Initiating coverage | Ceramic Products
July 18, 2013
Hindustan Sanitaryware Industries
BUY
CMP
`87
Traction in sanitaryware industry to be key driver
Target Price
`117
Hindustan Sanitaryware Industries Ltd (HSIL) is the largest manufacturer of
Investment Period
12 Months
sanitaryware (40% market share) and the second largest manufacturer
(22%
market share) of glass containers in India. With increased awareness for
Stock Info
improving sanitation coverage coupled with current low penetration and changing
Sector
Ceramic Products
lifestyles of people, the sanitaryware industry is poised to witness steady traction.
Market Cap (` cr)
574
HSIL, with its recently expanded capacity in sanitaryware and strong brand recall is
Net Debt
840
well placed to benefit from the robust growth expected in the industry. Moreover,
no further expansion in the low-RoCE glassware division is likely to improve the
Beta
1.0
return ratios going forward. We initiate coverage on HSIL and recommend Buy
52 Week High / Low
154 / 83
with a target price of `117 valuing the business on SOTP basis for FY2015E.
Avg. Daily Volume
70,965
Face Value (`)
2
Investment rationale
BSE Sensex
19,396
Extended capacity to compliment rising demand: Due to increasing awareness
Nifty
6,038
about improving sanitation, low penetration and changing lifestyles of people, the
Reuters Code
HSNT.BO
sanitaryware industry is witnessing traction. HSIL’s greenfield project will expand its
sanitaryware capacity by 1.2mp (million pieces) and faucetware capacity by 2.5mp
Bloomberg Code
HSI.IN
by FY2015E, which in turn will help the company to cater to the rising demand in
the market.
Shareholding Pattern (%)
Leading position with positive brand recall to provide edge: HSIL holds a leading
Promoters
51.6
position in the sanitaryware industry (organized segment) with ~40% market
MF / Banks / Indian Fls
12.3
share. Well-known brands like QUEO Hindware Art, Hindware Italian, Hindware,
FII / NRIs / OCBs
19.2
Raasi, and Benevalve, enable HSIL to cater to varied segments of the market.
Indian Public / Others
17.0
Glassware division - unlikely to be a drag going forward: The company’s
glassware division which has constituted ~60% of the capital employed has
Abs.(%)
3m 1yr 3yr
generated RoCE in the range of 6-10% historically. On the other hand, the
Sensex
(0.5)
17.1
12.3
sanitaryware division has a track record of RoCE above 18%. Going ahead, we
HSIL
(19.0)
(38.5)
(23.8)
expect no further investments in the low-RoCE glassware division which will aid in
improving the overall return ratios.
Outlook and valuation: We expect HSIL to register a CAGR of 15.8% in its top-line
over FY2013-15E to `2,363 on the back of robust growth in the sanitaryware
industry coupled with stable growth in the glass industry. The EBITDA and net profit
are expected to post a CAGR of 16.3% and 14.8% respectively over FY2013-15E.
Valuing the business on SOTP basis, assigning the glassware division a target
EV/invested capital of 0.5x and assigning the sanitaryware division a target PE of
7x, we arrive at an estimated market capitalization of `770cr in FY2015E which
provides 34.2% upside from the current levels. Hence, we initiate coverage on
HSIL and recommend Buy with a target price of `117 valuing the business on
SOTP basis for FY2015E.
Key financials
Net sales OPM
PAT
EPS ROIC
P/E
P/BV EV/ EBITDA
(` cr)
(%)
(` cr)
(`)
(%)
(x)
(x)
(x)
FY2014E
2,042
14.6
81
12.3
9.0
7.1
0.5
5.0
Twinkle Gosar
Tel: 022- 3935 7800 Ext: 6848
FY2015E
2,363
14.8
109
16.5
10.4
5.3
0.5
4.4
[email protected]
Source: Company, Angel Research
Please refer to important disclosures at the end of this report
1
HSIL | Initiating Coverage
Investment rationale
Changing lifestyles boost prospects of sanitaryware industry
Owing to changing lifestyles of people, the role of sanitary products has advanced
from being a necessity to a status statement - thus increasing the proportion of
spending on these basic amenities. Growth in disposable incomes of people has
been a vital factor supporting the improving lifestyles of people.
