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Buy This Multibagger Industrial Stock For A Target Price of Rs 399: HDFC Securities
HSIL Ltd is a small-cap company with a market value of Rs 2,037.32 Cr that operates in the building materials industry. HSIL is India's second-largest glass container maker. Glass containers, Polyethylene Terephthalate (PET) bottles and goods, and security caps and closures are among the packaging items manufactured and marketed by the firm. The shares of the firm doubled investors' money in the previous year, rising from Rs 146.50 to Rs 322.70 (current market price), representing a multibagger return of 118.74 percent. Year to date (YTD), the stock is up 44.54 percent, and in the last six months, it has risen 36.80 percent. HDFC Securities sees more upside in the stock and has assigned a buy rating with a target price of Rs 399 over a two-quarter time horizon.
Q3FY22 Result
As per the brokerage "HSIL reported robust revenue of Rs 638.8cr, up 18%/16.9% YoY/QoQ driven by increased demand for glass bottles in the beer and wine industries in the packaging product division and sustained demand momentum in the real estate sector driving building product division. The company reported EBITDA of Rs 89.6cr (-5.2%/+26.5% YoY/QoQ) mainly impacted due to higher commodity prices and power & fuel costs. EBITDA margins contracted ~345bps and stood at 14%; positive operating leverage and optimal product mix helped in improving margins sequential (up ~105bps QoQ). PAT for the quarter was at Rs 28.5cr vs Rs 35.9cr in Q3FY21."
The brokerage has said "Revenue from packaging products division, contributing 62% of topline, was at Rs 397.8cr (up 10.2%/29.2% YoY/QoQ). Optimized product mix coupled with better operational efficiencies supported increasing demand for glass containers for alcoholic beverages. Relining process of one of the furnaces has been completed and glass container was operating at capacity utilization of 92% during the quarter compared to 83% in the same quarter last year. The division reported EBIT margin of 15.2% (down 245bps/ 505bps YoY/QoQ). Debottlenecking activities, better operating efficiencies and likely price hikes would help in sustaining margin levels. Building products division (BPD) posted decent revenue of Rs 243cr (up 35.5%/2.7% YoY/QoQ). EBIT margins of this division stood at 3.0% during the quarter."
Investment rationale
HDFC Securities has said that "The company announced transfer of manufacturing operations of its building products division (BPD) to Brilloca Ltd, a wholly owned subsidiary of Somany Home Innovation Ltd (SHIL), in a slump sale transaction for a cash consideration of Rs 630cr. Building Products division's entire operating facilities will be transferred to Brilloca and HSIL will focus on the expansion of its packaging business and capitalize on the growing opportunities in the sector. The transaction, apart from strengthening the balance sheet, is EPS accretive for HSIL as BPD generated low single digit EBIT margin for past many quarters."
"The demerger in April 2018 and now the transfer of manufacturing operations to Brilloca (related party) would ensure sharper focus and better alignment of goals. It was a strategic move to enhance capabilities, create future-focused institutions of excellence. On account of recent developments, we are issuing stock update note, revising the target upwards," the brokerage further added.
Valuation & Recommendation
As per the brokerage "Leveraging its rich manufacturing legacy along with innovation capabilities, the company has emerged as the second‑largest glass container manufacturer in India with the capability of using diverse fuel options and product applications across downstream sectors. Established track record, experienced promoters, diverse institutional clients across industries in the packaging division and entry into high margin specialty glass packaging business are the key positives for the company. Having established a leadership position in glass packaging segment it has ample growth opportunities to mark its territory in PET and security caps & closures."
HDFC Securities has claimed "Higher realization due to likely price hikes, capacity expansion due to debottlenecking and foray into high margin specialty glass catering to perfumery, cosmetics industry among others would improve its topline growth and expand margins. Moreover, likely disruption in industry-wide glass container volumes, due to ongoing insolvency proceedings of largest player (Hindusthan National Glass & Industries Ltd), supports HSIL's medium term prospects. We think the base case fair value of the stock is Rs 349 (14x FY24E EPS) and the bull case fair value is Rs 399 (16x FY24E EPS) over the next two quarters. Investors can buy the stock in the band of Rs 311-318 (12.7x FY24E EPS) and add more on dips to Rs 272-276 band (11x FY24E EPS)."
Disclaimer
The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.
