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Hind.Sanitaryware: Hygienic performance! - Views on News from Equitymaster

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Hind.Sanitaryware: Hygienic performance!
May 20, 2011

HSIL has announced its FY11 results. The company has reported a 31% growth in topline and a 67% growth in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • HSIL (Hindustan Sanitaryware & Industries Ltd) topline grows by 25% YoY during the quarter, 31.4% YoY during the fiscal.
  • Small expansion in operating margins leads to a 28% growth in operating profits for the quarter. Operating profits for the full year register a growth of 39% YoY
  • Bottomline for the quarter grows a muted 5% YoY as higher taxes take toll. For the full year, profits grow by 67% YoY, led mainly by strong operating performance
  • Recommends a dividend of Rs 2.5 per share (yield of 1.7%)


(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 2,645 3,317 25.4% 8,011 10,522 31.4%
Expenditure 2,133 2,660 24.7% 6,478 8,392 29.5%
Operating profit (EBDITA) 511 656 28.4% 1,532 2,130 39.0%
EBDITA margin (%) 19.3% 19.8%   19.1% 20.2%  
Other income 3 26 814.3% 16 36 126.4%
Interest (net) 98 81 -16.7% 401 356 -11.1%
Depreciation 128 134 4.5% 490 535 9.1%
Profit before tax 289 467 61.9% 657 1,275 94.1%
Extraordinary items (14) (2)   (41) (2)  
Tax (34) 142   91 399 337.2%
Profit after tax/(loss) 309 323 4.6% 524 874 66.6%
Net profit margin (%) 11.7% 9.7%   6.5% 8.3%  
No. of shares (m) 55.1 66.1   55.1 66.1  
Diluted earnings per share (Rs)*       9.5 13.2  
Price to earnings ratio (x)*         11.3  

What has driven performance in FY11?
    Segmental break up...
    Segment 4QFY10 4QFY11 % change FY10 FY11 % change
    Building products            
    Revenues 1,149 1,410 22.8% 3,730 5,019 34.5%
    PBIT 245 335 36.7% 722 1,061 46.9%
    PBIT margin 21.3% 23.7%   19.4% 21.1%  
    Container glass            
    Revenues 1,489 1,905 27.9% 4,261 5,491 28.9%
    PBIT 185 317 71.0% 475 824 73.6%
    PBIT margin 12.4% 16.6%   11.1% 15.0%  

  • The company's building products division, which grew by an impressive 35% YoY contributed roughly around 50% to the company's overall sales growth of 31% YoY. The strong 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. Besides, network expansion to strengthen its presence in Tier II cities also helped boost growth. 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 29% YoY for the fiscal. The division sales will continue to thrive due to the continuous efficiency improvement, increased capacity and improved demand conditions.

    Cost break-up...
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Raw materials 564 687 21.8% 1,196 1,466 22.5%
    % sales 21.3% 20.7%   14.9% 13.9%  
    Staff cost 240 378 57.6% 824 1,151 39.7%
    % sales 9.1% 11.4%   10.3% 10.9%  
    Goods purchased for resale 330 409 23.8% 1,080 1,586 46.8%
    % sales 12.5% 12.3%   13.5% 15.1%  
    Power and fuel 475.60 590 24.0% 1,669 1,991 19.3%
    % sales 18.0% 17.8%   20.8% 18.9%  
    Other expenditure 524 597 14.0% 1,710 2,200 28.7%
    % sales 19.8% 18.0%   21.3% 20.9%  

  • As far as overall operating performance is concerned, margins have witnessed an expansion to the tune of 1.1% YoY during the fiscal. 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 11% and this, along with better economies of scale has helped the company give a great boost to PBT which has grown by 94% YoY. Had it not been for the more than four-fold jump in tax outgo, net profit growth that stood at 67% would have been even better. Nevertheless, it still is an impressive performance by the company.

What to expect?
At the current price of Rs 150, the stock trades at around 11.3 times its trailing twelve month earnings. The company's performance has been way better than our expectations and hence, we believe that there is a strong possibility of our target price being met much before the expected timeline. We maintain our positive view on the stock.

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