India’s sanitation coverage is only ~40%, which is among the lowest in the world,
thus increasing the risk of health hazards and epidemics. With increasing
awareness towards improving public health, the sanitaryware segment is expected
to witness high attention.
In addition, with requirement of personal space and privacy gaining an inevitable
place, nuclear family structure is gaining prominence, thereby increasing demand
for sanitary products.
Leading position with strong brand recall to provide edge
HSIL holds a leading position in the sanitaryware industry (organized segment) with
a market share of ~40%. The company caters to various segments of the market
through its well known sanitaryware brands like QUEO (for super premium
segment), Hindware Art and Hindware Italian (for the premium segment),
Hindware (for medium/ standard segment) and Raasi and Benevalve (for the low-
end segment).
Enhanced capacity to compliment rising demand
HSIL has undertaken brownfield expansion in FY2012 for its sanitaryware division
owing to higher capacity utilisation of ~110% (inclusive of traded goods). The
company is well placed to cater to rising demand in the market with its increased
capacities in the sanitaryware (79% ie 0.7mp) and faucetware (capacity increased
10-fold, ie by 0.2mp) segments.
HSIL has greenfield expansion plans for sanitaryware (1.2mp) and faucetware
(2.5mp) in Gujarat and Rajasthan respectively, slated to be operational post
FY2014. Outsourcing the manufacture of faucets until recent past had limited
HSIL’s scope in increasing sales volumes. Hence, enhanced in-house production of
faucets now is expected to ensure consistent supply and enable the company in
meeting rising market demand going forward.
Exhibit 1: Facility and capacity details
Division
Facility
Brown-Field
Total Capacity
Green-Field
Sanitaryware
Bahadurgarh (Haryana)
1.5 mp
1.2 mp- Gujarat
Bibinagar (Andhra Pradesh)
79% (0.7 mp)
2.0 mp
Faucetware
Bhiwadi (Rajshthan)
10x (0.2 mp)
0.5 mp
2.5 mp
Source: Company
July 18, 2013
2
HSIL | Initiating Coverage
Glassware division- unlikely to be a drag going forward
The sanitaryware and glassware segments operate on different business dynamics
and do not have any synergies. Historically, the glassware division which has
constituted ~60% of the capital employed, has generated RoCE in the range of 6-
10%. On the other hand, the sanitaryware division has generated relatively much
higher RoCE (18-27%). We expect no further expansion plans in the low-RoCE
glassware division and this will likely improve the return ratios.
Considering the vast difference in the profitabilities of the two divisions and lack of
any synergy between them, we believe the two divisions will be separated sooner
or later which will provide fair valuations to both the entities.
Exhibit 2: RoCE and constitution in capital employed
Particulars (%)
FY2009
FY2010
FY2011
FY2012
FY2013
Glassware Division
Return on capital employed
8.7
8.8
14.8
9.7
5.9
Constitution of capital employed
67.3
52.6
55.5
63.9
61.7
Sanitaryware Division
Return on capital employed
27.3
29.2
24.2
19.7
18.2
Constitution of capital employed
26.0
38.7
43.5
35.6
37.9
Source: Company, Angel Research
At a macro level, the glassware industry is facing over-capacity. This has reduced
pricing power for players in the industry, thus leading to lower profitabilities for
them. Consequently, small players are exiting due to cost ineffectiveness. We
believe this will lead to equilibrium in the industry in the near future.
The production capacity of the glassware division has been expanded by 42%, ie
from 475TPD (tonnes per day) in FY2012 to 1,650 TPD now, thereby enabling the
company to avail to economies of scale. HSIL has no further investment plans in
this segment. The stable existing demand and the soon-approaching equilibrium in
the glassware industry will facilitate HSIL to operate at optimal levels.
July 18, 2013
3
HSIL | Initiating Coverage
Financials
Exhibit 3: Key assumptions
Key Assumptions
FY2012
FY2013E
FY2014E
FY2015E
Net sales (` cr)
1,446
1,762
2,042
2,363
Sanitaryware Sales (` cr)
607
747
895
1,064
Volume Growth (%)
9.6
6.1
8.0
6.7
Value Growth (%)
13.0
16.0
11.0
11.5
Glassware Sales (` cr)
710
826
920
1,031
Volume Growth (%)
17.8
(10.7)
8.7
7.1
Value Growth (%)
11.9
30.4
2.5
4.5
Others Sales (` cr)
129
189
227
268
Value Growth (%)
173.8
46.5
20.0
18.0
Source: Company, Angel Research
Top-line to post 15.8% CAGR over FY2013-15E
Traction in the sanitaryware industry coupled with recent expansion in capacity are
expected to drive HSIL’s top-line at a CAGR of 15.8% over FY2013-15E. The
company’s top-line is estimated to be at `2,363cr in FY2015E.
