The Hindustan Sanitaryware & Industries' (HSIL) entered into sale purchase agreement with the promoters of Garden Polymers. Sandip Somany, Joint MD of HSIL, in an interview with Latha Venkatesh and Gautam Broker, spoke about the recent happenings in his company and the road ahead.
Below is the transcript of the interview. Also watch the accompanying video.
Q: What are your plans with Garden Polymers?
A: We finished our board meeting and intimated the stock exchanges that Hindustan Sanitaryware & Industries (HSIL) entered into sale purchase agreement with the promoters of Garden Polymers. This is a fast growing company and is the fourth largest company in the pet container field. They make pet bottled and jars.
This is a very complimentary business to our AGI Glaspac business which makes glass bottles. We are the second largest in the country and have common set of customers.
HSIL will buy 60% of the share capital of this company for deal size is totally Rs 89 crore and the balance 40% is being bought by the promoters of HSIL in their individual capacity.
Q: What is Garden Polymers’ annual sales in the last year?
A: For the financial year ended March ’11, Garden Polymers had revenue of Rs 104 crore. It was up by 34% over the year before and is a profit making company.
It had an EBITDA which went up by about 28%. The EBITDA was Rs 22 crore and the profit after tax was about Rs 10.4 crore which was also up by 30%. It has been performing very well over the last two-three years.
We believe that we can add great value to this. It also gives our glass business larger platform in terms of being a larger packaging provider. We will use the synergies of the two businesses to grow both the businesses faster.
Q: What kind of growth rate can we expect for the new acquisition Garden Polymers? You said 28% growth in EBITDA last year. Could that be maintained this time?
A: We are hopeful of doing that. We will grow this company between 30-40% a year.
Q: You have investment plans of about Rs 500 crore in Gujarat plus this acquisition. Does this increase your debt profile? What is the current debt? What is the debt equity ratio?
A: Our current expansion plans, which are ongoing, are Rs 650 crore including new plants in Rajasthan and Gujarat. We are very comfortably placed for this because we are sitting on about Rs 150 crore of cash and our debt equity ratio is about 0.59.
We have margin to borrow more. Including this acquisition and Rs 650 crore expansion, we will not need to increase our capital.
Q: With this investment, would you have exhausted your near-term growth plans or would you still be on the lookout for smaller available acquisitions?
A: We are always on the lookout for acquisitions. If we can add value, we will continue to lookout for them. HSIL has been doing exceedingly well. We have had good record year.
Our EBITDA climbed by 40%, revenue climbed by 33% and profit after tax climbed to a record 70%. We have healthy cash flows. All our plants are running at 100% capacity and we are fully sold.
We are generating a fair amount of cash. We believe that other acquisitions can also be supported on the strength of the cash flow.
Q: Aren’t you paying about Rs 140 crore for a company that you said is generating sales of about Rs 120 crore?
A: No. The company generated sales of Rs 104 crore last year. We are paying Rs 89 crore for it.
Q: Are you paying Rs 89 crore for 60%?
A: No. We are paying Rs 89 crore for 100%. HSIL will be paying 60% of that which is 53.4 crore. The promoters will buy the balance shares at the same terms at Rs 35.6 crore.
Q: What would it be in terms of an EPS addition for you?
A: The company has very small capital which is only Rs 1.8 crore and the EPS is around Rs 5,000-6,000. It will be value and profit accretive from day one.
Q: Are there any chances that in the coming year, your revenue could be easily Rs 1,400 crore?
A: Our revenue will be well over Rs 1,500 crore. We intend to grow HSIL at 30% per year with our topline and bottomline. Our March 2012 numbers will be well over Rs 1,500 crore.
HSIL stock price
On November 27, 2015, HSIL closed at Rs 302.90, up Rs 6.90, or 2.33 percent. The 52-week high of the share was Rs 477.00 and the 52-week low was Rs 238.00.
The company's trailing 12-month (TTM) EPS was at Rs 15.46 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 19.59. The latest book value of the company is Rs 198.58 per share. At current value, the price-to-book value of the company is 1.53.
READ MORE ON Hindustan Sanitaryware & Industries, HSIL, Joint MD, Sandip Somany, Garden Polymers, AGI Glaspac business
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