addressable market as compared to HCIL, what challenges it will face when expanding out of the Central Zone and how will it cope with other players who are rapidly expanding their capacities. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q4FY21Updates

Financial Results & Highlights

*Contains negative tax charge of Rs 9.6 Cr

Detailed Results

1. The company had a great quarter with 17% YoY rise in revenues and a 112% YoY rise in profits.
2. FY21 revenues remained subdued due to the poor performance in Q1 while profits rose on the back of good Q4.
3. Capacity utilization for FY21 was at 72%. Dependence on grid power reduced to 63%, while share of green power was at >22%.
4. EBITDA/ton for FY21 was at Rs 1129 which was up 1% YoY.
5. The company also saw volume growth of 14.9% YoY in Q4.
6. EBITDA margin for Q4 rose 117 bps YoY to 26.2% in Q4 and fell 25 bps in FY21 to 24.2%.
7. Gross realizations fell 0.6% YoY to Rs 4643/ton in FY21.
8. EBITDA per ton rose 4% YoY in Q4 to Rs 1215.
9. The cash & cash equivalents for the company was at Rs 430.3 Cr as of 31st Mar 2021 which exceeds the debt for the company making it net debt free.
10. The Board recommended a final dividend of Rs 8 per share for FY21.

Investor Conference Call Highlights

1. The company repaid the 2nd tranche of NCD of Rs 125 Cr. The third and final tranche is expected to be paid in December 2021.
2. HCIL is operating on negative operating working capital.
3. The management states that capacity utilization looks lower compared to FY20 due to a rise in overall capacity to 6.26 MTPA.
4. Both power and fuel costs have risen in FY21 with petcoke rising from $60-70 a year ago to $142 currently.
5. Premium Cement saw 29% growth YoY while it accounted for 19% for sales volumes.
6. Trade sales accounted for 83% of total sales in FY21.
7. The OLBC belt replacement project is expected to go as per plans with the company amassing enough clinker to service market needs during the plant shutdown period.
8. Demand resilience remains stronger in the central zone than in other zones.
9. Prices have gone up universally because of rising fuel and coal prices.
10. The management states that the non-trade portion has fallen as the company directly rejects low-margin proposals and only does business here with advanced payment without any credit.
11. The market share gain for HCIL is mainly on the back of improving brand positioning and power and relying on increasing premium products on the trade sales channel.
12. The company is also seeing some unsatisfied demand in the price segment of Mycem Cement which is priced between normal cement and Mycem Power.
13. To reduce the impact of market volatility, HCIL is training its channel partners to do business on advanced payment with their consumers and reduce extending credit.
14. The company is now covering 62% of its power needs from the grid. It is working on a 5MW solar power plant which is expected to replace the grid power.
15. The company is looking to expand in Gujarat as there are very few avenues for M&A in MP currently. The company is serious about pursuing this expansion, but it will take time to complete as the required licenses alone take 2 years to get.
16. The other expenses have fallen QoQ mainly due to higher expenses incurred in Q3 due to the plant shutdown. There was not much change in RM costs and the fall in material expenses in Q4 was mainly due to the movement of inventory from Q3 to Q4.
17. Other expenses are expected to stay near current levels of Rs 90-95 Cr per quarter.
18. Capex for the year is planned to be at Rs 95 Cr. The lead distance currently is 350 km.
19. The loan to Zuari Cement is at an interest rate of 7.64%.
20. The change in lead distance was mainly due to diesel costs and the company wanting to go to places where it did not sell to get a little higher price.
21. The demand trend has remained stable, but business has remained subdued in the 2nd wave of COVID due to a much greater loss of life as compared to last year.
22. Q4 saw rise in employee costs mainly due to a one-time increment to salaries.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a great quarter with a rise in realization and margins, and volumes in Q4. The company has done well to maintain high margins and EBITDA/ton despite rising fuel and petcoke prices YoY. The company has also amassed enough clinker to cover for any business needs during the 2^nd phase of the OLBC belt laying and plant shutdown. It remains to be seen whether the company will be able to match the competition which is operating in a much larger addressable market as compared to HCIL and what challenges it will face when expanding out of the Central Zone. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q3FY21Updates

