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Company Description:
HIL, a C K Birla Group was incorporated as Hyderabad Asbestos Cement in June
1946 and was renamed to the present one in 1985. HIL is into the business of
producing building products, engineering goods and industrial products. Its first
public issue was in 1946. HIL is the market leader in its segments. HIL markets its
product AC and fibre cement sheets under the well-known brand “Charminar”.
HIL is also the largest manufacturer of calcium silicate, insulation blocks, pipe
sections and jointing for gasketing, thereby meeting the critical needs of the
fertilizer, engineering and chemical industries. It also makes aerocon prefab
panels, autoclaved aerated concrete (AAC) blocks which find applications in the
construction of residential quarters, malls, shopping complexes and office
partitioning etc.
Plants:
HIL’s most modern manufacturing plants are located at 12 locations in 8 states-
Andhra Pradesh, Gujarat, Haryana, Jharkhand, Kerala, Maharashtra, Orissa and
Uttar Pradesh. HIL being a market leader over several years with its strong brand
"Charminar" and a strong & extensive distribution network with nearly 8000 sales
points spread across the country which is serviced by its 45 depots.
100% asbestos-free:
Everest range of Fibre Cement Boards is manufactured from a homogeneous
mixture of portland cement, treated cellulose fibres, finely ground silica quartz
and other selected mineral fillers in a state-of-the-art unit using sophisticated,
digitally controlled processes.
Strengthening supplier base:
The major constituents of building products are OPC Cement, Raw Chrysotile,
Fly-ash and Lime. Cement prices are volatile and availability is a constraint in
some regions and thus HIL is taking steps to strengthen its supplier base.
Green Building Products:
Emphasis on environment and preference for Green building products remains a
focus area for the construction Industry. The Company's drive in growing the
Green Building Products business also meet with considerable success.
Q3FY12 & FY11 Results During FY11, sales advanced by 2.8% to `726.2 crore but net profit fell by
43.6% to `50.6 crore. OP and NP margin stood at 13.4% and 7.0% against
22.3% and 12.7% respectively in the corresponding period last year. HIL was
forced to briefly shut down its Dharuhera plant because of certain labour
and regulatory issues, which resulted in decline in revenue from this
segment. FY10 was an exceptional year in view of the decreased cost of
production.
EPS for FY11 stood at `67.4.The DER as at FY11 stood at 0.29:1 whereas the
value of the gross block at `444.5 crore.
During Q3FY12, sales rose 14.8% to `194.3 crore and net profit by 59.5% to
`10.2 crore. (YoY). OPM and NPM stood at 10.5% and 5.2% compared to 8.5%
and 3.8% respectively in Q3FY11. EPS for Q3FY12 stands at `13.6.
Expansion
HIL continues to expand its production capacity from time to time. HIL setup
a new 90,000 tpa cement sheet plant at Balasore, Orissa, which started
commercial production in Q3FY09. It also augmented its cement sheet
capacity at Vijayawada plant by 90,000 tpa (commercial production started
in Q2FY10) taking total capacity to 8.5 lakh tonnes a year.
In FY09, HIL had increased its thermal insulation capacity from 3,000 tpa to
6,000 tpa. HIL is further expanded its cement sheet capacity by setting up a
90,000 tpa plant at Jharkhand at cost of `40 crore; and increased capacity
at existing UP plant by 90, 000 tpa at cost of `30 crore. A new unit at Golan,
near Surat, Gujarat for manufacture of AAC blocks started commercial
production during July 2010.
The total capacity of the cement sheet is at present 8, 54, 500 tpa. Prefab
building panels at 4, 60, 000 tpa and prefabricated autoclaved capacity is
increased to 3, 05, 000 from 1, 00, 000 tpa in 2010.
Aerocon Panels Aerocon Panels, used for construction of prefab structures and partition
walls, has been extensively used in the infrastructure sectors like roadways,
irrigation, power plants, airports etc and also in the construction of malls,
schools, colleges etc.
