52 One Year - Myirisbreport.myiris.com/SKPSEC/HYDINDUS_20130102.pdf · 1/2/2013 · HIL Ltd.(...

January 2, 2013

HIL Ltd.( Hyderabad Industries Ltd.)

Complete Building Materials Solutions provider …

CMP: Rs.493 Target: Rs. 718 Re-Initiating Coverage - Buy

SKP Securities Ltd www.skpmoneywise.com of 13

Company Profile

HIL Ltd. (HIL), is a flagship Company of the C.K.Birla group, with a track

record of over six decades. HIL is the market leader with ~19% share of fiber

cement (FC) roofing solution industry with production around 8 lakh MT of FC

sheets per annum. It has a diversified business model with a large product

portfolio spread across categorized into five products: FC sheet, Aerocon AAC

Blocks, Aerocon panel, thermal insulation and wind energy.

Investment Rationale

Government thrust on rural housing – boosting demand:

Government thrust on developing backward areas has led to an increase in

construction of schools, housing and hospitals.

Under IAY around 11 million houses were build in 11th five year plan. The

proposed budget for rural housing for the 12th plan is Rs. 1,500 billion.

FC sheet industry is mainly driven by rural households moving up the value

chain from kuccha to pucca housing, helped by improving labour market

and government welfare schemes like NREGS, NRLM, etc.

Established brand and market leader in FC sheet industry:

HIL is the market leader in the FC sheet roofing industry, with an estimated

market share of 19%. Its well-known brand ‘Charminar’ established over six

decades and enjoys a premium over others in the market.

HIL has a wide distribution network all across India with 45 sales depots

and more than 8,000 sales points. The company will continue focus on

dealer and distribution network in smaller towns for deeper market

penetration.

Fast-growing AAC block and Aerocon panel business:

Lightweight AAC blocks and pre-cast materials such as Aerocon wall panel

provide a good solution to avoid wastage of material which are hard to

manage on site. During FY08-12, AAC blocks and Aerocon panels business

grew by 28% and 26% CAGR respectively.

We expect, AAC blocks and Aerocon panel sales would continue to grow

at 40% and 25% CAGR respectively during FY12-14E.

Demand for green building products is increasing on account of serious

concerns about the environment and the impact on energy consumption.

This provide huge opportunities for HIL’s green building product division.

Enjoy high growth rates and have solid dividend yield:

HIL’s revenue grew at a CAGR of 14.3%, EBITDA at a CAGR of 25% and

PAT at a CAGR of 34% during FY07-12. Going ahead, we believe that

sales growth would continue to grow at 20% and 13.4% during FY13E

and FY14E respectively.

HIL has maintain low debt equity ratio in the range of 0.25-0.31 which we

expect the company to maintained going forward. HIL has low debt equity

ratio as compared to its peers.

HIL follows a consistent dividend policy with an average payout of ~22%.

We expect, Company will continue to maintain ~22% payout and pay

dividend of Rs.22/sh and Rs.24/sh in FY13 and FY14 respectively.

Outlook & Recommendation

At CMP, the stock trades 5x its FY13E earning of Rs.98.3 and 4.5x its

FY14E earnings of Rs.110.5

Hence, we initiate coverage on the stock with „BUY‟ recommendation and

a target price of Rs.718 (6.5x FY14E EPS), at 46% upside over the period

of 12 month.

Key Share Data

Face Value (Rs.) 10

Equity Capital (Rs. in Mn.) 74.9

M.Cap (Rs. in Mn.) 3697.0

52-wk High/Low 547.0/255.0

One Year Avg. Daily Vol (In Qty) 8507

BSE Code 509675

NSE Code HIL

Reuters Code HLLT.BO

Bloomberg Code HIL:IN

Shareholding Pattern (as on 30th Sep, 2012)

