Initiating Coverage: HSIL Ltd - Angel Broking

Operating into the most growing segments

HSIL Limited (HSIL) is an Indian company, which offers sanitaryware products, faucets and glass bottles. The company's segments include building products division, packaging products division and others division (retail, consumer, pipes, caps and closures, etc.) The company's ~46% revenue comes from building products division, ~43% from Packaging products division and balance from others division.

Strong demand for sanitaryware to benefit HSIL: The current market size of sanitaryware is around Rs. 4,000-4,200cr. The market is expected to grow at ~10% CAGR going forward on the back of increasing disposable income, urbanization, evolving preferences and government initiatives (Swachh Bharat, Housing for All, Smart cities, etc). Going forward, we estimate that HSIL would benefit from the expanding sanitaryware industry backed by strong distribution network, good brand recall and introduction of new products.

Container glass business to be driven by demand revival: Indian market for container glass is estimated at ~Rs. 7,000cr, which is expected to grow at 4-5% CAGR going forward. HSIL manufactures container glass for packaging needs of the companies in the user industry (beverages, liquor, pharma, food industry, etc). HSIL is prominent player in the container glass segment in India. In our view, strong growth of companies in the user industry will lead to higher growth for HSIL.

Forayed into newer segments to boost additional growth: During FY16, the company has forayed into consumer segment, from which the company is expecting sales turnover of Rs. 500cr over the next 2 years with 10% of EBIT margin. Further, HSIL has expected to launch security caps and closures in 1QFY19, which would be able to generate revenue around Rs. 130cr on full operating basis (EBIT is around 20-25%). Moreover, HSIL is also entering the PVC Pipe segment, which is expected to start commercial production around in FY19 (will be able to generate revenue ~Rs. 400cr on peak utilization).

De-merger of building materials and consumer segment to unlock the value: HSIL is demerging its consumer and building materials business, which is expected to be completed by July 2018. Consumer and building material businesses contribute more than 50% to the revenues of HSIL.

Outlook and Valuation: Considering the various initiatives taken by the government like smart cities, housing for all by 2022, Swachh Bharat Abhiyan and push towards providing sanitation, would create new demand avenues for the sanitaryware segment. Further, the company has entered into new segments like consumer, pipes and caps and closures which will drive the further growth. We expect HSIL to report net revenue CAGR of ~12% to ~Rs. 2,905cr over FY2017-20E. On bottom-line front, we expect CAGR of ~15% to Rs. 154cr over FY2017-20E owing to improvement in operating margins. We initiate coverage on HSIL with a Buy recommendation and target price of Rs. 510, indicating an upside of ~18% from the current levels.

Shares of HSIL LTD. was last trading in BSE at Rs.428.5 as compared to the previous close of Rs. 433.4. The total number of shares traded during the day was 2965 in over 137 trades.

The stock hit an intraday high of Rs. 440.55 and intraday low of 422.55. The net turnover during the day was Rs. 1277092.

Source : Equity Bulls

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