Exhibit 4: Net Sales on an upward trend
Exhibit 5: Segmental sales trend
2,500
15.7
40
1,200
33.5
15.9
35
1,000
2,000
36.2
20.4
30
800
30.6
25
1,500
20
600
1,000
15
18.2
400
10
500
200
5
-
0
-
FY2009
FY2010
FY2011
FY2012
FY2013 FY2014E FY2015E
FY2009
FY2010
FY2011
FY2012
FY2013E FY2014E FY2015E
Net sales (LHS)
Net sales growth (RHS)
Sanitaryware division
Glassware division
Others
Source: Company, Angel Research
Source: Company, Angel Research
The contribution of the sanitaryware division to total revenues is expected to
increase from 42% in FY2013 to 45% in FY2015E due to increased capacities
coupled with robust growth in demand. The glassware division’s contribution is
subsequently expected to decline from 47% to 44% in FY2015E.
EBITDA to post a 16.3% CAGR over FY2013-15E
On the back of robust top-line growth, the company’s EBITDA is expected to rise
from `259cr in FY2013 to `350cr in FY2015E. The EBITDA margin is expected to
remain stable at ~14.7% in FY2014E and FY2015E. Increase in total raw material
cost is expected to be offset by lower other manufacturing expenses (considering
the economies of scale once the new capacity is operational at optimal level).
July 18, 2013
4
HSIL | Initiating Coverage
Exhibit 6: EBITDA margins to normalise
Exhibit 7: Segmental EBIT margins
400
20
25.0
14.8
21.1
350
20.1
14.7
19.4
19.0
14.6
18.2
16
20.0
300
17.1
16.9
16.5
14.9
14.8
250
13.9
12
15.0
200
15.0
15.3
8
10.0
150
10.7
11.1
100
8.6
4
5.0
8.0
8.0
50
85
133
208
250
259
299
350
0
0
0.0
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014E FY2015E
FY2009
FY2010
FY2011
FY2012
FY2013E FY2014E FY2015E
EBITDA (LHS)
EBITDA margin (RHS)
Sanitaryware division
Glassware division
Source: Company, Angel Research
Source: Company, Angel Research
The EBIT margin of the sanitaryware division, at ~14.7% for FY2014E and
FY2015E, is relatively higher than that of the glassware division at 8.0% for the
same period.
Net profit to post a 14.8% CAGR over FY2013-15E
Decent top-line growth and operational efficiency are to aid reported net profit to
post a CAGR of 15.6% from `82cr in FY2013 to `109cr in FY2015E. After
adjusting for extraordinary income of `24cr in FY2013E, the adjusted PAT is
expected to grow at a CAGR of 35.9% over FY2013-15E.
The net profit margin (adjusted) is expected to rise from 3.3% in FY2013 to 4.6% in
FY2015E. The increase is mainly due to the adjustment of extraordinary income in
FY2013 and reduced interest cost in FY2015E, owing to repayments during the
year. HSIL’s debt-equity ratio is comfortably placed at 0.8x FY2015E, keeping
interest cost at manageable levels.
Exhibit 8: Reduced interest expense to boost bottom-line
120
8
4.6
6.4
7
100
7.2
4.0
6
80
5
3.3
60
4
3
40
2
20
1
79
94
59
81
109
0
0
FY2011
FY2012
FY2013
FY2014E
FY2015E
PAT (LHS)
PAT margin (RHS)
Source: Company, Angel Research
July 18, 2013
5
HSIL | Initiating Coverage
Outlook and Valuation
We have allocated the entire debt to the glassware division, with it being a capital
intensive business. With the target EV/Invested capital at 0.5x (lower than the peer
Hindustan National Glass trading which is currently trading at 1.0x EV/Invested
capital), the value for the glassware division amounts to `119cr.
