Buy HSIL; target of Rs 166: Sushil Finance

Sushil Finance is bullish on HSIL and has recommended buy rating on the stock with a target of Rs 166 in its August 7, 2012 research report.

“HSIL, during the quarter ended 30th June 2012(Q1FY13), on a standalone basis, HSIL’s Revenues grew by 6% YoY to Rs. 3240 mn. Its EBITDA decreased by 8% YoY to Rs. 570 mn and EBITDA margins decreased by 250 bps to 17.6%. Its standalone APAT stood at Rs. 182.5 mn reporting a fall of 36% YoY. Its AEPS for the quarter is Rs. 2.76.  During Q1FY13, the Buildings products segment revenues registered a growth of 17.2% YoY, it was slower than expected due to supply side constraints in outsourced segments (faucets). Its EBIT registered a growth of 13.8% YoY.”

“The Container glass (CG) segment revenues decreased by 3.7% YoY. Its volume dipped by 11.5%, mainly because the supply was stopped to 1 large client (17% of CG’s revenues) due to delay in payments, which is resolved now and it also witnessed slower off-take in beer & pharma segment. Its EBIT also decreased by 42.9% YoY.  During the quarter the margins were under pressure due to increase in prices of soda ash (raw material for Glass business), imported allied products cost due to rupee depreciation and 45% increase in the prices of fuel & power. During the quarter there were long power cuts (~12 days/month) in A.P. State which led to higher usage of generated power. The cost of generated power is ~2.5 times higher than Grid supply.  Management highlighted that Revenues in both the segments should get restored in H2FY13 and further price hike of ~4% in sanitaryware in June, 2012 and ~7-10% hike expected in Container Glass in October, 2012 would help HSIL to achieve 20-25% YoY growth in FY13. The Brownfield expansion of Container Glass plant at Bhonghir was completed and the production of additional 475 tpd (~40% of existing) has commenced on 29th May,2012. The Greenfield expansion on Faucets plant at Bhiwadi, Rajasthan is on track and will be completed by June, 2013.”

“After incorporating its Q1FY13 numbers, especially considering increased input costs due to Rupee depreciation, increase in raw material and power & fuel costs, we have revised our FY13 & F14 numbers, we now expect its consolidated revenues to grow by 19.9% & 16.5% in FY13 & FY14 resp., mainly due to the price hike in both the segments and also due to increase in capacities in glass & building products will drive the volume growth. We further expect its EBIDTA margins on consolidated basis to fall by 70 bps in FY13, in spite of the price hikes taken by the company, the margins are under pressure mainly due to cost pressures, subsidiaries losses & continued rupee depreciation.”

“We expect its APAT to grow marginally by 7.8% in FY13 & 20.4% in FY14. At CMP of Rs. 131 the stock is attractively valued at 7.1x its FY14E earnings. We retain our ‘BUY’ rating on the stock with a reduced target of Rs.166 (9x FY14E earnings of Rs. 18.4),” says Sushil Finance research report. 

Institutional holding more than 40% in Indian cos

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