PINC Research is bullish on HSIL and has recommended buy rating on the stock with a target of Rs 270 in its September 28, 2011 research report.
“HSIL’s stock price has corrected by 20% in the last one week from Rs200 to Rs160. However, we believe there is no fundamental concern for the company. The correction is overdone and gives a buying opportunity for investors. HSIL’s Sanitary and container glass segments are likely to witness a CAGR of 30% and 23% over FY11-13 along with margin expansion of 317bps over FY11-13. Key highlights (1) Brownfield sanitary expansion in Bibinagar, AP completed in Sept’11 and is likely to commence operation from 1st week of Oct’11.(2)The new Faucet capacity of 0.2 mn pcs in Bhiwadi, Rajasthan has already commenced operation in Sept’11 as per schedule. (3) Glass division is doing extremely well and expansion work at Bhongir of 425TPD is on schedule and is likely to commence operations in Jan’12. We believe the company is not facing any slowdown in any of the segments and all its plants are running over 100% utilisation.”
“The company is seeing very strong demand from both the retail and institutional segments which form 74% and 26% of building product division (50% of revenue) respectively. All its sanitary plants are running at full capacity following robust fresh and replacement demand. After speaking with the management, we have a sense that its container glass division is performing better than expectation. We expect a revenue CAGR of 30% and 23% for sanitary and container glass division over FY11-13. Even during the 2008-09 slowdown, HSIL’s revenue grew by 18% and EBITDA margin improved by 170bps (FY09 v/s FY08). The work of Bibinagar sanitary expansion of 0.7 mn pcs has completed on time (Sept’11) and is likely to commence operation from the first week of Oct’11. This will increase capacity from 2.8 mn pcs to 3.5 mn pcs and is likely to add revenue of Rs0.7-0.8bn/year. The faucets brownfield expansion of 0.2 mn pcs has also completed on time during the first week of Sept’11 raising the capacity from 0.3 mn pcs to 0.5 mn pcs. Both sanitary and faucets expansion will help the company cater to the strong demand and thereby increase the market leadership of ‘Hindware’ from the current 40% share.”
“We maintain ‘BUY’ rating on the stock with a TP of Rs270. At CMP of Rs162, the stock is attractively valued at PE of 8.1x and 5.9x on FY12E and FY13E EPS’ respectively. Moreover, the company has recently acquired Garden Polymers (PET business) which is likely to be EPS accretive by Rs1.6-2.0 in FY12 post consolidation (not captured in the valuation). There is no slowdown or any fundamental concerns on the company and recent stock price correction gives an opportunity to BUY,” says PINC Research report.
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