For the sanitaryware division, based on a target PE of 7x (still lower than its peer -
Cera Sanitaryware’s target PE of 12.0x for FY2015E), we arrive at a value of
`652cr for this division. Thus, on a SOTP basis, the expected market capitalization
of the overall business comes in at `770cr for FY2015E, which provides 34.2%
upside from the current levels.
Exhibit 9: SOTP Valuation
Particulars (` cr)
FY2015E
Glassware division
Debt
1,008
Capital employed
1,245
Target EV/Invested capital
0.5
Expected MCAP (A)
119
Sanitaryware division
EBIT
133
PAT
93
Cera's target PE
12.0
Target PE
7.0
Expected MCAP (B)
652
Expected Total MCAP (A+B)
770
Current MCAP
574
Upside
34.2%
Source: Angel Research
Exhibit 10: One-year forward PE
275
250
225
200
175
150
125
100
75
50
25
0
Price
4 x
9 x
14 x
19 x
Source: Company, Angel Research
July 18, 2013
6
HSIL | Initiating Coverage
HSIL’s top-line is expected to grow at a CAGR of 15.8% over FY2013-15E to
`2,363cr in FY2015E on the back of robust growth in the sanitaryware industry
coupled with stable growth in the glass industry. Subsequently, the EBITDA and net
profit are to grow at 16.3% and 14.8% CAGR over the same period. The EBITDA
margin is expected to remain stable at ~14.7% in FY2014E and FY2015E. The
stock is trading at an attractive PE multiple of 5.2x for FY2015E earnings
compared to its peer Cera Sanitaryware’s PE multiple of 10.0x. Hence, we initiate
coverage on HSIL and recommend Buy with a target price of `117, based on
SOTP valuation for FY2015E earnings.
Competition
HSIL is the market leader in sanitaryware products with ~40% market share,
followed by Roca Parryware (~26% share) and Cera Sanitaryware (~22% share).
In the faucetware segment, Jaguar is the leader with a market share of 45-50%.
In the container glass business, HSIL has a 22% market share, after HNG’s leading
market share of ~50%.
Exhibit 11: Sanitaryware division’s peer comparison
Sales
EBIT Margin
(` cr)
(%)
HSIL
FY2014E
897
14.8
FY2015E
1,065
14.8
CSL
FY2014E
631
12.5
FY2015E
797
11.7
Source: Angel Research
Exhibit 12: Peer comparison
Sales
OPM
PAT EPS ROE
P/E P/BV
EV/EBITDA
(` cr)
(%)
(` cr)
(`)
(%)
(x)
(x)
(x)
HSIL
FY2014E
2,042
14.6
81 12.3
9.0
7.1
0.5
5.0
FY2015E
2,363
14.8
109 16.5
10.4
5.3
0.5
4.4
CSL
FY2014E
631
14.5
54 42.6
26.5
11.9
2.8
7.0
FY2015E
797
13.7
65 51.1
25.3
10.0
2.3
5.9
Source: Company, Angel Research
July 18, 2013
7
HSIL | Initiating Coverage
Risk factors
„ Unorganized sanitaryware manufacturers pose a threat since they enjoy the
benefit of nil excise duty and sales tax. Hence, their products are ~70%
cheaper than the organized sector’s products. The increase in excise duty from
8% to 12% has made products from organized players more expensive.
„ Low-cost imports from China.
„ Any drastic changes in government policy related to housing construction and
imports among others, is bound to impact the industry.
„ Raw material cost- Any increase in the price of brass, the main raw material
for faucets, may dent EBITDA margin. Rise in the cost of raw materials such as
soda ash and that of power & fuel could dent operational margins.
„ Any slowdown in the housing segment will cease growth, as in India the major
demand for sanitaryware is fresh demand.
„ HSIL has significant amount of debt on its books comprising ECB worth
US$111mn. Rupee depreciation would increase the interest cost and
repayment quantum of the loan and hence will negatively affect the bottom-
line of the company.
Exhibit 13: Sensitivity analysis
Change in Rupee (%)
EBITDA margin (%)
Adj PAT (` cr)
(5)
15.3
119
(3)
15.2
117
0
15.0
114
3
14.9
111
5
14.8
109
10
14.6
104
Source: Angel Research
July 18, 2013
8
HSIL | Initiating Coverage
The company
HSIL is a leading sanitaryware manufacturer in India (40% market share) and the
second largest manufacturer of container glass (22% market share). The company
operates through its two divisions- 1) sanitaryware division (45% of total revenue)
and 2) glassware division (45%).