Financial Results & Highlights

Detailed Results

1. The company had a mixed quarter with 8% YoY rise in revenues and a 2% YoY fall in profits.
2. 9M revenues and profits remained subdued due to the poor performance in Q1.
3. The company also saw volume growth of 3.7% YoY in Q3.
4. Industry decline was 10% YoY.
5. EBITDA margin for Q3 fell 167 bps YoY to 20.3% in Q3.
6. Gross realizations rose 4.5% YoY to Rs 4669/ton.
7. EBITDA per ton fell 3.4% YoY in Q3 to Rs 947. The main drag on this number was the rise in fuel costs.
8. The company had 1 Lost Time Injury (LTI) for a contract employee.
9. Dependence on-grid power decreased to 66%.
10. The cash & cash equivalents for the company was at Rs 570.9 Cr as of 31st Dec 2020.
11. The company maintained a negative working capital.
12. Mycem power volumes were up 33% YoY in Q3. It formed 22% of trade volumes.
13. The company has provided the following points in its outlook for the near future in FY21:
    1. The expectation of further improvement post COVID.
    2. Demand recovery in housing and infrastructure segments fuelled by Govt. capital outlay.
    3. Hardening of international and domestic fuel prices.

Investor Conference Call Highlights

1. The company has paid back Rs 125 Cr of NCDs and has pending NCDs of Rs 120 Cr which is due in Dec 2021.
2. Net cash balance for HCIL is Rs 216 Cr.
3. The company expects to do a capex of Rs 90 Cr in FY22.
4. 40% of power is from WHRS. The company is also looking to set up a 5.5 MW solar power plant.
5. Pet coke prices are at $115 and can go even higher according to the management.
6. The plant is running at 80% capacity utilization. Considering that the industry grows 9% each year, the management is confident of not requiring spare capacity for the next 2 years.
7. The company is already in the process of applying for clearances for its mining lease in Gujarat. It is also looking at places near the mines to set up a brownfield project as it does have the cash in books to do so.
8. All non-trade business is done with advance payment only to prevent any credit losses. The non-trade channel typically has lower realizations than the trade channel. Besides, the management has stated that the cost of recovery of funds is greater than the cost of sales so it tends to avoid non-trade channel.
9. The difference is around Rs 800-900. The management has stated that it is not looking to push for volumes by accepting all the lower realization orders from the non-trade channel as it will hurt the brand image and cause faster erosion of limestone reserves for the company.
10. The company has a target to reduce its carbon footprint to 500 by 2030. It is currently at 511 and the industry is at 580. But progress from 511 to 580 is going to be more difficult as it will require more sophisticated carbon capture technologies.
11. The management has added that if the law restricting the amount of fly ash is removed and the company can add 5-7% more fly ash, it can easily reach 500.
12. The management has stated that fuel consumption has gone up in Q3 mainly due to the company working line 1 which is a fuel guzzler. The company looks to keep line 1 working only for 100 days each year only in case of additional demand. All of this and the shutdown of 21 km of the conveyor belt caused costs to rise by Rs 80-90 per ton in Q3.
13. The shutdown of the conveyor belt was done to upgrade the belt. This upgradation is required to be done every 7-8 years. This process takes around 3 months per stage and is to be done in 3 stages.
14. The MAT credit reserve for HCIL is at Rs 75 Cr currently.
15. The management has stated that the EBITDA margin should come back to 23% as one-off expenses go away.
16. The management has stated that comparing HCIL to other industry players may not be fair as it is predominantly a central India player.
17. The company is aiming to keep the ratio of coal to pet coke at 50:50 going forward.
18. The company has spent Rs 7-8 Cr on alternate fuel and it will spend a further Rs 12-13 Cr in the next 7-8 months.
19. In alternate fuels, the company is looking at biomass which can be easily sourced from municipal waste. The thermal substitution at the start will be 3$ and will be brought up to 8-9%.
20. The company will be looking at another alternate fuel to substitute another 5% bringing the total substitution to 12-13% in the medium term.
21. Once the company gets all clearances for the Gujarat mines, it will be looking to set up a 3-million-ton plant there.
22. Around 80-90% of orders are supplied directly to the dealer which reduces the requirement for maintaining warehouses.
23. The company has postponed price hikes due to soft winter season.
24. The current capacity at mines should suffice for 27-28 years for the company.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a mixed quarter with a fall in realization and margins but volumes saw growth in Q3. The company has done well to maintain growth despite the overall industry decline YoY. The realizations were down in Q3 due to partial shutdown of the conveyor belt for upgradation and the company using Line 1 to substitute for lost capacity. It remains to be seen whether the company will be able to match the competition which is operating in a much larger addressable market as compared to HCIL. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q2FY21Updates

