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Himatsingka Seide Q3FY13 results update

Contributed by Nirmal Bang

Himatsingka Seide Ltd. (HSL) has reported a muted quarter where net sales grew by 9.5% YoY to Rs. 433.2 crore and down by 5.6% QoQ. It was mainly driven by jump in North America business by 5.7% YoY and Atmosphere business by 12.1% YoY, though the growth was restricted due to the steep fall in Bellora business by 27.7% YoY. The EBITDA grew by 4.3% YoY and by 4.4% QoQ to Rs. 43.5 crore. The growth in EBITDA is mainly attributed to the foreign exchange fluctuation where the company reported a Forex gain of Rs. 5.3 crore in Q3FY13 as against Forex loss of Rs. 3.9 crore in Q3FY12 and Rs. 9.4 crore in Q2FY13.

The EBITDA margin decline by 50bps YoY to 10% in Q3FY13 and was up by 90bps QoQ. The EBITDA margin declined due to the jump in raw-material prices which accounts cotton and raw-silk by 5% and 8% respectively. The company has somewhat negated the impact by change in product mix. This has resulted into the impact to the tune of Rs. 7 crore during this quarter.

Himatsingka reported an Adj PAT of Rs. 13 crore, increase by 16.2% YoY and 13.5% QoQ. The Adj PAT margin improved by 20bps YoY to 3% in Q3FY13 and by 50bps QoQ. The profitability does not include any exceptional loss/gain on account of derivative contract which got closed in the last quarter. The Other income of Rs. 2.71 crore, increased by 337.1% YoY and by 176.5% QoQ includes the sale of asset of Rs 2.1 crore supported the growth in profitability of the company. The company has 90% stake in Divatex in Q2FY13 and it acquired remaining 10% stake in Divatex for $8.59mn during Q3FY13.

Other Financial Highlights:

- The revenue from Calvein Klien Home, Barabara Berry and other private label lines in North America improved by 5.7% YoY to USD 69.2mn in Q3FY13 as against decline of 4.1% QoQ. These businesses are operated through Divatex and DWI Holdings.

- Distribution revenues in Europe through Bellora Brand declined by 27.7% YoY and by 5.7% QoQ to USD 3mn.

- Manufacturing revenues for the Drapery/Upholstery and Bedding division was flat YoY to Rs. 182.6 crore and marginally down by 1.8% QoQ.

- The revenue from the Atmosphere brand sold in India, Middle East and South East Asia grew by 12.1% YoY and by 17.8% QoQ to Rs. 15.1 crore.

Valuation & Recommendation

At CMP of Rs. 39, the stock is trading at a PE of 9.4x FY13E and 7.3x FY14E. We feel with revival of US economy, improvement in US retail and home sale and HSL strong presence through both licensed brand and private labels, company will be able to improve its sales in US, though pressure on Europe is a matter of concern. We feel that the improvement in drapery and upholstery capacity utilization and improvement in distribution business will be the key driver of improvement in margin going forward. We maintain our target price of Rs. 54 per share (PE 10x FY14E). We recommend our investors to BUY the stock.