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Hindustan Sanitaryware: A glittering show! - Views on News from Equitymaster

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Hindustan Sanitaryware: A glittering show!
Feb 1, 2011

HSIL has announced its December quarter results. The company has reported a 36% growth in topline and a 177% growth in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline grows by 36% YoY during the quarter.
  • Strong expansion in operating margins leads to a 66% growth in operating profits.
  • Bottomline grows by an impressive 177% YoY as lower interest charges and better economies of scale further boost performance
  • Bottomline for the nine month period grows by 156% YoY on the back of a 34% growth in topline.

(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 2,069 2,812 35.9% 5,366 7,205 34.3%
Expenditure 1,694 2,188 29.2% 4,345 5,732 31.9%
Operating profit (EBDITA) 375 624 66.3% 1,021 1,474 44.3%
EBDITA margin (%) 18.1% 22.2%   19.0% 20.4%  
Other income 5 5 -9.8% 13 10 -20.6%
Interest (net) 103 83 -19.5%  303  275 -9.3%
Depreciation 128 139 8.6%  363  402 10.7%
Profit before tax 150 407 171.6%  368  807 119.3%
Extraordinary items    -      -       (28) -    
Tax   50 132 161.6%  125  257 105.3%
Profit after tax/(loss) 100 276 176.6%  215  550 155.6%
Net profit margin (%) 4.8% 9.8%   4.0% 7.6%  
No. of shares (m)    55.1    66.1   55.1 66.1  
Diluted earnings per share (Rs)*         13.0  
Price to earnings ratio (x)*            9.2  
(* on trailing twelve months earnings)

What has driven performance in 3QFY11?
    Segmental break up...
    Segment 3QFY10 3QFY11 % change
    Building products      
    Revenues 908 1,294 42.6%
    PBIT 170   278 63.1%
    PBIT margin 18.8% 21.5%  
    Container glass      
    Revenues 1,160 1,517 30.7%
    PBIT 119   275 132.0%
    PBIT margin 10.2% 18.1%  

  • The company's building products division, which grew by an impressive 43% YoY contributed roughly around 50% to the company's overall sales growth of 36% YoY. The strong 43% growth in this division was driven by both external as well as internal factors. On the external front, continued strong growth in the Indian economy helped in the recovery of the real estate and the construction industry and this in turn helped building products division to maintain strong growth momentum. As far as internal efforts to drive growth are concerned, the company has increased its focus on the premium product range that enjoys better realisations. In view of the strong growth, the company has planned capacity expansion at its Bibinagar, Andhra Pradesh facility and post this expansion, this factory will be the largest such factory in India.

  • The company's other division of container glass also grew at a strong pace, registering a growth of 31% YoY. While volumes for the division were up 21% YoY, realisations accounted for the rest of the growth in revenues. Both better product mix as well as price hikes contributed to the growth in realisations for this division.

    Cost break-up...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Raw materials 301 324 7.7%              633              779 23.2%
    % sales 14.6% 11.5%   11.8% 10.8%  
    Staff cost 211 292 38.8%              584              773 32.3%
    % sales 10.2% 10.4%   10.9% 10.7%  
    Goods purchased for resale 275 438 59.1%              750           1,177 57.0%
    % sales 13.3% 15.6%   14.0% 16.3%  
    Power and fuel           459.80 521 13.4%           1,193           1,401 17.4%
    % sales 22.2% 18.5%   22.2% 19.4%  
    Other expenditure 447 612 37.0%           1,186           1,602 35.1%
    % sales 21.6% 21.8%   22.1% 22.2%  

  • As far as overall operating performance is concerned, margins have witnessed a strong expansion to the tune of 4.1% YoY during the quarter. This was mainly on account of lower raw materials as well as power and fuel expenses. The decline in the latter on a percentage of sales basis was mainly on account of better energy efficiencies at a new plant belonging to the container glass division.

  • With the company reducing its working capital loans, interest expenses have come lower by 20% and this, along with better economies of scale has helped the company give a great boost to net profits which have grown by 177% YoY. At 156%, growth in net profits for the first nine months is no less impressive.

What to expect?
At the current price of Rs 120, the stock trades at around 8.5 times its (expected FY12 earnings per share). The company's performance has been better than our expectations and hence, we continue to maintain our BUY view on the stock.

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