Financial Results & Highlights

Detailed Results

1. The company had a modest quarter with a 2% YoY drop in revenues and a 7% YoY rise in profits.
2. H1 revenues and profits were subdued due to the poor performance in Q1.
3. The company also saw a volume decline of 2% YoY in Q2.
4. EBITDA margin for Q2 improved 93 bps YoY to 24.6% in Q2.
5. Gross realizations rose 1% YoY to Rs 4629/ton.
6. EBITDA per ton rose 5% YoY in Q2 to Rs 1137.
7. The company had Zero Lost Time Injury (LTI) and Fatality.
8. Dependence on-grid power decreased to 60%.
9. The cash & cash equivalents for the company was at Rs 572 Cr as of 30^th Sep 2020.
10. The company maintained a negative working capital.
11. Mycem power volumes were up 20% YoY in Q2. It formed 13% of trade volumes.
12. The company has provided the following points in its outlook for the near future in FY21:
    1. The expectation of further improvement around/post the festive seasons.
    2. Steady recovery in IHB segment esp. in rural areas, labour returning back to urban areas as well.
    3. Liquidity crunch in the market likely to continue in the near future.
    4. Input raw materials may have to be sourced from longer leads.

Investor Conference Call Highlights

1. The company has improved its road share to 49% which is up 5% YoY.
2. The company is aiming to bring up the contribution of the premium brand Mycem power up to 25% of the total volume share.
3. Trade sales are targeted to be kept in the range of 85-90% of total sales.
4. The company’s long term target is to be making carbon-neutral concrete by 2050.
5. The company is also looking to launch a new product called Greencem. HCIL is aiming to become the first cement company in the world to launch a cement product with a green label.
6. Energy prices are not expected to increase. RM costs remain a challenge and if they do not soften, the company may be forced to raise its prices to cope with firm RM costs.
7. The management states that although volumes have not seen too big of an upsurge, the company will still focus on maintaining brand image and will not be pushing for indiscriminate volume expansion.
8. The company has maintained its market share in Central India of 9.8-10% and is expecting this figure to remain stable for the near future.
9. Total Savings on annual basis has been Rs 40 Cr so far from WHR (Waste Heat Recovery).
10. Pet coke prices are currently high and it would be better for the company if pet coke prices come down.
11. Demand for govt projects is strong, especially from UP. Around 60-62% of demand from retail outlets is used for making homes. There has been a very massive drop down in the builder segment. There is a lot of unsold inventory stuck in the market. And thus property prices have corrected almost 20-25%.
12. Reverse migration of labour towards cities has started and work speed is slowly rising. The management expects to have similar volumes in Q3 & Q4 as it did last year.
13. The management has clarified that although the company saw volume decline in Q2, it was preferable to do so than to give out more products on credit and increase chances of it converting into bad loans as there is a severe liquidity crunch going on in the builder space.
14. The company is conducting environmental studies at the proposed Gujarat location currently.
15. The company is planning to lend Rs 150 Cr to Zuari as a term loan at a fixed interest rate of 7.5% for 2 years. Zuari has borrowed the amount to partially finance its WHR unit which costs around Rs 230 Cr. The company expects to earn around Rs 24-25 Cr from this transaction. The transaction is expected to be completed by 31^st March 2021. It is yet to be initiated.
16. The company currently has a MAT credit of Rs 85 Cr which is expected to run down in the next 1.5-2 years.
17. The company is operating at close to 80% capacity utilization. At current resources, it can operate at up to 90% utilization. The company does require additional trucks in its logistics if it is looking to increase its utilization further.
18. The management has reiterated that it is only providing the product to those builders who pay an advance payment and only will then supply the material.
19. Around 20% of the market is expected to be stretched currently.