Source: BSE

Key Financials (Rs. In Mn.) Particulars FY11 FY12 FY13E FY14E

Net Sales 7245.3 8578.1 10298.3 11754.2

growth (%) 3.0% 18.4% 20.1% 14.1%

EBITDA 881.5 1075.1 1327.5 1498.7

PAT 506.0 605.5 733.4 824.3

growth (%) (43.6%) 19.6% 21.1% 12.4%

EPS (Rs.) 67.8 81.1 98.3 110.5

BVPS (Rs.) 399.7 459.1 531.8 614.3

Key Financials Ratio

Particulars FY11 FY12 FY13E FY14E

P/E (x) 7.2 6.0 5.0 4.5

P/BVPS (x) 1.2 1.1 0.9 0.8

Mcap/Sales (x) 0.5 0.4 0.4 0.3

EV/EBITDA (x) 5.0 4.3 3.7 3.4

ROACE (%) 21.6% 21.6% 22.9% 22.4%

ROAE (%) 18.1% 18.9% 19.8% 19.3%

EBITDA Mar(%) 12.2% 12.5% 12.9% 12.8%

PAT Mar (%) 7.0% 7.1% 7.1% 7.0%

D/E (x) 0.3 0.3 0.3 0.3 Source: Company, SKP Research

Price Performance HIL vs. BSE Small Cap

Analyst: Chirag K. Gothi

Tel No.: +91 22 2281 9012; Mobile: +91 9870895720

Email: [email protected]

DII4.9%

Public53.7%

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BSE Small Cap HIL

Promoter 41.4%

mailto:[email protected]


HIL Ltd.

Industry Overview

Oligopoly structure of the industry

The fibre cement industry in India has a capacity in excess of 5.5 million MT. There

are 17 players and over 60% market share controlled by 4 major players, HIL being the

leader controls 19% of FC sheet roofing industry and expected to maintain going

forward. Other prominent players being Everest, Visaka and Ramco Industries.

These players have similar strengths and weaknesses in the FC sheet segment and also

have similar strategy to pass on increasing material cost to customers to maintain

margin. The high concentration in the industry limits the bargaining power of buyers.

Products are competitively priced with little brand premium and the buyer is usually a

price taker.

FC Roofing Industry Size (Million MT) Market Share (Volume)

Source: ACPMA Source: ACPMA

Capacity of Players – Product wise

Capacity HIL Ltd Everest Ind Visaka Ind Ramco Ind

FC Sheet (MT pa.) 940,000 810,000 752,000 654,000

Allied Products

Building Panels & Boards (MT pa.) 460,000* 136,000 48,000 48,000

AAC Blocks (CuM.) 340,000

Cement Clinker Grinding (MT pa.)

216,000

Non - Allied Products Thermal

Insulation (Tns) Steel Building

(Tns) Textile Yarn (Spindles)

Cotton Yarn (Spindles)

Capacity 6,000 30,000 1,816 43,296 Source: Company, SKP Research Note: * figure in no.

Raw Material: Chrysotile asbestos fibre, cement, Fly ash and wood pulp are the key

raw material used in FC roofing sheets. Chrysotile fibre is completely imported from

countries like Brazil, Canada, Zimbabwe, Kazakhstan etc.

Cement Fibre Sheet Composition (Volume) Cement Fibre Sheet Composition (Value)

Source: Company, SKP Research Source: Company, SKP Research

3.29

3.52

3.69 3.75

4.07

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

4.2

FY08 FY09 FY10 FY11 FY12

18.9%

15.9%

13.6%13.2%

10.6%

27.8%

8%

45%47%

53%30%

17%

OPC Cement

Fly ash and others

Chrysotile fibre

Chrysotile fibre

OPC Cement

Fly ash and others

Vishaka / Shakti

Charminar

Utkal

Ramco Everest

Others


HIL Ltd.

The Company: A Snap Shot

HIL Ltd., formerly Hyderabad Industries Ltd., is a flagship Company of the C.K.Birla

group, with a track record of over six decades. Today, the company is the largest FC sheet

manufacturing companies in India, producing around 8 lakh MT of FC sheets per annum. It

enjoys ~19% market share of FC sheet roofing solution industry.

It has a diversified business model with a large product portfolio which can categorized

into five products: FC sheet, Autoclaved aerated concrete (AAC) Blocks, FC sandwich

panel, thermal insulation and wind energy.

