Sample  write-ups  
 HIL   
Vol. No. : 14    Issue No. : 49                             Wednesday, May 18, 2016

Good monsoon to lift its fortunes

Pick up in rural demand and lower raw material prices should auger well for this building material solutions company

Related Tables
4HIL : Financials
4HIL: Results

Idea  HIL
BSE Code 509675
BSE Group B
NSE Code HIL
ISIN Demat INE557A01011
Bloomberg HIL@IN
Reuters HLLT.BO
Par Value Rs 10
52-week High/Low Rs 850 / Rs 422
Current Price Rs 522 (as on 18th May 2016)

Founded in 1946, HIL, (formerly Hyderabad Industries Limited) is one of India’s most respected names in the building material solutions industry. The CK Birla Group company, HIL is a pioneer of green building materials, producing roofing solutions, panels, walling blocks, plywood substitutes, high-quality pipes and fittings, and industrial insulation.

The company has eight manufacturing units across Western and Southern markets in India and has capacity to produce more than one million tonnes (mt) of roofing solutions.

HIL’s building products division manufactures Asbestos Cement Sheet (ACS), roofing solutions, blocks and V-Boards. ACS finds extensive usage in urban and semi-urban interiors, while cement asbestos products largely address rural markets, allowing adequate geographic de-risking. V-Boards, blocks, panels and other roofing solutions come under the Premium category of fibre sheets which are sold through institutional channels and real estate players in the market.

Strong brands

Charminar asbestos roofing products are market leaders in roofing solutions, with a share of more than 25% in the total asbestos-roofing products market in the country. The brand, launched in 1950s, has retained its leadership position. Its recall remains the highest-ever despite the entry of a plethora of new players.

The green-building brand, Aerocon covers panels for fast-track drywall substitution, autoclaved aerated concrete blocks, plywood substitutes and advanced polymer products such as pipes and fittings with technology for leak-proof joints. Aerocon Blocks today has strong market share and is growing among the fastest in green buildings solutions. Demand for the Company's pre-fabricated panels is increasing especially from major Government, Industrial, Healthcare projects as well as from export requirement.

HIL’s durable HYSIL industrial thermal insulation finds a range of applications in energy-intensive industries. Hysil business continued to maintain its market leadership position in the Granular Insulation segment, with a virtual numero - uno position in the Cement industry which is its biggest consumer. The company also exports this product to countries like Africa, Middle East, Nepal & Bangladesh.

Strong investments expected in rural infrastructure

Rural infrastructure, including dwelling units, is a key social priority of the government. Between the last two census surveys, the total rural housing stock has increased from 17.75 crore units in 2001 to 22.06 crore units in 2011. The total share of pucca roofing and RCC has increased from 45.5% in 2001 to 61.2% in 2011 (Source: Census 2011). With improvement in rural income (from farm and non-farm avenues), government thrust on rural housing and improving disposable income; customers are migrating from kutcha roofs to more durable and convenient pucca roofing solutions. Over the years, the use of clay tiles has been declining due to the non-availability of raw material and a rising preference of superior roofing material. Moreover, the pucca fibre cement roofing is very economical and costs just one-third of the cost of an RCC ceiling slab.

The Rs 56000 crore Indian warehousing industry (another key user industry for roofing sheets) is growing at over 10% annually. Modern ware housing accounts for only 15% of the market. With the arrival of organized players, modern warehousing is estimated to grow at a faster rate of 20-25% over the next 5 years.

Should benefit from Swachh Bharat Abhiyan

Going forward the industry and hence HIL should benefit from various government initiatives such as

A) Swachh Bharat Abhiyan (SBA) – to make rural areas "open defecation free"- ODF by enabling construction of individual, cluster & community toilets. B) Development of 100 smart cities as satellite towns of larger cities. C) Development of Industrial corridors. D) Housing for all by 2022. E) Rural housing fund under National Housing Board (NHB).

Financials will improve

For the year ended Mar’16, net sales were lower by 1% to Rs 1102.18 crore. OPM stood at 9.6% resulting in a 11% lower OP to Rs 105.41 crore. Other income was lower by 35% to Rs 6.31 crore. Interest cost was up by 59% to Rs 9.17 crore. Depreciation was higher by 17% to Rs 39.74 crore. There was an EO expense of Rs 2.76 crore for year ended Mar’16 as compared to an EO income of Rs 2.93 crore for Mar’15. Thus PBT after EO stood at Rs 60.05 crore, lower by 35%. After providing total tax of Rs 20.39 crore, PAT stood at Rs 39.66 crore, lower by 41%.

