Buy HSIL; target of Rs 240: Unicon Investment

“HSIL announced its Q3FY12 results which were in-line with our estimates. Revenues increased to INR 3423 mn, an increase of 21.7% YoY and 14.7% QoQ. EBITDA posted by the company was INR 641 mn, a marginal increase of 2.8% YoY and 16.8% QoQ. EBIDTA margins decreased by 346 bps and 26 bps on a YoY and QoQ basis respectively, mainly on account of the rupee depreciation witnessed in the quarter along with the increase in Power and Fuel costs which increased by 10% QoQ and 31% YoY. PBT posted at INR 383 mn, increased by 15.3% QoQ but decreased by 5.9% YoY. PAT at INR 258 mn showed moderate growth of 12.4% QoQ but decreased by 6.3% YoY.”

“The PAT margins decreased by 225 bps and 14 bps on a YoY and QoQ basis respectively. The increase in interest costs by ~48% and ~31% on a YoY and QoQ basis respectively (due to increase in overall interest rate and utilization of higher working capital limits) contributed to the fall in profit margins. The two divisions of the company i.e. the Building Products division and the Container Glass division recorded robust sales growth ~18% and ~25% YoY respectively. In terms of volume growth the Building Products division and the Container Glass division recorded growth of ~13% and ~12% YoY respectively, for the quarter. HSIL took a price hike in the middle of November in the Building Products segment, which helped improve margins in the segment for the quarter. Due to the competitive nature of the Container Glass segment, the company was not able to pass on the price hike in this quarter but plans to increases prices in the segment by ~7-8% in Q4FY12 which should help margins improve in the next few quarters.”

“HSIL has implemented a price hike of ~6-7% in November in its building product division and plans to further increase prices by ~5% in Q4FY12. The company has increased prices in the Container Glass division by ~7- 8% at the start of Q4FY12 and this should help improve margins in the quarters ahead. The company is expected to benefit in Q4FY12, due to the appreciation of INR, which would bring down import costs (allied products–Building Products division and raw material-soda ash). The stabilization in commodity prices (soda ash) will also help improve margins moving forward. To meet demand, the company has made a capex of 3000 mn so far in FY12 and plans to further spend 100-150 mn more till the year end. Over the next two years, the company has a planned capex of 3000 mn. At CMP the stock trades at a P/E of 5.6x FY13E. We maintain a BUY rating on the stock with a price target of INR 240,” says Unicon Investment research report.   

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