HSIL: Recommendation Review

We had recommended HSIL in DSIJ Vol. 27, Issue No. 4 (dated January 30–February 12, 2012). We had recommended the stock based on the company's dominant position in the sanitaryware market. We believe that HSIL is a clear beneficiary of the growth in the industry, which is at around 10-12 per cent per annum. The company is also undertaking a capacity expansion process, which will continue in FY13.

HSIL has two business verticals, viz. sanitaryware (47 per cent of revenues) and the container glass division (53 per cent of revenues). Its business is well diversified across all territories in India. The southern market contributes 30 per cent of its revenues, the north accounts for 25 per cent and 45 per cent comes from the rest of India. Higher volumes and better realisations have been key to the growth in both the divisions of this company. It has the biggest network of distributors and retailers in this industry, which is another factor that we considered while recommending the stock. Its brand, Hindware, enjoys a dominant market position with a 40 per cent market share, and adds 68 per cent to the total revenues of the company.

HSIL’s margins have been increasing over the last five years. It recorded an impressive growth of 21 per cent in the topline and 27 percent in the bottomline for 9MFY12. In the recently-concluded quarter, the company reported sales growth of 22 per cent, but its net profit saw a decline of six per cent mainly due to the rupee depreciation. Given that the rupee is still over the 52 per dollar mark, we see the company’s profitability taking some more beating going forward. With this rationale, we believe that investors should take this opportunity to book profits in the counter at its CMP of Rs 166, which gives an impressive 25 per cent capital appreciation from the recommended price of Rs 133.