HIL is expanding their product portfolio in such away to become-

“Complete Building Materials Solutions provider”

Segment Product Portfolio Brand Demand drivers

Bu

ild

ing

Pro

du

ct

Fibre Cement Sheet Revenue contribution: 80.2%

Market position: 19% of market share of India

Charminar

&

Malabar

Industrial sheds,

Agricultural buildings,

Warehouses, Poultry farms,

Garage, Verandahs etc.

Autoclaved Aerated Concrete Blocks Revenue contribution: 8%

Market position: 26% of market share in the

Southern and Western regions of the country

Aerocon Residential apartments,

Commercial complex,

Industrial complex, mall etc.

FC Sandwich panel Revenue contribution: 5.1%


Aerocon

Partition, Prefabricated house,

Mezzanine flooring, Schools and

Low cost housing

FC Spare Revenue contribution: 3.0%

Real Estate & construction activity

Thermal

Insulation

Product

Calcium Silicate Insulation Product Revenue contribution: 3.4%


HYSIL Capacity expansion in cement,

Power, Petro chemical etc.

Renewable

Energy Wind Power Revenue contribution: 0.3%

HIL’s both AAC blocks plants in

Gujarat and Tamil Nadu consume

the electricity generated from

captive wind power plants

Source: Company, SKP Research

Major clients:

Lodha, Jain Housing, Raheja group, ITC group, Novotel, GVK, GMR, Leela Palace,

Marriot, Pioneer hotels, IL&FS Engineering, Hiranandani, Infosys, Le-Meridian, Inorbit and

Taj Hotels.

An established relationship with such sizeable companies provides good business with

growth. The company is targeting growth both organically and inorganically.


HIL Ltd.

Investment Rationale

Government thrust on rural housing – boosting demand

Government thrust on developing backward areas has led to an increase in construction

of schools, housing and hospitals.

Total houses to be build under IAY is to be around 11 million in 11th Five Year Plan.

The proposed budget for rural housing for the 12th Five Year plan is Rs 1,500 billion.

Rising disposable income by increasing minimum support price (MPS) of primary

product and different government initiatives to provide dwelling and employment to

give more pricing power in the hands of rural people.

FC sheet industry is mainly driven by rural households moving up the value chain from

kuccha to pucca housing, helped by improving labour market and government welfare

schemes which are given below:

Initiatives Allocation (Rs bn.)

Impact on Roofing Market 11th Plan 12th Plan

National Rural Employment Scheme

(NREGS) 1,165 3,220

Enhances the livelihood security of people from rural areas providing

employment and increasing purchasing power

Indira Aavas Yojana (IAY) 596 1,500 To replace all kuccha houses from Indian villages by 2017

National Rural Livelihood Mission

(NRLM ) 290 527

To build linkages with mainstream institutions, including Banks, and Govt

departments to address the various dimensions of poverty

Pradhan Mantri Gram Sadak Yojana

(PMGSY) 812 2,000

To provide farm to market access and new connectivity may involve

‘new construction’ where the link to the habitation is missing

Rashtriya Krishi Vikas Yojana

(RKVY) 250 630 Plans for agricultural development, increasing income of farmers

Source: Planning Commission, SKP Research

According to Census; In India, there were 249 million houses in 2001 which were

increased to 306 million in 2011. In 2001, FC cement and metal roofing contributed to

12%. Above government initiative, it increased to 15.9%.

Census 2001 (249 million homes) Census 2011 (306million homes)

Source: Census, SKP Research

Clay Tiles – 30% Grass, Thatch, Wood, Mud – 22% Plastic, Tarpaulin & Others – 2%

RCC – 21% RCC – 29.4%

Bricks – 6.6% Stone – 8.6%

Fibre Cement & Metal Roofing–15.9%

Clay Tiles – 23.8% Grass, Thatch, Wood, Mud – 15.1% Plastic, Tarpaulin & Others – 0.6%


RCC – 21% RCC – 21%

Bricks - 6% Stone – 7%

Fibre Cement & Metal Roofing - 12%



HIL Ltd.

Established brand and market leader in FC sheet industry

HIL is the market leader in the Rs 34.4 billion size of FC sheet roofing industry, with a

market share of 19% and the highest capacity of 940,000 MT. It has a strong marketing

network across the country.