20. October is expected to be soft for the industry due to the high number of holidays but it is also the month when price increases are typically taken in the industry. The company has also increased its prices in the month of October.
21. The company has managed to reduce freight costs despite rising diesel prices in the quarter.
22. Most of the pet coke for the company is procured domestically for the company. The management has stated that due to the current high price of pet coke, its consumption remains low and it will only be able to come back once the price drops back to Rs 60-65. Till then the company will look to be dependent on thermal coal.
23. There is indeed some supply disruption going on in the market with lower-priced brands selling products with a price differential of almost Rs 40-80 per bag from top brands.
24. Looking at costs in Nov and Dec, the company is looking to hike prices in both the upcoming months. The management has stated that if the demand post-Diwali shows some improvement in price realization then the quantum of price increase will be lower than expected.
25. The price hikes in Oct have added to an increase in realizations of Rs 50/ton.
26. The management has stated that it will take at least 3-3.5 years to set up the Gujarat plant.
27. In terms of realization per ton, the company earns around Rs 10-12 per bag from the premium cement sales after all discounts and other things are considered.
28. The drop in interest costs has been due to the company paying back a tranche of NCDs last year.
29. On 1^st October, the company had increased its premium on Mycem Power by Rs 5.
30. In terms of power, 60% is from the grid, 19-20% is from renewable sources (considering WHR as renewable) and the rest is from third parties.
31. The software for e-commerce sales should be ready by FY22 according to management.
32. According to management, the company is sitting on almost Rs 700 Cr of cash reserves currently. The company is looking to build it up to Rs 1000 Cr to be able to finance the Gujarat plant in the near future.
33. The company is also looking to improve its clinkering capability so that it can get a better quality of clinker to improve further. The company is using a max of 35% fly ash only to make clinker.
34. On an average basis, the company will be using pet coke and thermal coal at a ratio of 50-50 if pet coke prices remain at current levels.
35. There isn’t much Capex expected in FY21 & FY22 as the company is looking to build reserves and get all required approvals before starting on the Gujarat plant.
36. The management expects to see good volume growth in the next 1 to 2 fiscal years.
37. Most of the debottlenecking are over. Only some of the clinker is left out which on completion is expected to add up another 200,000 to 250,000 tons of clinker.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a mixed quarter with steady realization and margins but volumes taking a hit in Q2. The company has done well to maintain its EBITDA/ton at high levels despite costs for fuel rising. It is also good to see that the management remains focused on steadily increasing permanent market share on the basis of the brand image and is not chasing temporary market share from price drops. The builder community is going through a severe cash crunch right now which is also affecting cement consumption. It remains to be seen how long it takes for demand to come back to the industry and whether there are any disruptions in-store from COVID-19. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q1FY20Updates

Financial Results & Highlights

Detailed Results

1. 1. The company had a dismal quarter with a 31% YoY drop in revenues and a 38% YoY drop in profits.
   2. The company also saw a volume decline of 32% YoY in Q1.
   3. EBITDA margin for Q1 fell 40 bps YoY to 26.7% in Q1.
   4. The main reason for the fall in revenues and profits was the loss of operations during the lockdown. Operations resumed from 20^th April thus incurring an operational loss of 20 days.
   5. Gross realizations rose 2.4% YoY to Rs 4739/ton.
   6. EBITDA per ton remained flat at 0.9% YoY growth in Q1 to Rs 1264.
   7. The company had Zero Lost Time Injury (LTI) and Fatality.
   8. Dependence on-grid power decreased to 59%.
   9. The cash position for the company was at Rs 160 Cr as of 30^th June 2020.
   10. The company maintained a negative working capital.
   11. Mycem power volumes were down 38% YoY in Q1. It formed 14% of trade volumes.

