HeidelbergCement India, formerly
known as Mysore Cement, is a midcap cement stock. Manufacturer of the “Mycem”
branded cement in the country, it has two cement plants and three grinding
facilities in Karnataka, MP, UP and Maharashtra. Following the stake sale by
the S. K. Birla group in 2006, it now belongs to a subsidiary of Danish cement
company Cementrum I.B.V, itself a wholly-owned subsidiary of HeidelbergCement
AG, one of the world's five largest cement entities.
In recent times, cement stocks
have been doing very well. On the operational front also cement companies are
seeing good activity. The demand scenario and their pricing power continue to
be good. Heidelberg Cement also came out with strong set of numbers on the back
of improved realizations and better cost control measures.
Heidelberg is on the verge of doubling
its capacity from current 3.08 million ton during the course of this financial
year. This capacity is in MP and UP, which service the fairly lucrative high
priced Central India regions. The impact of that doubling capacity is of course
the volume growth and a cost reduction but this is not yet reflected in the
current price. Given the government’s thrust on infrastructure and the start of
the festive season following the end of monsoon when the construction activity
starts picking up, there should be adequate demand for cement in the coming
months.
On the valuations side, @43, the
stock is trading at about 12.5 times estimated 2013 earnings. However, this is
likely to change significantly going ahead, given the above factors, making it
attractively valued.
Along with Orient Paper, which has already returned 40% in the last 7 months, another story which is well on its way and doing even better, is that of Heidelberg Cement, the German MNC cement major. With the cement story gaining ground, what with the monsoons ending and the government’s renewed focus on infra spending, this stock still has some way to go. While I did expect this, and cautious folks can certainly take some money off the table, considering the benign environment for cement and the pedigree of this company, there is still a case to hold on to this. In a span of 1 month this has gone up from 43, on 4-Sep-12, to 53, a return of nearly 23% in 1 month. If the conditions mentioned above play out as expected, this still has some more steam left.
ReplyDeleteThis is another one where the story has played out to script. It closed today at around 86 from 43 in Sep’ 12 and 53 in Oct ’12. From Sep’ 12 till date, this has returned nearly 39% compounded annualized (CAGR) and from Oct ’12, shown a CAGR of nearly 27%. What more can one ask for?
ReplyDeleteThough a relatively unknown MNC, this scrip still has a lot of potential, given Modi sarkar’s thrust on infrastructure spending. The MNC parent HeidelbergCement AG holds nearly 70% in the scrip and there is always a chance of de-listing happening as with any MNC with a significant holding. That would be a bonus.
Sell only of you need money. Else hold on for steady returns over the long term; last 2 years were a preview of what can happen in the next 2.