Charminar, the company's well-known brand since the past 60 years in the building

products market, particularly in FC sheets, has established a credible record. HIL is

introducing value- added products under Charminar to leverage the brand value.

HIL’s FC sheet revenue grew at a CAGR of 12.3% from Rs.3848 million in FY07 to

Rs.6880 million in FY12. The growth was largely driven by volumes (7.6% CAGR

FY07-12) with the price lead growth being moderate (4.4% CAGR FY07-12).

Going ahead, we believe that sales would continue to grow at 14.3% CAGR during

FY12-14E to Rs.8982 million and volumes growth of 6.8% CAGR during FY12-14E

to 896197 MT. We expect realisation for FC Sheet to increase from Rs.8,754/MT in

FY12 to Rs.9,455/MT and Rs.10,022/MT for FY13E and FY14E respectively.


Fast-growing AAC blocks and Aerocon panel business

Company have started de-risking their business model by expanding the product

portfolio to other urban (allied) products like AAC blocks and FC Sandwich panel

(Aerocon panel) and industrial (non-allied) product like thermal insulation.

HIL is one of the largest player in AAC blocks, which currently contribute 8% to its

business. It has 26% of market share Southern and Western regions of the country.

Other large players include Siporex (Pune) and Magicrete (Surat). HIL’s AAC blocks

business grew by CAGR of 28% during FY08-12

HIL is leader in FC Sandwich panel, which currently contribute 5.5% to its business. It

has 58% of market share of the country. Aerocon panels grew at robust 26% in FY12.

Going ahead, we believe that AAC block sales growth would grow at 40% CAGR

during FY12-14E to Rs.1,354 million and Aerocon panel sales growth would grow at

25% CAGR during FY12-14E to Rs.680 million due to increasing demand and its

cordial relationship with large real estate players.


60

93

61

08

68

80 79

91

89

82

15.9%

0.3%

12.6%

16.2%

12.4%

0%

5%

10%

15%

20%

3000

5000

7000

9000

11000

Mar-10 Mar-11 Mar-12 Mar-13E Mar-14E

FC Sheet growth

34

4

29

3 36

3

69

0

10

83

13

54

31.7%

-14.9%

24.1%

90.0%

57.1%

25.0%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

300

600

900

1200

1500

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13E Mar-14E

AAC block growth

17

4 22

0

34

5 43

6 56

2

68

0

-0.2%

26.4%

57.0%

26.4% 29.0%

21.0%

-10%

0%

10%

20%

30%

40%

50%

60%

0

200

400

600

800


Aerocon panel growthRs. in million Rs. in million

Rs. in million


HIL Ltd.

Growing acceptance for green building products

Real estate developers are increasingly turning to green building, egged by the ready

availability of environment-friendly building materials such as AAC blocks, FC

sandwich panel.

Developer using Aerocon's range of products which has tremendous benefits-both

tangible and intangible. The most tangible benefits are savings in construction water and

energy costs. Intangible benefits include enhanced air quality, longer life, safety for

occupants and the conservation of scarce natural resources.

These developers find it advantageous to position themselves as 'green developers' in the

marketplace, as it allows them to charge a higher rate for such buildings besides

providing an environment-friendly development to consumers.

According to Indian Green Building Council (IGBC), India has reached 1.34 billion

square feet from 20,000 square feet in 2003 with 1,827 registered green buildings.

With the concept of green buildings is gaining ground among developers, IGBC

expects nearly 2 billion square feet of sustained building footprint by 2015.

Advantage of Aerocon AAC Block over its Substitute

Parameters Aerocon AAC Block Concrete Block Red Clay Brick

Density 650-1800kgs/m3 Light weight 2400-2800 kgs/m3 Very heavy 1600-2000 kgs/m3 Heavy

