Buy HSIL; target of Rs 270: PINC Research

“HSIL, revenue in Q2FY12 increased by 35% YoY to Rs2,991mn as against Rs2,203mn Q2FY11, in line with our estimates. Building Product segment contributed 48.4% of revenue (Rs1,448mn with YoY growth of 15%) whereas container glass segment contributed ~51.6% (Rs1,538mn with YoY growth of 61%) with capacity utilisation of 106% and 100% respectively. Improvement in revenue is primarily driven by volume growth of 13.5% in sanitary and 42.5% in container glass segment.”

“EBIDTA margin in Q2FY12 was 18.4% which is 182bps lower in comparison to Q2FY11. Fall in margin is primarily on account of container glass segment where soda ash (forms 10-11% of container glass segment revenue) prices increased by 5-6% and company incurred forex losses of Rs30mn on import of soda ash. EBIT margin for container glass decreased by 450bps QoQ to 12.5% in Q2FY12. EBIT margin for Building product is 20.1% in Q2FY12 as against 19.3% in Q1FY12. We expect further enhancement in margins from (i) Improvement in value mix in sanitary division with higher contribution from Hindware Art and Hindware Italian (ii) increase in price of all sanitary products by 6.5% from Nov’11 which will get reflected in Q3FY12 (iii) Higher revenue share from green bottles along with price hike in container glass segment from Jan’12.”

“We maintain ‘BUY’ rating on the stock with our target price of Rs270 (Exhibit 4). At the CMP of Rs191, the stock discounts FY12e and FY13e EPS of Rs20 and 27.3 by P/E of 9.5x and 7.0x respectively. We believe that there is potential upside of 1.6 -2.0 in FY12E earnings once Garden polymer acquisition process is completed," says PINC Research report.

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