HOLD HIL: AnandRathi Institutional Research

HIL - Asbestos sheet volumes down, impacting figures; changing to Hold ; with a target price of Rs 572.

Falling revenue from building products and thermal insulation led to HIL's revenue sliding 12.6% yoy to Rs. 2.15bn. The margin shrunk 513bps yoy to 2.9%. The high interest, depreciation and tax rate led to a Rs. 39m loss (vs. Rs. 84m PAT a year ago).

Revenue shrinks yoy. In Q3 FY16, HIL's sales decelerated 12.6% yoy to Rs. 2.15bn. This was because of falling sales in its building products (BP) division, by 11.7% yoy to Rs. 2.10bn, and in its thermal insulation products, which slid 42% yoy. Revenue from its wind-power division rose 43% yoy to Rs. 13m. For 9mFY15, revenue, at Rs. 8.39bn, was flat.

Disappointing margins. The EBITDA margin dipped 513bps yoy to 2.9% due to the rise in RMC and employee expenses. The BP division margin contracted 594bps yoy to 2.2% and that of thermal insulation increased 874bps yoy to 17.2%. The 9mFY16 margin declined 95bps yoy to 10.1%.

Loss reported in Q3. Q3 FY16 net loss was Rs. 39m (vs. Rs. 84m net profit a year ago). This was because of higher interest cost, depreciation and the tax rate. There were some exceptional expenses, of Rs. 12.7m on account of VRS compensation paid in Q3. For 9mFY16, PAT came at Rs. 352m (down 34.9% yoy).

Expansions. HIL, has commissioned its new plant in Timmapur at a capex of Rs. 250m with a capacity of 1 Lakh cubic meters. With this the total capacity of AAC Blocks will increase to 7 lakh cubic meters and company expects to reach 8lakh cubic meters by Sep'16. The capex for FY16 is Rs. 700m. The company is targeting to achieve a business mix of 60% core asbestos roofing material, and 40% of eco-friendly products from the current ratio of 75:25.

Valuation: We believe that the company's performance would improve in the years to come as it is gaining market share. We have introduced FY18 estimates. We downgrade the stock to Hold, assign a 7x PE to FY18 estimates and derive a revised target of Rs. 572. At the current market price, the stock quotes at PE of 7.9x FY17e and 6.4x FY18e EPS. Risk. Rise in input costs.

Shares of HIL LTD. was last trading in BSE at Rs.464 as compared to the previous close of Rs. 488.25. The total number of shares traded during the day was 2256 in over 214 trades.

The stock hit an intraday high of Rs. 475 and intraday low of 460. The net turnover during the day was Rs. 1047716.

Source : Equity Bulls

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