>Heidelberg Cement India (ICICI DIRECT)

Value play…
Heidelberg Cement, formerly known as Mysore Cement, is a mid-sized cement player with an installed capacity of 3 million tonnes (MT). The company’s plants are located in UP, MP, Maharashtra and Karnataka. Out of the total installed capacity, 50% is in the central region, where prices were up 15% YoY in October 2009. The company has a healthy balance sheet and cash per share of Rs 14 (one-third of CMP).

■ Strong balance sheet
The company has a strong balance sheet with gross debt equity ratio of 0.02. At the end of CY08, the company had total cash & cash equivalents of Rs 338 crore (Rs 14 per share, i.e. one-third of CMP)

■ Presence in central region
Out of the total installed capacity of 3 MT, 50% of the capacity is in the central region. Prices in the central region were up 15% YoY in October 2009 as compared to the all-India average of 3.5%. In April- October 2009, the central region has grown at 16% YoY as compared to the all-India growth of 11%.

■ Capex plan
The company has received an environmental clearance for increasing its capacity by 1.9 MT in UP and by 1 MT in MP. However, on account of the recent global economic slowdown, the company has not been pursuing aggressive expansion plans.

Valuation
At the CMP of Rs 41.1, the stock is trading at 5.3x and 1.3x its TTM earnings and book value, respectively. On CY08 capacity, the company is trading at $42 per tonne. Despite having healthy return ratios (RoE of 21% and RoCE of 17%), the stock is trading at more than 60% discount to its replacement cost. Thus, investment can be considered in this counter with a short-term target of Rs 45.2, offering an upside of 10%.

To read the full report: HEIDELBERG CEMENT