Water Absorption Low High Very High

Thermal Insulation Very high & energy efficient Low Low

Fire Resistance Average upto 4 hrs Average up to 2 hrs Medium to Low

Soundproofing Excellent Average Average

Green Product Most green -gets maximum points in

LEED rating as it uses upto 70-60% flyash

Not a Green Product as it uses

natural stone and natural river sand

Not a green product as it

uses natural top soil

Plastering Very less required Required and has cracking and

adhering problems

Required with very thick layers

(20-25mm) of plaster

Breakage 5% 5% 20-30%


Advantage of Aerocon wall panel over its substitute

Feature Aerocon Wall

Panel Ply Wood Board

Resin Bonded Particle Board

Gypsum Plaster Board

Clay Brick Wall

Environment Friendly Yes No No No No

Conservation of forests Yes No No No Yes

Conservation of precious fertile lands Yes No No Yes No

Water resistance Yes No No No Yes

Fire resistance Yes No No Yes Yes

Termite resistance Yes No Yes Yes Yes

Relocatable Yes Yes Yes No No

Load bearing Structural applications Yes No No No Yes

Thermal Insulation Better Poor Poor Poor Poor

Sound reduction Yes No No Yes Yes

Decorative Finish

-Painting Yes Yes Yes Yes Yes

-Cladding of Granite, Ceramic tiles Yes No No No Yes



HIL Ltd.

Strategically placed plants lowers logistics cost efficiently

HIL has strengthened its presence across India with a strong and extensive

manufacturing and distribution network spread across the country, services by its 13

manufacturing locations.

HIL has a wide distribution network all across India with 45 sales depots and more than

8,000 sales points. The company will continue focus on dealer and distribution network

in smaller towns for deeper market penetration.

Freight is a large cost (also transporting over long distances could lead to breakages)

hence location of the plant is the key to cost competitiveness. So the widespread

presence has reduced the time and distance and has also reduced the freight cost. Freight

cost as a percentage of sales reduced from 13% by FY07 to 5.4% by FY12.

Current Facilities and Business Segments

Plant Product Capacity

Hyderabad & Vijayawada FC Sheet & Boards 182500 MT

Faridabad FC Sheet & Boards 120000 MT

Jasidih (Jharkhand) FC Sheet 72000 MT

Thrissur (Kerala) FC Sheet 60000 MT

Wada (Maharashtra) FC Sheet 120000 MT

Sathariya (UP) FC Sheet 180000 MT

Balasore (Orissa) FC Sheet 90000 MT

Derebassi (Punjab) FC Sheet 115500 MT

Chennai (TN) Blocks 100000 Cu. M

Golan (Guj) Blocks 240000 Cu. M

Timmapur (AP) Panels 230000 pieces

Faridabad Panels 230000 pieces

Dharuhera (Haryana) Insulation Products 6000 MT


Warehousing- Big opportunity

The warehousing capacity available in India, in public, cooperative and private sector is

about 108.75 million MT. A large number of food grains are stored traditional way in

India. These structures are made of locally available cheaper materials like mud,

bamboo, wood, paddy and wheat straw and stones. There are estimates that substantial

quantity of food grains (about 6.0% to 10% of total production) are damaged in these

storage receptacles due to moisture, insects, rodents and fungi.

These loses can be avoided by 1) To build additional storage capacity and 2) Upgrading

the existing state owned warehouses. Most of the warehouses owned by state agencies

are over 15-20 years old and hence the same needs upgradations to contain wastage

levels. With present state owned capacity of 37 million MT and renovation cost of

around Rs.1,000 per MT, the total required capex is expected to be around Rs.37-40

billion.

The Gramin Bhandaran Yojana is aimed at the construction / renovation of rural

godowns, to create scientific storage capacity with allied facilities in rural areas to meet

the requirements of farmers for storing farm produce. Under the scheme, subsidy is

provided for construction/renovation of rural godowns. An allocation of Rs.20 bn has

been announced by GOI for setting up of warehousing infrastructure under the scheme

for Financing Warehousing Infrastructure under Rural Infrastructure Development Fund.

Also, the development of organized retail in India and the rising fortunes of the

manufacturing sector following India‟s emergence as a low-cost outsourcing hub

have buoyed its warehousing market. FC Sheet is preferred roofing material in

warehousing industry. Therefore, we feel warehousing industry to be major demand

booster for FC sheet industry.


HIL Ltd.

Concerns

Fluctuation in the prices of key raw materials: The main raw material for fibre

cement sheets are cement, pulp, fly ash and imported fibre. Any hike in prices of

cement, fly ash or fibre may have adverse impact on the margin of the company.