Exhibit 14: Segmental details
HSIL
Building Products
Container Glass
Others (10%)
(45%)
(45%)
Vent- Extractor fans
Sanitaryware (69%)
EVOK stores
Faucetware (19%)
Garden Polymers-
Ohers (12%)
PET bottles
Source: Company
Exhibit 15: Sanitary ware’s segmental contribution
Exhibit 16: Industrial contribution in Glassware division
Food
12%
Super
Pharma
Standard
Premium-
12%
basic-
Queo,
Hindware
Premium-
46%
Hindware
Italian,
Hindware Art
52%
Liquor
58%
Beverages
18%
Low end- Raasi
2%
Source: Company
Source: Company
Moreover, the clientele base for both the segments is huge, diversified and
constitutes known and elite organizations.
Exhibit 17: Strong clientele
Building Products Segment
Container Glass Segment
The 3C Company, Ansal Group, DLF,
Abbott, Apex, Pfizer
Emaar MGF, Godrej Properties, Indiabulls,
GSK, Dr Reddy, Reckitt Beckinser
Jaypee, Larsen & Toubro, M2K,
HUL, United Spirits, United Breweries
Mahindra Lifespace, Mariott, NBCC
Pepsico India, Nestle India
Oberoi, Parsvnath, Tata Projects etc
Carlsberg India, Radico Khaitan
Source: Company
July 18, 2013
9
HSIL | Initiating Coverage
Other factors
Product launches: HSIL is putting in continuous efforts to innovate and come up
with new product launches in both the divisions. It has recently launched 25 new
products in the sanitaryware division, 2 series of Benelave faucets, 6 kitchen
appliances and 2 varieties of tiles.
Strong distribution network: HSIL is well placed to benefit from its strong
distribution network of 15,000 retailers, above 2,000 dealers, above
1,600
institutional clients (1,235 for Sanitaryware division and 490 for Glassware
division), 25 Hindware Boutiques, 458 Hindware shop-in-shop, and 18 service
centres across India.
Strategic associations: HSIL has allied with ‘Vent’ for extractor fans, and with
‘QUEO’, a UK based subsidiary of Barwood, for sanitaryware products.
HSIL has also acquired 100% equity in M/s Garden Polymers Pvt Ltd for `87cr in
FY2012. The acquired company is a leading supplier to premier customers in the
liquor, pharma and FMCG industries. It is engaged in the business of
manufacturing PET bottles, caps and closures, having plants at Dharwad
(Karnataka) and Selaqui (Uttarakhand).
The acquisition is expected to provide synergy to the container glass business since
both the companies cater to similar set of customers, thereby strengthening HSIL’s
position in the packaging industry.
July 18, 2013
10
HSIL | Initiating Coverage
Sanitaryware industry
The Indian sanitaryware industry, estimated to be at `1,500cr-1,800cr, contributes
to ~8% of the world’s sanitaryware production. The industry has a sustained
growth rate of ~15% per annum due to increasing housing demand, purchasing
power and consciousness towards hygiene. However, the premium segment has
registered a growth rate of ~20-25%, indicating favorable transition in the Indian
sanitaryware industry. India is emerging as the second largest sanitaryware market
in the world and is expected to witness robust growth owing to the following:
Low penetration in Indian sanitation coverage
Considering India’s dense population, its sanitation coverage is only ~40%, which
is considered to be among the lowest in the world, thus increasing the risk of
health hazards and epidemics. The concept of making a clean and hygienic toilet
is growing rapidly in rural areas, where a toilet did not even exist a few years ago.
With increasing awareness towards improving public health, the sanitaryware
segment is expected to witness high attention.
Changing lifestyle and rising awareness about health and fitness
Owing to the changing lifestyle of people, the role of sanitary products has
advanced from being a necessity to a status statement - thus impacting the
spending structure of individuals and increasing the proportion of spending on
these basic amenities. Growth in per capita income, leading to a simultaneous
increase in the disposable incomes of people, has been a vital factor supporting
the changing lifestyle of people.