Investor Conference Call Highlights

1. The industry suffered a massive 85% decline in volumes in April.
2. The company is keeping a hold on recruitment and capex until things normalize.
3. The prices have improved by 2.5% YoY for the company.
4. Demand remains stable for the company despite the onset of monsoons. There hasn’t been any major drop in demand from June to July.
5. There was also a 30% YoY reduction in costs which was mainly in other expenses and due to lower volumes sold in Q1.
6. The company stands ready to doe greenfield expansion in the West, East, and Central facilities.
7. The management expects industry volumes to stay flat YoY in June and July showing strong recovery from the fall in April & May.
8. There are mixed expectations from Q2 as volumes generally decline in this quarter due to seasonal factors but this time there can be sustained demand as the government is looking to focus on the construction industry as a means to generate employment.
9. The management stressed that the main reason for the fall was not the production shortage inQ1 but the logistical issues which prevented timely sales and delivery of products.
10. The management remains consistent with its message that the company will not be looking to expand its market share by reducing prices since it will hurt the brand image and established the quality of products. Thus the company will remain focused on slow but permanent market share expansion on the basis of brand quality.
11. The management has stated that the current waste recoveries capacity is adequate for the company and the solar plant is still in the works and its construction got delayed due to COVID.
12. There has been no material impact on the company from the Bihar floods as there virtually no sales for the company in the state.
13. The company is looking at 5 MW solar plant capacity in the Central facility. The company has low CO2 emissions as it makes blended cement but it is determined to reduce it as much as possible.
14. The company has seen sales go down in urban areas and sales have been going up in semi-urban and rural areas.
15. The increase in diesel prices has not impacted the company as the increase has been passed on directly.
16. The lead distance has increased 10 Km in Q1FY21 as compared to Q4FY20. This is a consequence of increased demand in rural areas.
17. The management has not decided on annual discounts as it can affect P&L very badly in current times.
18. The direct to dealer dispatches for the company is at 60-70%. In MP it is at 80%.
19. Around 35-40% of volumes, demand comes from rural regions.
20. The increase in fly ash cost due to the increase in lead distance is around Rs 150.
21. There hasn’t been a significant change in inventory from March to June since the company does not keep much inventory at the warehouse level.
22. The management has recommended a good dividend for the shareholders which is subject to the upcoming AGM.
23. The company will continue to maintain its capex for FY21 at 40% of annual depreciation as it has done in the past.
24. The solar plant is not a capex item and is in an arrangement where the vendor will be selling power to the company at a fixed cost for the next 25 years.
25. The average pricing per bag for the top 3 brands is around Rs 365-370.
26. The average fuel price in Q1 was around Rs 1.36 per bag.
27. The company is not looking to merge Zuari and Heidelberg India as there are no significant synergies to justify this move currently.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a mixed quarter with steady realization and margins and a big fall in volumes for Q1. The company managed to do this mainly on the back of its established brand image in the retail market. The company has also done well to overcome the logistical issues it faced at the start of the lockdown. It is also good to see that the management remains focused on steadily increasing permanent market share on the basis of the brand image and is not chasing temporary market share from price drops. It remains to be seen how demand comes back to the industry and whether there are any disruptions in-store from COVID-19. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q4FY20Updates