Average Cement Price in India

Source: Bloomberg, SKP Research

Government spending: Rural schemes like NREGS, IAY, NRLM etc. play an vital

role for the business of HIL. Any changes or decrease in spending by the government

on these schemes could reduce the purchasing power of rural people.

Monsoon effect: Rural income is largely dependent on agriculture, which is a

function of monsoon. A poor monsoon could have adverse effect on the demand for

roofing in rural India.

More pressure on India to ban chrysotile fibre Use:

India is facing mounting pressure to ban the use of asbestos. The Chrysotile fibre

is still widely used in the country despite being banned in 52 other nations,

including those in the European Union, because of known health risks.

Mining of asbestos is banned in India, but its usage is not. Thus, the industry

depends on 100 per cent import from Canada, Brazil, Russia, Zimbabwe &

Kazakhstan.

Reliance Industries has developed a polyester fibre coated with a special

chemical, which would substitute asbestos used by FC sheet roofing companies.

One per cent of polyester fibre can be used to replace four per cent of asbestos

fibre. While asbestos needs to be milled before use, the new-generation fibre can

be straight away added in the mix tank.

HIL have been using RIL's fibre for some time now. In FY12, company replaced

10 per cent of asbestos. This year, company has decided to replace 20 per cent

asbestos.

100

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350

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Rs./50 KG.


HIL Ltd.

Financial Outlook

Sustained and Steady Top-Line Growth:

HIL’s revenues have grown at a CAGR of 15.5% from Rs.4827 million in FY08 to

Rs.8578 million in FY12. HIL has been declaring excellent set of numbers over the last

few years on the back of strong thrust of government on rural housing, diversified

product segment, superior brand quality and strong distribution network.

Going ahead, we believe that top-line would continue to grow at 20% and 13.4%

during FY13E and FY14E respectively.

We also expect to see a change in its revenue mix going forward towards greener

products and reducing its dependence on the FC sheet business. The share of revenue

from FC sheet business will be decrease to 76% by FY14E.


Strong Margin Performance:

Over the last four years, HIL maintained EBITDA margin in the range of 12-15% and

PAT margin around 7% except FY10 due to decreased in raw material prices in that year.

Going ahead, we expect company to deliver an EBITDA margin of 12.9% and PAT

margin 7.1% during FY13-14E with focus on green products.


6188

7037 7245

8578

10298

1175428.2%

13.7%

3.0%

18.4%20.1%

14.1%

0%

5%

10%

15%

20%

25%

30%

0

2000

4000

6000

8000

10000

12000

14000


Revenue Revenue Growth

85% 87% 84% 80% 78% 76%

6% 4% 5% 8% 11% 12%

3% 3% 5% 5% 5% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


FC Sheet Aerocon Blocks Aerocon Panels HYSIL Wind Power Others

897

1515

881

1075

1327

1499

14.5%

21.5%

12.2%12.5% 12.9% 12.8%

5%

8%

11%

14%

17%

20%

23%

400

600

800

1000

1200

1400

1600


EBITDA EBITDA Margin

441

897

506

605

733

824

7.1%

12.7%

7.0% 7.1% 7.1% 7.0%

2%

5%

8%

11%

14%

300

400

500

600

700

800

900

1000


PAT PAT Margin

Rs. in million

Rs. in million Rs. in million


HIL Ltd.

Low Debt-Equity Ratios & Consistently High Dividend Payout:

HIL has maintain low debt equity ratio in the range of 0.25-0.31 which we expect to

maintained going forward.

HIL has low debt equity ratio as compared to its peers.

HIL follows a consistent dividend policy with an average payout of ~22% which reflects

its attitude towards minority shareholders.


