Buy HIL; target of Rs 718: SKP Securities

SKP Securities is bullish on HIL and has recommended buy rating on the stock with a target of Rs 718 in its January 2, 2013 research report.
 
“HIL, formerly Hyderabad Industries Ltd., is a flagship Company of the C.K.Birla group, with a track record of over six decades. Today, the company is the largest FC sheet manufacturing companies in India, producing around 8 lakh MT of FC sheets per annum. It enjoys ~19% market share of FC sheet roofing solution industry.  It has a diversified business model with a large product portfolio which can categorized into five products: FC sheet, Autoclaved aerated concrete (AAC) Blocks, FC sandwich panel, thermal insulation and wind energy.”
 
“HIL is the market leader in the FC sheet roofing industry, with an estimated market share of 19%. Its well-known brand ‘Charminar’ established over six decades and enjoys a premium over others in the market. HIL has a wide distribution network all across India with 45 sales depots and more than 8,000 sales points. The company will continue focus on dealer and distribution network in smaller towns for deeper market penetration. Government thrust on developing backward areas has led to an increase in construction of schools, housing and hospitals. Under IAY around 11 million houses were build in 11th five year plan. The proposed budget for rural housing for the 12th plan is Rs. 1,500 billion. FC sheet industry is mainly driven by rural households moving up the value chain from kuccha to pucca housing, helped by improving labour market and government welfare schemes like NREGS, NRLM, etc.”
 
“HIL’s revenues have grown at a CAGR of 15.5% from Rs.4827 million in FY08 to Rs.8578 million in FY12. HIL has been declaring excellent set of numbers over the last few years on the back of strong thrust of government on rural housing, diversified product segment, superior brand quality and strong distribution network. Going ahead, we believe that top-line would continue to grow at 20% and 13.4% during FY13E and FY14E respectively. We also expect to see a change in its revenue mix going forward towards greener products and reducing its dependence on the FC sheet business. The share of revenue from FC sheet business will be decrease to 76% by FY14E.”
 
“HIL has shown a strong performance in FY12 and H1FY13 with increasing revenue mix towards greener products. We expect HIL to maintain stability in top-line growth and margins going forward due to a strong brand equity which helps in improving realisations.  At CMP, the stock trades 5x its FY13E earning of Rs.98.3 and 4.5x its FY14E earnings of Rs.110.5. Hence, we initiate coverage on the stock with BUY recommendation and a target price of Rs.718 (6.5x FY14E EPS), at 46% upside over the period of 12 month,” says SKP Securities research report.

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