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HHLS is a major player in the growing Air conditioner market in India with a ~9% market share in the room
AC market. It has a well established distribution network (~1,800 dealers) and a strong brand name.
HHLS has been focusing on the energy efficient Spilt AC’s with many variants which has enabled it to
capture a significant market presence. HHLS has seen a CAGR in Revenue/PAT of 24%/16% during
FY06-11 and as the Indian AC market expected to grow at ~20% (due to low penetration, increasing
income, increasing temperatures) it is poised for a high growth.
Investment Highlights
A major player in the air conditioners market
HHLS is one of the major players in the Air conditioner market in India and has a strong brand. It has a
~9% market share in room air conditioner (RAC) market. The air condition market in India is estimated to
be ~3.3mn pcs (Rs68,000 mn) and is expected to triple (~10.3 mn pcs) by 2015 (Source: CEAMA).
Split Air conditioners to drive future growth
The market in RAC is shifting towards split Ac due to lesser noise, more energy efficiency and better
appearance. Split Air conditioners account for ~65% of the total market and is expected to contribute ~80%
by FY14. HHLS has a major presence in the spilt AC segment and is seeing high growth in this segment.
HHLS has an edge over its peers in this category and sold ~79% of its split Ac’s with 5 star rating in FY10.
Growing temperatures and increasing income to boost future demand
The rising temperatures in the country have increased the demand for air conditioners and now they
are perceived as necessities as compared to luxury earlier. Also, the increasing income of the
masses across the country and easy availability of financing by distributors/retailers has resulted in
the growing demand for air conditioners.
Low penetration offer high demand prospects
Air conditioner penetration in India is ~3% which is significantly lower than Pakistan (~16%), Malaysia
(~26%) and Brazil (~12%). The penetration in India is expected to significantly improve due to rising
income, increasing affordability of products and higher availability of financing. HHLS to capture the Tier
II and Tier III city customers has launched models which are more affordable in a bid to ensure high
growth.
Revenue/PAT CAGR of 24%/16% during FY06-11
HHLS had revenue CAGR of 24% during FY06-11 primarily led by volume growth (FY06-11 CAGR
~24%) and PAT CAGR of ~16%. It expanded capacity in FY10 and now can produce ~0.4mn on
single shift basis (total sales in FY11 was ~0.24mn). With expanded capacity and expanding market,
HHLS is well placed to capitalize on the growing market.
Valuations
HHLS is one of the major players in the air conditioner market in India and is poised for a high growth
phase due to the growing demand and prominent market position it commands. HHLS currently
trades at a PER & EV/EBIDTA of 10.9x and 8x FY11. We have no rating on the stock.
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