HEIDELBERG CEMENTS- A RERATING CANDIDATE

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Originally posted by SaneCounsel

Heidelberg deserves attention : 

Market cap of 636 crore ( 836 crore less 200 crore cash ) which can be covered in 3 to 4 years PAT .Capacity going up from 1.8 to 4.7 mtpa . 
At 75$ per tonne the replacement  cost is  1750 + crore at 4.7 mtpa capacity which means Rs.77 per share .

a) Management pedigree : Top 3 in the world - German Mnc .They hold 69% and I expect they would want to delist . If indeed they wish to delist the earlier they attempt to do so the better for them . This is one trigger.

b) Accounting year is Jan to Dec . For year 2009 expect eps of 8.Industry pe is above 8 whereas a mid cap mnc cement stock that has just announced intention to double capacity by 100% deserves a higher pe in my view and definitely not sub 5 pe .

c) Expect dividend to be declared for this year - Jan-Dec 2009 period as the company would have wiped off all accumulated debts .If they declare a dividend of Rs.2 per 10 Re Share the yield at current prices would be 5% tax free ! Rerating would also happen .

d) Book value expected to cross Rs.30 by Dec 2009 - Cash per share expected to be near Rs.15 levels . 

e) Heidelberg can also be a surprise aggresor in the consolidation of the cement sector .

f) Zero debt company - Clean financials . Great debtor days and also capacity utilisation position.Good markets essentially the lucrative central indian belt . Smart management including ex Ambit's Ashish Guha and 3 distinguished germans on the board - all career heidelbergers - Dr.Bernd Scheifele,Dr Lorenz Nager and Dr Albert Scheuer.

Gloabally Richard Perry the reclusive but successful hedge fund manager recently recommended Heidelberg with the brief comment " The price of rock has never gone down " .  

My view is to consider buying at these levels for substantial appreciation to the believer . This company offers not just a sector play but also a play on a huge ( and efficiently silent ) turnaround story , an open offer / delisting play and a dividend rerating play . 

@SaneCounsel - Agree with you that lot of Mid cap Cement players are quoting at low multiples. 

Does anyone have data on last 10 yrs avg annual cement prices and corresponding capacity utilisation levels? Without knowing where we currently stand in the cycle it is difficult to say whether these companies are cheap or no. Great if someone can share that data

Also, with regards Heidelberg, their current capacity is 3m MT in total (See latest Annual Report) and not 1.8m

Last year's high PAT is because of tax loss carry fwds. Last quarter's EPS is close to 1.1 I think with full tax provision. When we strip off other income the EPS is Re1. Annualizing that gives an EPS of Rs.4 and and stripping off net cash of approx. Rs.300 crores, a PE of around 6x.

Let me know if I miss something. 

Edited by kunz1981 - 16/Nov/2009 at 5:45pm