Friday, 24 August 2012

Stock Update: Hindustan Sanitaryware (HSIL)

Following up with Cera Sanitaryware review last week, I did a quick review of the other sanitaryware company in my portfolio.

For FY12:
Consolidated net revenues increased 27.38%
PAT grew 26.04%
EPS grew 15.2%

Building Products Division:
  • Net revenues increased 23.70%
  • Added 510 dealers and penetrated into 125 new towns
  • Added new brand QUEO targeting the luxury and super premium segment of the market

Installed Capacity:-
  • Sanitaryware – 3.5 million pieces annually. Completion of expansion at Bahadurgarh by October 2012 and greenfield project in Gujarat to achieve consolidated capacities of 5 million pieces
  • Faucets – 0.5 million pieces annually. Completion of phase I and II expansions of faucets at
  • Bhiwadi by Q2 FY 2013-14 and Q4 FY 2013-14 to achieve consolidated capacities of 3 million pieces.

Container Glass Division
  • Net revenues increased 30.62%
  • Completed capacity expansion, increasing total capacity from 1,125 tpd (1,643 million units) to 1,600 tpd (2,300 million units)
  • Container Division comprises of 55% revenue for the company. 22% market share in container glass segment in India.

Over 60% of India’s population does not have proper sanitation facilities. The Steering Committee of the Planning Commission has proposed an allocation of over `44,000 crore towards providing sanitation facilities in the 12th Five year Plan.

The company acquired Garden Polymers during the year and extended their product offerings to PET bottles, caps and closures, offering one more packaging solution besides glass bottle. Garden Polymers was the fourth largest manufacturer of PET bottles in India and HSIL spent 87cr for the acquisition.

Father-son duo (CMD and Jt MD) take a salary 7cr and 6.5cr! Whereas, the business division heads are paid 1.5 cr each! Does not speak very well of the promoter-management.

Business reconstruction reserve in the B/S of 225 cr has been done based on a scheme approved by the Calcutta High Court to revalue a portion of the company’s freehold land. It is not permitted as per GAAP. This looks to have been done primarily to maintain the debt-equity ratio in respectable numbers.

Recommendation:
With an EPS of 16.7 and an expected 12-15% growth rate for the next 3-5 years, FY13 EPS is likely to be around 18-19. At approximately 8x PE (with a lower margin glass business, it will be cheaper than a pure-play like Cera), the likely price can reach 150-170 by end of FY13. At a CMP of 110, it can be a good medium term buy. 
However, I would not make HSIL a core portfolio choice, given its low margin and high capital requirements. Cera is a better bet in this space, but at lower valuations.


Guru Speak: Mohnish Pabrai

Came across this recent video on youtube. Fascinating as usual.

Sunday, 19 August 2012

Cera Sanitaryware: Stock Update

Cera is the third largest player in the Indian sanitaryware market after Hindustan Sanitaryware (HSIL) and Parryware (EID Parry).

The highlights of the company are:

  • Sanitaryware - capacity expansion from 2 million pieces to 2.7 million pieces underway.
  • Faucetware - Initial capacity of 2,500 pcs per day, scalable to 10000 pcs. per day
  • Bathware & Wellness Range - Primarily imports from China; product ranges like shower cubicles, shower panels etc
Financial Results for FY2011-12:
  • Revenues of 320 cr and Net Profit of 31.79cr.
  • EPS was 25.32 up from 20.97 a year back.
  • Paid a dividend of Rs 3, up from Rs 2.5 in 2010-11.
  • EBIDTA margins have been closer to 18-20% consistently.
  • RONW% is around 23% for the last three years.

Management/promoter compensation - Father/son duo (CEO and Executive Director respectively) get a salary of 2.5 cr and 1.9 cr, which is a bit high compared to the net profit of the company. Promoters hold 55% of the stock.

Cera has a strong distribution network with 1000 Distributors / Dealers and 10000 retailers.

The company has maintained its strong revenue and profit performance in the 1st quarter of 2012 as well. Revenue was at 90.5 cr (up 40%) and net profit was 9.24 cr (up 34%).

With a reasonably good demand for sanitaryware and Cera's position as the 3rd largest player in the market, added to its efficient use of capital, the company seems to be well placed for future growth.

I am expecting a EPS of between 28-30 for FY12, so expected FY12 end price is 230-360. The CMP of around 315 is already fairly reasonable.

Recommendation: Cera would be a good buy at closer to the 260-280 range. For long term investors, I would suggest to wait for lower levels than buying now, if you are planning to buy in large quantities. For smaller quantities, buying as a SIP would probably bet a good bet for Cera.

Friday, 10 August 2012

Stock Update: Supreme Industries (NSE: SUPREMEIND)

Supreme has been going strength to strength. Although it has not been able to sell its Supreme Chambers, it has shown consistent growth and operating results. It has its yearly closing in June. So, what was published last month was the full year results.

  • Polymer processing went up by 9.8%. 
  • Revenue was at 2965 cr, up 20% yoy
  • Net Profit was at 232 cr, up 36.91% yoy
  • Standalone EPS of 18.93
  • Final dividend of 4.5/share was announced taking the full year dividend to 6/share.
Supreme has 4 major business segments.

Segment
Volume growth
Value growth
Plastic Piping
14%
28%
Packaging Products
9%
19%
Industrial Products
8%
14%
Consumer Products **
-10%
6%
** excluding PP Mats business which was discontinued

  • The value added products segment has gone up by 31.5%
  • Committed to capex of 280 cr primarily in capacity expansion in cross laminated films, protective packaging unit at Hosur, composite LPG cylinder & pipe unit and plastic piping unit.
  • Total planned capex of around 1100 cr in the next 5 years, to be funded from internal accruals.
  • The company expects a volume growth of around 16% and value growth of 25% in 2013.

Expected EPS for June 2013 : 21.5-23
PE range : 12-15
Possible price range (June 2013) : 258-345

In my previous update of the company, I had expected an FY12 EPS between 15-16 and a target price range of 180-240 by June end 2012. Both have been positively surpassed. The stock is making new highs recently. Expecting a one year forward price of close to 320-350. I continue to hold Supreme and it continues to be the largest position in my portfolio. I see no reason to other that sit tight on it.

Disclosure: I am invested in Supreme. Please due your own due diligence before investing.