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Hindustan Sanitaryware Industries 3QFY2014 performance highlights and results update

February 10, 2014, Monday, 15:51 GMT | 11:51 EST | 21:21 IST | 23:51 SGT
Contributed by Angel Broking

Hindustan Sanitaryware Industries (HSIL) reported a mixed set of numbers for 3QFY2014. Its top-line dipped by 7.1% yoy to Rs.367cr, far below our estimate of Rs.478cr; dragged by the Glassware division, the revenues of which plunged by 27.2% yoy. The company’s EBITDA however surged by 8.5% yoy to Rs.60.8cr while the EBITDA margin expanded by 238bp yoy to 16.6% for the quarter (mainly on account of reduction in raw material expenses as a percentage of sales by 346bp). The net profit though dipped marginally by 3.8% yoy to Rs.12cr but was better than our expectation of Rs.10cr.
Leading position and extended capacity to be key drivers: HSIL holds a leading position in the sanitaryware industry (organized segment) with ~40% market share and well-known brands like QUEO Hindware Art, Hindware Italian, Hindware, Raasi, and Benevalve in its basket. Moreover, with increasing awareness about improving sanitation, low penetration and changing lifestyles of people, the sanitaryware industry is witnessing traction. HSIL’s greenfield project in its Sanitaryware division is expected to enable the company to encash on the traction in the industry, and thereby drive its overall growth.
Outlook and valuation: We expect HSIL to register a CAGR of 10.7% in its top-line over FY2013-16E to Rs.2,132cr on the back of robust growth in the sanitaryware industry. The EBITDA and net profit are expected to post a CAGR of 7.7% and 6.2% respectively over FY2013-16E. As we rollover to FY2016E, we value the business on a SOTP basis, assigning the Glassware division a target EV/invested capital of 0.4x and assigning the Sanitaryware division a target PE of 6x, to arrive at an estimated market capitalization of Rs.750cr in FY2016E which provides 17.1% upside in the stock price from the current levels.