Himatsingka Seide-IC- Export led impetus to drive re-rating, Buy, TP Rs 97 - Sunidhi

Himatsingka Seide Ltd (HSL) is a vertically integrated one of the Top Home Textile player with a global footprint. On the manufacturing front, HSL operates in India with one of the largest capacities in the world consisting of 23 mn meters per annum for bed linen products and 2.2 mn meters per annum for Drapery and Upholstery fabric (Silk). On the Distribution front, HSL operations spread across Asia, Europe and North America through its retail and wholesale distribution arms carrying some of the most prestigious brands (Calvin Klein Home, Barbara Berry, Peacock Alley, Bellora etc) in the Home Textile space and caters to Private Labels (Esprit and Waverly) major retailers across these geographies. With the economy on the revival mode, both in the US and India; HSL volumes are set to grow at a CAGR of ~9% over FY13-16E vs CAGR of ~3% over FY10-13 well complemented by structural shift happening in demand for Indian Textiles internationally. With the blended capacity utilization set to increase to ~93% by FY16E from ~76% in FY13 and robust distribution network across geographies, HSL is well placed and set to move into a higher growth trajectory by recording a revenue CAGR of 15% over FY13-16E and capitalize on future growth opportunities. Softening of raw material prices, favorable product mix, highly focused management, cost efficiency and economies of scale, all set to complement in EBIDTA margin expansion to 10.2 in FY16E vs 9.2% in FY13. We initiate coverage on HSL with a "BUY" rating based on a target PE multiple of 8x FY16E EPS of 12.1 giving us a target price of `97 with an upside of 70%.

International business to drive the revenue growth

Currently, North America distribution business derives ~82% of HSL's consolidated revenues. With the recent pick up in US economy, on the back of initiatives by US Fed to revive housing market and to improve retail sales; HSL US subsidiaries (Divatex and DWI Holdings) are witnessing strong surge in volume growth by 6-8% in its portfolio of branded and private labels. We believe HSL's US subsidiaries are in a sweet spot and are likely to benefit immensely leading to a revenue CAGR of 12-15% over the next 3 years ( FY13-16E) generating revenues of US$ 345mn-375mn by FY16E vs US$ 251mn in FY13. Management has guided for a revenue target of US$ 500mn by FY18E.

Dual Strategy - Sweating of manufacturing assets and leveraging on distribution

HSL management is aggressively focused on dual strategy of sweating its manufacturing assets in terms of utilization and product mix to enhance its EBIT earnings and leveraging on asset-light distribution model by enhancing its portfolio of brands and private labels, thereby increasing market share and optimizing ROI. With the demand picking up from US and UK (96% of HSL consolidated revenues), HSL domestic manufacturing arm is likely to improve its capacity utilization. We believe there would be a steady ramp up in capacity utilization in both Drapery and Upholstery (Silk) division (~54% in FY16E vs 42% in FY13) and Bed lenin division (~97% in FY16E Vs ~80% in FY13) leading to huge economies of scale without incremental capex. This should lead to improvement in overall margins going forward.

Source : Equity Bulls

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