Peer Group Analysis on TTM Basis

Company FV CMP Revenue EBITDA Margin PAT Margin EPS P/E P/BV EV/EBITDA ROE ROCE D/E MCap/Sales

HIL Ltd 10 493 9922 1291 13.0 714 7.2 95.7 5.2 0.95 3.84 18.51 20.15 0.35 0.37

Everest 10 242 9715 1057 10.9 593 6.1 39.2 6.2 1.27 3.81 20.57 21.23 0.43 0.38

Visaka 10 134 8658 1096 12.7 557 6.4 35.1 3.8 0.66 3.14 17.26 18.86 0.51 0.25

Ramco 1 72 7975 1237 15.5 647 8.1 7.5 9.6 1.37 6.60 14.16 20.57 0.45 0.78

Source: Company, Bloomberg, SKP Research

0.60

0.43

0.250.29

0.31 0.33 0.32

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13E Mar-14E

Debt-Equity Ratio

10.0

16.016.0

18.5

22.024.0

16.9%

13.3%

23.6%22.8%

22.5%21.5%

0%

5%

10%

15%

20%

25%

30%

0.0

5.0

10.0

15.0

20.0

25.0

30.0


DPS Dividend Payout Ratioin Rs.

Rs. in million


HIL Ltd.

Valuation:

HIL has shown a strong performance in FY12 and H1FY13 with increasing revenue mix

towards greener products. We expect HIL to maintain stability in top-line growth and

margins going forward due to a strong brand equity which helps in improving realisations.

At CMP, the stock trades 5x its FY13E earning of Rs.98.3 and 4.5x its FY14E earnings of

Rs.110.5. Hence, we initiate coverage on the stock with „BUY‟ recommendation and a

target price of Rs.718 (6.5x FY14E EPS), at 46% upside over the period of 12 month.

1 year forward P/E Band

Source: SKP Research

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Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12

HIL Price 4.0 X 5.0 X 6.0 X 7.0 X 8.0 X


HIL Ltd.

Financial Performance:

