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HSIL: Sparkling performance! - Views on News from Equitymaster

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HSIL: Sparkling performance!
Nov 1, 2010

HSIL has announced its September quarter results. The company has reported a 29% growth in topline and a 52% growth in bottomline on a YoY basis. Here is our analysis of the results.

Performance summary
  • Topline grows by 29% YoY during the quarter.
  • Contraction in operating margins leads to a 20% growth in operating profits.
  • Bottomline grows by 52% YoY as lower interest charges and better economies of scale boost performance
  • Half yearly bottomline grows by 138% YoY on the back of a 33% growth in topline.


(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 1,721 2,220 29.0% 3,297 4,393 33.2%
Expenditure 1,347 1,771 31.5% 2,651 3,544 33.7%
Operating profit (EBDITA) 374 449 20.0%  646  849 31.5%
EBDITA margin (%) 21.8% 20.2%   19.6% 19.3%  
Other income     4     3 -22.9%   8   6 -27.5%
Interest (net) 110   97 -12.4%  201  192 -4.1%
Depreciation 128 136 6.6%  235  263 11.9%
Profit before tax 140 219 56.7%  218  400 83.3%
Extraordinary items    -      -       (28) -    
Tax   48   80 65.0% 75  125 67.4%
Profit after tax/(loss)   91 139 52.2%  116  275 137.5%
Net profit margin (%) 5.3% 6.3%   3.5% 6.3%  
No. of shares (m)    55.1    55.1   55.1 55.1  
Diluted earnings per share (Rs)*         12.4  
Price to earnings ratio (x)*         11.2  
(* on trailing twelve months earnings)

What has driven performance in 2QFY11?

    Segmental break up...
    Segment 2QFY10 2QFY11 % change
    Building products      
    Revenues 877 1,262 43.9%
    PBIT 176   251 42.8%
    PBIT margin 20.1% 19.9%
    Container glass      
    Revenues 839   954 13.8%
    PBIT 111   118 5.9%
    PBIT margin 13.2% 12.3%  

  • The 29% growth in quarterly revenues was driven mainly by the company’s building products division, which grew by an impressive 44% YoY. This growth 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 strengthened its operations to further leverage its distribution network in this division. The company has also 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 maintained its steady pace, growing by 14% YoY. One of the container glass facilities in Hyderabad had to be shut down for about 9 weeks on account of capacity expansion from debottlenecking and hence, volumes were affected to that extent. The debottlenecking however would ensure higher offtake in the forthcoming quarters.

    Cost break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials 290 578 99.3% 806 1,194 48.1%
    % sales 16.8% 26.0%   24.4% 27.2%  
    Staff cost 201 249 23.8% 373 481 28.7%
    % sales 11.7% 11.2%   11.3% 10.9%  
    Power & fuel 432.30 437 1.1% 733 879 19.9%
    % sales 25.1% 19.7%   22.2% 20.0%  
    Other expenditure 423 507 19.7% 739 990 34.1%
    % sales 24.6% 22.8%   22.4% 22.5%  

  • Huge jump in raw material costs has pressurised operating margins and the same has come lower by 1.6% over same quarter last year. Raw material costs as a percent of sales have gone up by around 9%, a significant jump. Had it not been for the savings on the power costs front and also other expenses, contraction in margins would have been much worse.

  • With the company reducing its working capital loans, interest expenses have come lower by 12% and this, along with better economies of scale has helped the company give a great boost to net profits which have grown by 52% YoY. At 138%, growth in net profits for the first half of the year has been even better.

What to expect?
At the current price of Rs 139, the stock trades at around 10 times its expected FY12 earnings per share. The company’s performance has been in line with our expectations and hence, we continue to maintain our BUY view on the stock.

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