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HSIL Ltd Research Report - 27th May 2016

Miscellaneous | Published on May 27th 2016


HSIL’s reported standalone numbers for 4QFY2016 have come in mostly in-line with our estimates. The top-line grew by 6.6% yoy to Rs596cr. The raw material cost declined by 77bp yoy to 39.9% of sales while employee and other expenses increased by 139bp yoy and 168bp yoy to 11.1% and 32.4% of sales, respectively. As a result, the EBITDA margin declined by 230bp yoy to 16.6%. Interest cost was lower by 49.9% yoy while tax rate was higher at 38.5% vs 30.8% in 4QFY2015. Consequently, the bottom-line de-grew by 4.3% yoy to Rs38cr. Building products’ performance under pressure; but long term prospects intact: The quarterly numbers for the core Building products division were under pressure reflecting overall sluggishness in the new construction market. However, the Faucets division continued its strong performance which will likely drive the revenue growth in the near term. On the profitability front, the company has made incremental investments in setting up its sales channel for the Consumer products division and increased its advertisement spend by roping in some Bollywood celebrities to endorse products, coupled with initial losses in the consumer products business which impacted segmental margins during the quarter. However, the Management has indicated that excluding the cost for development of sales channel, the EBIT margin for the core business is stable. We believe that the margin for the segment should improve gradually once the Consumer products division’s sales pick up. In the longer run, we expect HSIL to leverage on its strong position/brand in the sanitaryware industry to capitalize on improvement in the real-estate sector. Packaging products’ profitability improves: Although the segment has posted muted growth numbers on the top-line front, the profitability of the segment has improved on account of a better product mix in terms of revenue composition, better cost management, and due to decline in fuel prices. Going forward, the Management has acknowledged the threat of further prohibition on liquor by state governments but expects the damage to be somewhat offset by rising beer consumption. Outlook and valuation: We has revised downwards our estimates for FY2017 for both Building and Packaging products segments but expect FY2018E to be better on account of contribution from newer businesses as well as pick up in volumes. Further, favorable pricing for the core Building products business should also aid the company in delivering better numbers. At the current market price, the stock trades at 15.0x its FY2018E earnings. We have an Accumulate rating on the stock with a target price of Rs310.

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CMP 290
Target Price 310
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others19.0
Grand Total100.0

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