In addition, with requirement of personal space and privacy gaining an inevitable
place, nuclear family structure is gaining prominence, thereby increasing demand
for sanitary products. This trend is expected to continue, thus providing sustainable
demand visibility for sanitaryware products.
Lastly, with aesthetics gaining significant importance, HSIL’s initiatives to provide
better designs and quality are bound to perk up its top-line.
Immense fresh demand on back of construction sector’s growth
In India, the construction sector is growing at a robust pace because of rapid
urbanization. For the sanitaryware industry,
~93% of the demand is fresh
demand. Only 7% is derived from the replacement segment, which arises out of
renovations and refurnishing. In developed economies, 20% is fresh demand,
while 80% demand is from the replacement segment. Considering the above facts,
the Indian construction sector is bound to contribute a strong growth for the
sanitaryware industry and eventually for HSIL.
Wide exports horizon
Indian sanitaryware products are very competitive because of their low production
costs and hence, exports from India are increasing with every passing day. Seven
foreign brands including H&R Johnson, Roca and Kohler have established their
operations in India.
July 18, 2013
11
HSIL | Initiating Coverage
Container glass industry
The Indian packaging industry is currently worth US$550bn, of which glass
containers constitute 12% with a market size of ~`4,000cr. The glass industry is
currently growing at a CAGR of 11% and is expected to reach US$21.6bn by
2015.
Exhibit 18: Packaging industry composition
Metal Cans
Others
8%
Glass
17%
12%
Caps and
Closures
6%
Printed Cartons
17%
Flexible
Packaging
22%
Rigid Plastics
18%
Source: Company
Low per capita consumption: The per capita consumption of glass is as low as
1.5Kg in India, compared to 89.0Kg in South Korea, 63.9Kg in France, 50.3Kg in
Spain, 27.5Kg in the US and UK, 10.2Kg in Japan and 5.9Kg in China. This
suggests scope for per capita consumption of glass to increase in the domestic
market which would be a positive for HSIL and other players in the industry.
Strong entry barriers: The glass industry is quite capital intensive, thereby reducing
the threat from new entrants. Moreover, the industry had been gradually
advancing on the path of automation, thereon further increasing the cost of
developing the facility. Considering the above factors, glass industry displays
strong entry barriers, thereby providing a shield to the existing big players.
Over-capacity: The glass industry as of now is already witnessing over-capacity.
Recently many small glass plants (with furnace capacity below 400TPD) have been
shutting down since their production cost has been relatively higher than
manufacturers with large furnace capacities. However, the over-capacity in the
industry is to soon reach equilibrium with the recent and ongoing shutdowns.
Growth in user industries: The container glass industry serves varied user industries
like liquor, pharma, food and beverages, etc. Growth in the container glass
industry is expected to be driven by rising demand from the user industries with - a)
the liquor industry growing at 14-15% b) Pharma industry growing at 15-17% and
c) Food and Beverages industry growing at 9%.
July 18, 2013
12
HSIL | Initiating Coverage
Profit and loss statement
Y/E March (` cr)
FY2011
FY2012
FY2013
FY2014E
FY2015E
Gross sales
1,170
1,567
1,903
2,206
2,552
Less: Excise duty
74
104
141
163
189
Net Sales
1,096
1,463
1,762
2,042
2,363
Total operating income
1,096
1,463
1,762
2,042
2,363
% chg
36.2
33.5
20.4
15.9
15.7
Net Raw Material
328
474
543
628
728
% chg
37.9
44.6
14.5
15.6
16.0
Power & Fuel Cost
201
277
404
468
541
% chg
20.5
37.6
45.9
15.9
15.7
Other Mfg costs
98
119
129
150
173
% chg
28.8
21.4
8.6
15.9
15.7
Personnel
123
159
182
211
244
% chg
51.5
29.1
14.6
15.9
15.7
Other
138
184
245
287
326
% chg
10.3
33.5
32.9
17.1
13.6
Total Expenditure
888
1,213
1,503
1,743
2,012
EBITDA
208
250
259
299
350
% chg
56.5
20.3
3.7
15.4
17.2
(% of Net Sales)
19.0
17.1
14.7
14.6
14.8
Depreciation & Amort.
