HSIL Target price achieved; downgrade to Sell :: Anand Rathi

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HSIL
Target price achieved; downgrade to Sell
 2QFY11 Results. HSIL’s profit marginally belied our estimates,
mainly due to lower-than-expected performance by container glass
division. We have factored in the earnings dilution from the recent
QIP issue of `1.5bn (net of interest savings). We believe the stock
is fairly valued at current levels and does not offer any near-term
re-rating triggers. Downgrade to Sell.
 Sanitaryware segment. The sanitaryware division’s revenue grew
44% yoy on the back of a better product mix and higher
realizations. The division recorded an EBIT margin of 19.9% in
2QFY11 (down 15bp yoy and up 110bp qoq). The company plans
to increase capacity of its AP/Haryana facility by 0.7/0.3m pieces.
 Container glass division. The division expanded the Hyderabad
unit capacity by 50 tons per day for which it had to shut one of
the furnaces for nine weeks. This led to its subdued performance.
Revenue was up 14% yoy, though down 14% qoq. The 2QFY11
EBIT margin stood at 12.3%, up 200bp qoq and down 90bp yoy.
 QIP issue and change in estimates. HSIL raised `1.5bn in
equity through a QIP (`136 a share) in 2QFY11. We lower our
EPS estimates by 1%/4% for FY11/12 to factor in a 20% equity
dilution, the benefit of interest savings from the QIP proceeds
and lower tax rate.
 Valuations. We retain our target multiple at 11x one-year-forward
earnings, in line with the stock’s five-year average. Our revised
target price stands at `134 (earlier `140). Downgrade to Sell.