Income Statement Figures: Rs. in million

Particulars Mar-11 Mar-12 Mar-13E Mar-14E

Net Sales 7245.3 8578.1 10298.3 11754.2

growth (%) 3.0% 18.4% 20.1% 14.1%

Expenditure 6363.8 7503.0 8970.9 10255.6

(Inc)/Dec in Stocks 22.4 (2.2) 1.0 1.2

Raw materials 3789.1 4622.6 5633.2 6429.6

Purchase of Traded Goods 89.5 27.2 103.0 117.5

Power & Fuel Exp 642.8 754.0 823.9 940.3

Employees Expenses 473.1 537.1 617.9 705.3

Packing & Freight Exp 457.2 462.7 514.9 587.7

Other Expenses 889.7 1101.8 1277.0 1474.0

EBIDTA 881.5 1075.1 1327.5 1498.7

EBIDTA Margin (%) 12.2% 12.5% 12.9% 12.8%

Depreciation 179.5 211.8 241.6 274.3

EBIT 702.0 863.3 1085.8 1224.4

Other Income 95.69 84.86 92.68 105.79

Interest Expenses 56.3 74.6 92.0 109.0

Profit Before Tax 741.4 873.6 1086.5 1221.2

Tax 235.3 268.1 353.1 396.9

Profit After Tax 506.0 605.5 733.4 824.3

growth (%) (43.6%) 19.6% 21.1% 12.4%

PAT Margin (%) 7.0% 7.1% 7.1% 7.0%

O/S of Shares 7.5 7.5 7.5 7.5

EPS 67.8 81.1 98.3 110.5

DPS 16.0 18.5 22.0 24.0

Dividend payout ratio (%) 23.6 22.8 22.4 21.7

Balance Sheet Figures: Rs. in million Particulars Mar-11 Mar-12 Mar-13E Mar-14E

Share Capital 74.9 74.9 74.9 74.9

Reserves 2907.8 3351.4 3893.5 4509.2

Net Worth 2982.7 3426.3 3968.4 4584.1

Total Debt 858.7 1049.9 1309.3 1486.5

Deferred Tax Liability (Net) 280.4 355.8 354.0 354.0

Total Liabilities 4121.8 4832.0 5631.7 6424.6

Gross Block 4208.6 4804.7 5554.7 6304.7

Less: Depreciation 1537.8 1709.3 1951.0 2225.2

Net Block 2670.8 3095.4 3603.7 4079.5

Capital work-in-progress 228.5 168.4 0.0 0.0

Total Fixed Assets 2899.3 3263.7 3603.7 4079.5

Investments 91.1 90.0 89.4 89.4

Inventories 1515.1 1853.3 2212.0 2528.8

Sundry Debtors 626.5 846.4 987.5 1127.1

Cash and Bank Balances 105.1 94.4 90.0 90.0

Loans & Advances 326.1 537.6 617.9 705.3

Current Assets 2603.9 3368.2 3945.4 4489.1

Current Liab & Prov 1472.5 1889.9 2006.8 2233.5

Net Current Assets 1131.4 1478.3 1938.6 2255.7

Total Assets 4121.8 4832.0 5631.7 6424.6

Source: Company Data, SKP Research

Ratio Analysis Particulars Mar-11 Mar-12 Mar-13E Mar-14E

Earnings Ratios (%)

EBDITA Margin 12.2 12.5 12.9 12.8

Net Profit Margin 7.0 7.1 7.1 7.0

ROACE 21.6 21.6 22.9 22.4

ROANW 18.1 18.9 19.8 19.3

ROAA 13.3 13.5 14.0 13.7

Valuation Ratio

P/E (x) 7.2 6.0 5.0 4.5

Price/BVPS (x) 1.2 1.1 0.9 0.8

EV / EBITDA (x) 5.0 4.3 3.7 3.4

EV / Net Sales (x) 0.6 0.5 0.5 0.4

Balance Sheet Ratio

D/E Ratio 0.3 0.3 0.3 0.3

Current Ratio 1.8 1.8 2.0 2.0

Interest Coverage 14.2 12.7 12.8 12.2

FA Turnover Ratio 2.7 2.8 2.9 2.9

Inventory Days 87 90 90 90

Debtors Days 32 36 35 35

Creditors Days 39 37 37 37

DuPont Analysis

PAT / PBT 0.7 0.7 0.7 0.7

PBT / EBIT 0.9 0.9 0.9 0.9

EBIT / Net Sales 0.1 0.1 0.1 0.1

Net Sales / Total Assets 1.8 1.8 1.8 1.8

Total Assets / Equity 1.4 1.4 1.4 1.4

ROE 17.0% 17.7% 18.5% 18.0%

Cash Flow Statement Figures: Rs. in million Particulars Mar-11 Mar-12 Mar-13E Mar-14E

PBT 741.4 873.6 1086.5 1221.2

Depreciation 179.5 211.8 241.6 274.3

Interest expense 56.3 74.6 92.0 109.0

Other (income)/Loss (95.7) (84.9) (92.7) (105.8)

(Inc)/Dec in WC (287.7) (357.6) (464.7) (317.1)

Taxes paid (235.3) (268.1) (353.1) (396.9)

Operating Cash Flows 358.4 449.4 509.7 784.7

Capital expenditure (552.0) (576.2) (581.6) (750.0)

(Inc)/Dec in Investment 1.1 1.1 0.6 0.0

Other income 95.7 84.9 92.7 105.8

Investing Cash Flows (455.1) (490.2) (488.4) (644.2)

Inc/(Dec) in debt 215.7 191.2 259.4 177.2

Dividend Paid Incl. Tax (138.9) (160.2) (191.3) (208.7)

Inc/(Dec) in Capital 0.0 0.0 0.0 0.0

Interest paid (56.3) (74.6) (92.0) (109.0)

Other Adjustments 76.3 73.7 (1.8) 0.0

Financing Cash Flows 96.8 30.1 (25.7) (140.5)

Chg. in Cash & Equ 0.1 (10.7) (4.4) (0.0)

Opening Cash Balance 105.0 105.1 94.4 90.0

Closing Cash Balance 105.1 94.4 90.0 90.0


HIL Ltd.

Notes:

The above analysis and data are based on last available prices and not official closing rates. SKP Research is also available on Bloomberg, Thomson

First Call & Investext Myiris, Moneycontrol, Ticker plant and ISI Securities

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Member: NSE BSE NSDL CDSL NCDEX* MCX* MCX-SX FPSB *Group Entities

INB/INF: 230707532, BSE INB: 010707538, CDSL IN-DP-CDSL-132-2000, DPID: 021800, NSDL IN-DP-NSDL: 222-2001, DP ID: IN302646, ARN: 0006, NCDEX: 00715, MCX: 31705, MCX-SX: INE 260707532




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