55
65
93
112
122
EBIT
152
185
166
187
229
% chg
84.8
21.4
(10.3)
12.9
22.1
(% of Net Sales)
13.9
12.6
9.4
9.2
9.7
Interest & other charges
36
42
69
71
72
Other Income
4
5
4
6
7
(% of Net Sales)
0.3
0.3
0.2
0.3
0.3
PBT (reported)
119
148
124
122
163
Tax
40
54
42
41
55
(% of PBT)
33.6
36.7
33.5
33.5
33.5
PAT (reported)
79
94
82
81
109
Extraordinary Exp./(Inc.)
0
-
(24)
-
-
ADJ. PAT
79
94
59
81
109
% chg
81.5
18.4
(37.3)
38.1
33.8
(% of Net Sales)
7.2
6.4
3.3
4.0
4.6
Basic EPS (`)
12.0
14.2
8.9
12.3
16.5
Fully Diluted EPS (`)
12.0
14.2
8.9
12.3
16.5
% chg
81.5
18.4
(37.3)
38.1
33.8
July 18, 2013
13
HSIL | Initiating Coverage
Balance sheet
Y/E March (` cr)
FY2011
FY2012
FY2013
FY2014E FY2015E
SOURCES OF FUNDS
Equity Share Capital
13
13
13
13
13
Reserves & Surplus
659
954
1,013
1,064
1,142
Shareholders’ Funds
672
967
1,026
1,077
1,155
Total Loans
345
791
933
976
1,008
Long term Provision
3
3
4
4
4
Other long term liabilities
12
13
14
14
14
Net Deferred Tax Liability
73
78
114
114
114
Total Liabilities
1,105
1,853
2,092
2,185
2,296
APPLICATION OF FUNDS
Gross Block
1,098
1,548
1,953
2,192
2,388
Less: Acc. Depreciation
286
351
444
556
678
Net Block
808
1,139
1,509
1,636
1,711
Capital Work-in-Progress
30
333
-
-
-
Lease adjustment
-
-
-
-
-
Goodwill
3
58
58
46
37
Investments
36
11
11
11
11
Long term loans and advances
38
62
53
53
53
Other non-current assets
6
7
2
2
2
Current Assets
454
667
937
991
1,146
Cash
21
73
82
55
44
Loans & Advances
46
43
58
61
71
Inventory
222
306
407
465
557
Debtor
164
244
389
408
473
Other current assets
0
1
1
1
1
Current liabilities
270
425
478
554
664
Net Current Assets
184
242
459
437
482
Misc. Exp. not written off
-
-
-
-
-
Total Assets
1,105
1,853
2,092
2,185
2,296
July 18, 2013
14
HSIL | Initiating Coverage
Cash flow statement
Y/E March (` cr)
FY2011
FY2012
FY2013 FY2014E FY2015E
Profit Before Tax
119
148
124
122
163
Depreciation
55
65
93
112
122
Other Income
(4)
(5)
(4)
(6)
(7)
Change in WC
39
(6)
(232)
(4)
(56)
Direct taxes paid
(40)
(54)
(42)
(41)
(55)
Cash Flow from Operations
170
147
(60)
183
167
(Inc.)/ Dec. in Fixed Assets
(89)
(755)
(67)
(227)
(187)
(Inc.)/Dec. In Investments
(62)
1
9
0
0
Other Income
4
5
4
6
7
Cash Flow from Investing
(148)
(749)
(54)
(221)
(180)
Issue of Equity/Preference
2
0
0
0
0
Inc./(Dec.) in Debt
(114)
452
180
42
32
Dividend Paid (Incl. Tax)
(17)
(20)
0
(31)
(31)
Others
102
222
(58)
-
-
Cash Flow from Financing
(26)
654
123
12
2
Inc./(Dec.) In Cash
(3)
52
9
(27)
(11)
Opening Cash balance
25
21
73
82
55
Closing cash balance
21
73
82
55
44
July 18, 2013
15
HSIL | Initiating Coverage
Key ratios
Y/E March
FY2011
FY2012
FY2013
FY2014E
FY2015E
Valuation Ratio (x)
P/E (on FDEPS)
7.2
6.1
9.8
7.1
5.3
P/CEPS
4.3
3.6
3.8
3.0
2.5
P/BV
0.9
0.6
0.6
0.5
0.5
Dividend yield (%)
2.9
3.5
3.5
5.3
5.3
EV/Net sales
0.8
0.9
0.8
0.7
0.6
EV/EBITDA
4.2
5.1
5.5
5.0
4.4
EV / Total Assets
0.8
0.7
0.7
0.7
0.7
Per Share Data (`)
EPS (Basic)
12.0
14.2
8.9
12.3
16.5
EPS (fully diluted)
12.0
14.2
8.9
12.3
16.5
Cash EPS
20.4
24.0
23.0
29.2
34.9
DPS
2.5
3.0
4.0
4.0
4.0
Book Value
101.7
146.5
155.4
