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23 December, 2014 06:16 IST
Anand Rathi`s value pick: HSIL
Source: IRIS | 25 Dec, 2012, 04.21PM
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Anand Rathi Share & Stock Brokers recommended HSIL as value pick. ``Buy the stock with closing price Rs 128 against expected value Rs 180 for duration of 12 months.``

Investment Thesis

> Company has diverse portfolio of products for different customer with various designs and price ranges. (Various categories, price ranges and competitors.)

> Flagship brands Hindware, Hindware Art, Hindware Italian collection, Benelave, EVOK, RAASI and AGI.

> Strong recall of the flagship brand Hindware enhances HSIL's leadership with 40% share in 60% organized sanitaryware market and advantageous location of container glass plants has helped achieve a 70- 75% market share in South India.

> Building products - ~93% of demand for sanitaryware products represents new demand and replacement demand represents ~7% in India. 74% is the retail segment and 26% is instiutional. It is majorly dominated in the South region (38%).

> Container Glass: On geographical front it is mainly dominated in South (52%) followed by West (25%). 

HSIL has the strongest distribution network of ~1,550 dealers and 14,000 retailers in the sanitaryware market spreading across India. It continues with strategy of strengthening distribution network in tier II and III towns having population up to 75000. To meet growing demand it continues to invest in manufacturing facilities as well. It plans to add 215 outlets in next 2 years FY13 and FY14 that is generally they would like to grow their distribution by 8-10% every year.

Both the divisions of the company, Sanitary ware and the Faucetware have good expansion plans lined up.  

Sanitaryware: The segment has acquired a part of Havells. The brown field expansion of 7 lacs pieces at Sanitaryware plant in Bibinagar in Andhra Pradesh was completed and started production in November 2011. The Gujarat plant is going late they have appointed consultant and the work should start in next 3-4 months and will take another 18-20 months to start.

Faucetware: In this segment capacity of faucet plant at Bhiwadi, Rajasthan was increased from 3 lac pieces  to 5 lacs pieces in August 2011. The brown field expansion of 475 TPD (furnace) at container glass plant in Bhongir has commenced commercial production with effect from May 29, 2012. Full capacity will be available in next 10-12 months. Further, the work on the greenfield faucet plant at Bhiwadi, Rajasthan is in progress. 

"The management does expect situation to improve going forward and does expect top line growth of 24-25% in both the segments. Though the cost pressure are still visible but with capacity expansion in line and increasing demand and diversifying in the Tier III cities as well will help the company to achieve its target. Going forward the company has no further capex plans for now as already they have their expansion plans in progress. They are also amidst of 3-4 new product line to be imported for trading of products," said said A K Prabhakar.  

"On valuations front PE and EV/EBITDA for the company is trading close to its 5 year average. Considering the outlook for the company at CMP the company trades at 7.7x and 5.4x its FY13 & FY14 earnings respectively. We see a price target of 180 for next one year," he added.

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HSIL Limited   (Q,N,C,F)*

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