Heidelberg Cement India: Topline Grows, Profits Collide For Q1CY13

Heidelberg Cement India (HCIL), which has primary interests in manufacturing of portland cement, posted its result for the quarter ended March CY13, wherein its income from operations showed a growth of 29% (to Rs 369 crore in Q1CY13 from Rs 285.49 crore in Q1CY12). This growth was seen mainly due to an increase in sales of cement volume, followed by an increase in sales of slag and clinker. 

Sales increased as a result of increased manufacturing capacity by the company. The company’s other operating income, which it raises by selling scrap products, declined in this period to Rs 1.12 crore against Rs 2.2 crore in the corresponding quarter of CY12.

However, due to a rise in power and fuel costs and a hike in raw material prices (such as limestone, pozzolana, gypsum etc.), the total expenses increased by 28% to Rs 333 crore from the previous year’s corresponding quarter. The other expenses like freight charges and selling expenses have also lead to the increase in overall expenses.

In spite of the increase in HCIL's operating expenses, the company has managed to post a 40.5% EBITDA growth, because of the increase in volume sales of cement. Its EBITDA grew to Rs 37.41 in Q1CY13. However, the heavy increase in finance expenses (583% to Rs 13.72 crore) affected the bottomline of HCIL. The company’s net profit declined by almost 81% to just Rs 2.2 crore in the first quarter of CY13 against Rs 11.43 crore in the same quarter last year.

These factors resulted in the EBITDA margin growing by 85 basis points to 10.10%. The net margin fell by 338 basis points to 0.59% in the quarter ended March CY13 against the same period in the last year.

Further, the company’s share price reacted negatively after the announcement of the March quarter result and is trading down by 1.15% below its previous closing. At present, HCIL's share price is trading at a trailing 12-month PE of 40.6x. The revenue grew in the said period but both the bottomline and margins remained affected in this period. As HCIL has posted an unsatisfactory performance, we recommend readers not to opt for this counter as of now.