Financial Results & Highlights

Detailed Results

1. 1. The company had a modest quarter with a 5% YoY drop in revenues and a 9% YoY rise in profits.
   2. FY20 for the company was good with 2.5% revenue growth YoY and 21.4% profit growth YoY.
   3. The company also saw a volume decline of 10% YoY in Q4. Overall volumes for FY20 fell 3.9% YoY.
   4. EBITDA margin for Q4 rose 164 bps YoY to 25% in Q4. FY20 margins rose 155 bps YoY to 24.5%.
   5. Capacity utilization remains above 90%. Clinker capacity utilization is at 85%.
   6. EBITDA per ton also improved 13.2% YoY in Q4 to Rs 1168 and 13.6% YoY in FY20 to Rs 1122.
   7. Industry utilization is expected to be 66%. Utilization for the company was at 87% for FY20.
   8. The company reduced its dependence on grid power to 66% in FY20.
   9. Mycem power volumes were up 38% YoY in FY20.
   10. Central India plants of Imlai and Jhansi running at >95% utilization.
   11. Fitch reaffirmed the company rating at AA+.
   12. The company completed the debottlenecking projects in Imlai and Jhansi The company now has a final capacity after expansion to be 6.26 million tons per year.
   13. The company announced a final dividend of Rs 6 per share for FY20 bringing the total dividend given out for the year ta Rs 7.5 per share.
   14. Insights from the company for FY21 going forward:
       1. Demand reduction in urban areas due to labour exodus and rural demand showing improvement.
       2. Working capital -Liquidity crunch in the channel network.
       3. Reduced availability of truck drivers impacting inward and outward logistics.
       4. Lower energy prices may sustain in the short term.
       5. Input raw materials may have to be sourced from longer leads.
       6. Reduced availability of manpower at railway yards may impact the turnaround of rolling stock.
       7. Optimization of operational and capital expenditures.

Investor Conference Call Highlights

1. In clinker, the company is at the utilization of 80-83% in FY20.
2. Blended cement volumes were at 13% of total volumes.
3. The company had 86% of volumes sold through trade signifying the company’s focus on staying retail-driven.
4. As mentioned above, the management expects liquidity crunch to take place in the channel. Reduced availability of trucks and drivers and labour shortage are to be expected going forward.
5. Urban demand has suffered but rural demand is coming up gradually for the company and the industry.
6. Pricing for the company’s products is expected to stay firm going forward as the management believes that the company will not suffer in case of a price war due to its resilient brand image.
7. As of now, the company does not have any plans for any new expansions.
8. The management believes that the company’s EBITDA gains over the past few years is sustainable mainly on the back of the company’s brand image which enables it to command significant pricing power.
9. The management is confident that the company can run at full capacity despite all the operating constraints forced on by COVID-19.
10. The management expects Capex for the year to be around Rs 50 Cr which will be mainly replacement on account of depreciation.
11. The production at the Gujarat plant is expected to be around 3 million tons.
12. The management has stated that fixed costs for Q4 were indeed up YoY but they had declined QoQ. The YoY increase is mainly due to an increase in promotional activities and additional CSR done in Q4.
13. The company is looking to institute debottlenecking in the clinker plant for clinker capacity enhancement in FY21.
14. The company does expect a reduction of demand from small private projects but the demand from big projects like irrigation etc is expected to endure. All in all, given the Indian government’s push for infrastructure, the mobilization is expected to take at least 7-8 months post announcement.
15. Most of the issued NCD is expected to be repaid by FY22 and the government portion of the debt is to be repaid from FY23 onwards.
16. There are some ongoing issues with the bag suppliers as making these bags requires a lot of manual labour and most of the labour has migrated. But the management is optimistic that the situation should normalize in the next 15-20 days.
17. The company is waiting on clarification on the change made in the GST incentive made by the MP government.
18. The volume loss from 10 days of no production in March is around 1.25-1.5 lac tons.
19. In terms of the situation of labour migration, the management expects the situation to improve from Diwali onwards.
20. The increase in gross realization in Q4 was 5.8% YoY.
21. The company is still carrying some MAT credit and it will switch on to the new tax regime once this credit runs out in FY21.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a good year so far with good improvement in realization and margins even while it saw a slight fall in volumes for FY20. The company managed to do this mainly on the back of its established brand image in the retail market. Even though the industry has been deemed essential by the government, the cement industry is expected to continue to face issues like liquidity crunch, increase in the procurement cycle, labour shortage and the company is no exception to it. It remains to be seen how the company will be able to rise above the issues plaguing the industry and differentiate itself from the rest of the pack. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the pricing power it has, Heidelberg Cement India can prove to be a pivotal cement sector stock going forward.

