Anand Rathi Recommends Buy This Multibagger Small Cap Building Material Sector Stock For 39% Gains

Leading brokerage firm Anand Rathi is bullish on HIL Limited. The brokerage suggests "buy" the stock of the company with a target price of Rs 3,657 per share. The brokerage claims a potential upside of up to 39% with the given target price. HIL is a small cap Building Materials sector company having a market capitalization of Rs 1,973.56 crore.

According to the brokerage, Weak demand sentiment, geopolitical crises and high costs led to HIL's lowest quarterly margin in nine years. Overcapacity and pricing pressure in roofing, off-season for Parador and low resin prices would impact near-term margins. The healthy balance sheet and Boards expansion are positives.

Stock Outlook, & Returns on Investment

On NSE, the current market price of the HIL stock is Rs 2,631.15 apiece, trading 0.285 down compared to its previous close. Today, it opened at Rs 2,637 apiece.

The stock in 1 week has fallen 0.41%. Whereas, it fell 3.77% in 1 month and 28.69% in 3 months, respectively. Over 1 year, it gave 39.86% negative return. In the past 3 years and 5 years, the stock has given multibagger returns of 123.14% and 105.18%, respectively. In long term, the stock has delivered good returns on investments.

The 52 week high level is Rs 4,864.90 as on 20 January 2022 and the 52 week low is Rs 2,603.05 as on 9 November 2022, respectively.

Lowest quarterly margins in nine years

Owing to the geopolitical situation in Europe, high material cost in India and volatility in PVC resin prices, overall EBITDA declined 81% y/y to Rs120m where margins were the lowest in the last nine years at 1.6%. Overall revenue was flat y/y to Rs7.6bn (roofing ~4.7%, building ~28.6%, plumbing -6.9%, flooring -8.2%, others -27.5%). We believe price hikes constrained by the geopolitical crisis, higher raw-material prices and weak demand would continue to pressure near-term operating performances.

Expansion, venture update, Risks

The Boards expansion (30,000 tons) is complete and the Panels (36,000 tons) is expected to be complete by Q4 FY23. This will help capture market share in the east. The AAC Block plant acquisition would aid HIL in expanding operations to the fast-growing AAC block market in the eastern region and maintain its leading position. The company has ventured into construction chemicals, where revenue is guided to be Rs3bn in the next 3-4 years. The strategy of expanding operations in Europe for Parador are unaltered despite the ongoing geopolitical situation.

Outlook, Valuation, Risks

According to the brokerage, Demand for Parador is expected to improve after the winter (Feb'23) where demand in Oct'22 declined 30% y/y. Despite its market-leading position in AC sheets, overcapacity and a price dip by peers constrained HIL from hiking prices despite high-cost pressures. Operating at 100% capacity, the Building Solutions division margin was guided to at 13%+. "We expect revenue and EBITDA to clock 6% and 7% CAGRs respectively over FY22-25. We maintain our Buy rating on inexpensive valuations with a lower target price of Rs.3,657 (Rs.4,794 earlier)," the brokerage has said.

According to the brokerage, the key risks are: Rise in input costs, demand slowdown.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.