Outlook is improving and sales as well as margins expected to improve

The Asbestos Cement Sheet (ACS) sector as a whole was flat for the past 4 years. Lower monsoon, uncertain rupee, Chinese imports etc were major reasons for the same. The industry as a whole was around 39 lakh tons remained around that level for the past 4 years. No major new capacities were added during these years and most of the players were struggling to operate beyond 75% of installed capacity.

The Crysotile fiber which accounts for around 65-70% of total raw material costs is by and large imported from countries like Russia. Due to the severe economic crisis in Russia and lower commodity price trend, the price of Crysotile fibre is also coming down. For entire FY’16, while the prices were lower by around 10% on YoY basis, currency fluctuations have resulted in loss of most of the gains expected from lower raw material prices. This together with a back to back rainfall below normal led the industry as a whole to struggle in FY’16 as well.

However, with economic conditions continue to deteriorate worldwide, Crysotile fibre prices fell further in Jan’16. Currently, the prices are hovering around further 10% lower than the FY’16 prices. So the raw material benefit is expected to continue to remain in FY’17 as well.

After 2 years of back to back below normal monsoon, IMD and Skymet have expected an above normal monsoon for FY’17. This will result in pickup in demand from the rural and semi-rural segment.

HIL is carrying an inventory of less than 2 months of Crysotile fibre and any fall in the prices, will continue to help the company. Further any pickup in demand will result in company increasing the prices of ACS and V Boards, as the industry has not increased the prices of the finished products for the past 14 months due to lower demand from rural and semi urban markets.

Thus the overall margins and realizations are expected to improve going forward.

Valuation

For FY’17, we expect volume as well as price realization growth for building products segment, which will be accompanied by higher margins due to lower raw material costs and better economies of scale.

For FY’17, we expect the company to report net sales and PAT of Rs 1212.40 crore and Rs 52.88 crore. This gives an EPS of Rs 70.6 Current market price of Rs 522 discounts FY’17 projected earnings by around 7.4 times.

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HIL : Financials
 
  1103(12) 1203(12) 1303(12) 1403(12) 1503(12) 1603(12) 1703(12P)
Net Sales 726.32 860.24 1037.25 871.40 1109.38 1102.18 1212.40
OPM % 12.4% 12.8% 11.7% 5.3% 10.7% 9.6% 10.3%
OP 89.95 109.94 121.54 46.32 119.04 105.41 124.88
Other income 7.77 6.06 7.13 6.07 9.77 6.31 6.00
PBIDT 97.72 116.00 128.67 52.39 128.81 111.72 130.88
Interest 5.63 7.46 10.61 10.23 5.77 9.17 9.63
PBDT 92.09 108.54 118.06 42.16 123.04 102.55 121.25
Depreciation 17.95 21.18 26.71 28.72 34.02 39.74 41.73
PBT 74.14 87.36 91.35 13.44 89.02 62.81 79.52
EO 0.00 0.00 0.00 -3.55 -2.93 2.76 0.00
PBT after EO 74.14 87.36 91.35 9.89 91.95 60.05 79.52
Total Tax 23.53 26.81 30.71 2.76 25.09 20.39 26.64
PAT 50.61 60.55 60.64 7.13 66.86 39.66 52.88
EPS* 67.6 80.8 81.0 13.0 92.1 55.4 70.6
*Annualised on current equity of Rs 7.49 crore of face value of Rs 10 each
(P) Projections
Figures in crore, Source: Capitaline Corporate Database

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HIL: Results
 
  1603(12) 1503(12) Var. (%) 1603(12) 1503(12) Var (%)
Net Sales 263.19 274.79 -4 1102.18 1109.38 -1
OPM (%) 7.6% 9.0%   9.6% 10.7%  
Operating Profits 20.02 24.82 -19 105.41 119.04 -11
Other Income 1.53 2.50 -39 6.31 9.77 -35
PBDIT 21.55 27.32 -21 111.72 128.81 -13
Interest 2.50 1.79 40 9.17 5.77 59
PBDT 19.05 25.53 -25 102.55 123.04 -17
Depreciation 10.99 8.14 35 39.74 34.02 17
PBT 8.06 17.39 -54 62.81 89.02 -29
EO 0 0.78 0 2.76 -2.93 -194
PBT after EO 8.06 16.61 -51 60.05 91.95 -35
Tax Expense 3.57 3.77 -5 20.39 25.09 -19
PAT 4.49 12.84 -65 39.66 66.86 -41
EPS* (Rs.) # #   50.3 92.1  
*Annualised on current equity of Rs 7.49 crore of face value of Rs 10 each
# EPS not annualised due to seasonality of business
LP: Loss to Profit PL: Profit to Loss
EO: Extraordinary items
EPS is calculated after excluding EO and relevant tax
Figures in Rs crore
Source: Capitaline Database

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