Buy This Textile Stock It Can Jump 22%, Says Sharekhan

Leading brokerage firm has recommended investors to buy the stock of Himatsingka Seide Ltd. for good returns. The company's revenue has grown by 2.5% Y-o-Y to Rs 764.8 crore with stable capacity utilization for terry towels Q-o-Q and marginal fall in capacity utilization of sheeting division.

The higher logistic cost led to 398 bps Y-o-Y decline in EBIDTA (earnings before interest, taxes, depreciation, and amortization) margin to 13.1%. Meanwhile, Himatsingka Seide Ltd has reported a dull performance for the Q42022 as a result of sharp fall in margins, impacted by various factors and higher interest costs that led to a 78.6% Y-o-Y dip in PAT to Rs 8 crore.

1. Stock Outlook

As per the report of ShareKhan, the current market price (CMP) of Himatsingka Seide Ltd is 121 and the stock has an upside potential of 22% over the next one year. For the entire FY 2022, the revenue growth has been registered at 41% Y-o-Y to Rs 3184 crore. The gross margins of the company fell by 317 bps Y-o-Y to 51.6% while EBIDTA bettered by 386 bps Y-o-Y to 16.7% because of better operating efficiencies. The company declared a profit of 140.8 crore in FY22 against a loss of 53.3 crore in FY 2021. However, near-term headwinds are expected to keep a toll on performance. But, the management has been quite optimistic about the medium-term outlook because of sustained market share gains in key markets. The board has also declared a final dividend of Rs 0.5 share for FY2022.

2. Key positives and key negatives

ShareKhan's report has highlighted the key positives and key negatives for investors. The key positive includes the gross margins of the company bettered by 210 bps Y-o-Y to 46.8% supported by prices rise and better revenue. Among the key negatives, the revenue from brands dipped to Rs 548 crore versus Rs 565 crore during Q4 2021 and Rs 556 crore during Q3 FY 2022.

The higher freight and energy costs led to a 398 bps Y-o-Y dip in EBIDTA margins to 13.1. The company's net debt increased to Rs 2,629 crore in FY 2022 versus Rs 2512 crore in Q3FY 2022.

3. ShareKhan's Views about Himatsingka Seide Ltd

ShareKhan in its report said, "Retain Positive stance and expect 22% upside. HSL's stock price has corrected by 27% in the last three months. Near-term uncertainties in the global market are affecting the demand in export markets and higher input costs weighed on the stock's performance. However, the company will be one of the key beneficiaries of rising demand for Indian home textiles in export markets.

Leveraging upon its experience in the US market and vertical integrated business model, the company is focusing on strengthening its presence in Europe and the Middle East (it has tied up with famous brand Disney to sell home textile products in Europe and Africa)."

4. Outlook and valuation

The company expanded its bedsheet capacity to 61 million meters per annum (MMPA) from 47 MMPA earlier and setup a new facility of 25,000 tonne per annum for manufacturing terry towels. HSL started FY2022 on strong note with revenue growing by 96% while EBITDA margin at 18.4% in H1FY2022. However sharp increase in the cotton prices and global uncertainties in Q4 led to just 9.1% growth in revenues while EBITDA margin declined to 14.8% in H2FY2022.

The company expects H1FY2023 to be volatile but expects growth prospects revive in the medium term. HSL's stock price has corrected by 29% in the last three months. The company will be one of the key beneficiaries of rising demand for Indian home textiles in export markets.

5. About Himatsingka Seide Ltd

HSL, founded in 1985, is a vertically integrated home textile player. The company manufactures, retails, and distributes bedding, bath, drapery, upholstery, and lifestyle accessory products. In terms of operations, the company's business is divided into manufacturing and retail and distribution. The Market cap of the company is Rs 1,183 crore.

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. 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.