163.0
174.9
DuPont Analysis
EBIT margin
13.9
12.6
9.4
9.2
9.7
Tax retention ratio
0.7
0.6
0.7
0.7
0.7
Asset turnover (x)
1.1
1.1
0.9
1.0
1.1
ROIC (Post-tax)
10.0
8.5
5.7
6.0
6.9
Cost of Debt (Post Tax)
7.0
3.4
4.9
4.9
4.8
Leverage (x)
0.4
0.7
0.8
0.8
0.8
Operating ROE
11.2
12.3
6.3
7.0
8.7
Returns (%)
ROCE (Pre-tax)
13.8
10.0
7.9
8.6
10.0
Angel ROIC (Pre-tax)
15.0
13.4
8.5
9.0
10.4
ROE
11.8
9.7
5.7
7.5
9.4
Turnover ratios (x)
Asset TO (Gross Block)
1.0
0.9
0.9
0.9
1.0
Inventory / Net sales (days)
64
66
49
47
47
Receivables (days)
51
53
53
53
53
Payables (days)
91
93
93
93
93
WC cycle (ex-cash) (days)
61
61
78
68
68
Solvency ratios (x)
Net debt to Equity
0.4
0.7
0.8
0.8
0.8
Net debt to EBITDA
1.4
2.8
3.2
3.0
2.7
Int. Coverage (EBIT/ Int.)
4.2
4.4
2.4
2.6
3.2
July 18, 2013
16
HSIL | Initiating Coverage
Advisory Team Tel: (91) (022) 39500777
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking
or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or
in the past.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
HSIL
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
Reduce (-5% to -15%)
Sell (< -15%)
July 18, 2013
17
HSIL | Initiating Coverage
6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team
Fundamental:
Sarabjit Kour Nangra
VP-Research, Pharmaceutical
[email protected]
Vaibhav Agrawal
VP-Research, Banking
[email protected]
Bhavesh Chauhan
Sr. Analyst (Metals & Mining)
[email protected]
Viral Shah
Sr. Analyst (Infrastructure)
[email protected]
Sharan Lillaney
Analyst (Mid-cap)
[email protected]
V Srinivasan
Analyst (Cement, FMCG)
[email protected]
Yaresh Kothari
Analyst (Automobile)
[email protected]
Ankita Somani
Analyst (IT, Telecom)
[email protected]
Sourabh Taparia
Analyst (Banking)
[email protected]
Bhupali Gursale
Economist
[email protected]
Vinay Rachh
Research Associate
[email protected]
Amit Patil
Research Associate
[email protected]
Twinkle Gosar
Research Associate
[email protected]
Tejashwini Kumari
Research Associate
[email protected]
Akshay Narang
Research Associate
[email protected]
Harshal Patkar
Research Associate
[email protected]
Technicals:
Shardul Kulkarni
Sr. Technical Analyst
[email protected]
Sameet Chavan
Technical Analyst
[email protected]
Sacchitanand Uttekar
Technical Analyst
[email protected]
Derivatives:
Siddarth Bhamre
Head - Derivatives
[email protected]
Institutional Sales Team:
Mayuresh Joshi
VP - Institutional Sales
[email protected]
Meenakshi Chavan
Dealer
[email protected]
Gaurang Tisani
Dealer
[email protected]
Akshay Shah
Sr. Executive
[email protected]
Production Team:
Tejas Vahalia
Research Editor
[email protected]
Dilip Patel
Production Incharge
[email protected]
CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 - 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 /
NSE F&O: INF231279838 / NSE Currency: INE231279838, MCX Stock Exchange Ltd: INE261279838 / Member ID: 10500. Angel Commodities Broking (P) Ltd.: MCX Member ID: 12685 / FMC Regn. No.: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn. No.: NCDEX / TCM / CORP / 0302.
July 18, 2013
18