Q3FY20Updates

Financial Results & Highlights

Detailed Results

1. 1. The company had a modest quarter with a 2.5% YoY drop in revenues and a 10% YoY rise in profits.
   2. The 9M period for the company was good with 5% revenue growth YoY and 26% profit growth YoY.
   3. The company also saw a volume decline of 5% YoY. This was mainly due to the big sale of clinker in Q3FY19 while there has been no clinker sale in Q3 and marginal decline in demand in Central and South India.
   4. Capacity utilization remains above 90%. Clinker capacity utilization is at 85%.
   5. The company reduced its dependence on grid power to 65%.
   6. Mycem power volumes were up 53% YoY.
   7. The company saw good operational efficiencies in the quarter with gross realizations and EBITDA per ton rising 3.5% and 3.6% YoY respectively.
   8. The company is looking to expand capacity in Imlai plant and Jhansi plant by 0.5 and 0.55 million tons respectively. The Capex required for this is expected to be Rs 6.3 Cr and Rs 14.4 Cr respectively.
   9. The company expects the final capacity after expansion to be 6.26 million tons per year.

Investor Conference Call Highlights

1. The growth of the cement industry has been 3.5% in the last 3 quarters while in Q3, the growth was 5%. The capacity utilization of the industry is 68% which is soft according to the management.
2. The company remains zero net debt at present.
3. The current quarter has been the second-highest PAT quarter for the company.
4. The current consumption % of pet coke is 63% and the company will move to increase it as the prices of pet coke remain subdued.
5. The customer segment for the premium product is not limited to premium customers and it is mainly bought by customers looking for quality.
6. The company is not pushing dealers to sell more of its premium product and is mainly reliant on the default literature.
7. The company is looking to target 20-25% market share for the premium product and it will not be engaging in disruptive activities to increase its market share more than the target levels.
8. The lead distance is 360-370 km for the company.
9. The rise in other expenses is mainly due to a rise in inflation-related fixed costs.
10. The management has acknowledged that there may be some cannibalization of normal products from premium products.
11. The company has close to 10% market share in Central India.
12. The management has based its forecasts on the assumption of the central India industry growth of 4%.
13. The management expects the demand for cement to be primarily driven by the housing industry in the next 2 quarters while the infra sector will take 6 months to mobilize on the govt budget allocations.
14. The entire clinker for the Ammasandra plant is from Zuari.
15. The company is not looking to add capacity in clinker production but is instead looking to better leverage existing plants to increase capacity from debottlenecking initiatives.
16. The company has been granted a VAT incentive for its plant expansion in the state. The amount in this incentive has been reduced significantly for which the company has appealed to the state govt.
17. The company is 100% PPC in all its plants.
18. The management states that RMC manufacturing is loss-making for all players and it will step in once the market improves and the policies allow for profitable manufacturing.
19. For the Ammasandra plant, all of the clinkers is being sourced from Zuari.
20. The management has stated that the fluctuations in sand prices are purely for natural reasons like monsoons, etc.

Analyst’s View

Heidelberg Cement is one of the leading cement makers in South and Central India. The company has had a good year so far with 2 of its highest ever earning quarters in the past 9 months. The company is running at greater than 90% capacity utilization which showcases the demand for the company’s products. The growth in the premium product mycem has been very encouraging. It remains to be seen whether the tailwinds behind the cement industry growth in the recent past will persist and how will the major customer industry segments of infra and housing fare in the future. Nonetheless, given the company’s consistent performance, its close association with its parent Heidelberg Cement Group and its strategic geographical positioning in India, Heidelberg Cement remains a good cement stock to watch out for.

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