Aerocon Panels business is expected to grow in excess of 25% a year for next
few years. Aerocon AAC – Blocks, another key offering of HIL as part of its
Green Building Products initiative also registering a good growth. This was
possible due to the newly commissioned plant at Golan. After the
stabilization period of six months of operation, the Golan plant is operating
at above 60% of its capacity.
This has helped HIL to capture significant portion of the markets in west and
south in a short time amidst intense competition, which is a reflection of the
HIL’s aggressive and successful strategies in developing this business. The
division will continue to grow in volumes in the coming years, although there
will be pressure on prices as competition is likely to intensify further with
new entrants in the market. However, the high acceptance of its Aerocon
brand and focus on quality and reliability will help HIL to grow this business.
Thermal Insulation Products
This group of Calcium Silicate based insulating materials supplies to
industries such as cement, power, petrochemical and fertilizer plants. Due
to their superior properties and high quality, HIL’s products have gained
good acceptance over its substitutes. Efforts are being made for developing
new applications to expand the market size.
The thermal insulation products, which face capacity constraints, also suffer
owing to surge in imports from China. The augmented capacity,
improvements in efficiency and costs will help in recovery of this product
segment in 2011-12 and going forward on account of fresh investments in
green field projects and replacement and modernization of plants in the
Cement, Fertilizer, Petrochemicals and other industries.
Fibre Cement Sheets Fibre cement sheets/flat products continue to be the major sales generator
for HIL accounting for about 85% of HIL’s sales Revenue. HIL is the market
leader in the fibre cement roofing industry. The fibre cement sheet industry
is estimated to grow at about 8-10% in financial year 2011-12 on account of
increased income in rural areas coupled with various initiative by
Government by way of low-cost/affordable housing schemes like Indira Awas
Yojna. Golden Jubilee Rural Housing Finance Scheme, Pradhan Mantri Adarsh
Gram Yojana, Productive Housing in Rural Area and Rural Housing Fund,
which are positives for the companies in the roofing sector.
The implementation of the UIN (Unique Identification Number) Programme is
expected to further boost income for the rural poor thereby increasing the
potential market for usage of fibre cement sheets in rural areas. With rising
income and improving standard of living in rural areas, the demand for
cement sheets expected to grow by 8-10% over the next two-three years. To
meet the increasing demand from the housing and industrial segments, the
industry has scaled up its capacities.
The government's focus on rural development is likely to heighten activity in
the rural housing sector, which will lead to higher demand for fibre-based
roofing sheets in the medium term. These sheets are emerging as a cheaper
alternative to galvanized steel sheets. Galvanized steel sheets are also used
in housing, as an alternative to asbestos-based products. But the rising steel
prices have made galvanized steel sheets more expensive, thereby
increasing the gap between the prices of the two products.
Budget Proposals Highly Positive For
Building Materials Industry
Indicators suggest that economy is turning around as core sectors and
manufacturing show signs of recovery. The spending on social sector was
increased to `1, 60,887 crore in 2011-12. For 2012-13, `30,000 crore is to be
raised through disinvestment. Temporary arrangement to use disinvestment
proceeds for capital expenditure in social sector schemes extended for one
more year. Allocation under Rural Infrastructure Development Fund (RIDF)
enhanced to `20,000 crore. Further `5,000 crore earmarked exclusively for
creating warehousing facilities.
To provide low cost funds to stressed infrastructure sectors, rate of
withholding tax on interest payment on ECBs proposed to be reduced from
20% to 5% for 3 years for certain sectors. Various proposals to address the
shortage of housing for low income groups in major cities and towns
including allowing ECB for low cost housing projects and setting up of a
credit guarantee trust fund, increased target for agricultural credit by `1-
lakh crore to `5.75-lakh crore in 2012-13 would spur the income, which
would encourage the demand of building products.
Investment in 12th plan in infrastructure will to go upto Rs 50-lakh crore;
half of this is expected from private sector proposed to allow External
Commercial Borrowings (ECB) to part finance Rupee debt of existing power
projects. The proposals to provide low cost funds to some stressed
infrastructure sectors, withholding tax on interest payments on external
borrowings (ECBs) is being reduced from 20% to 5% for 3 years and customs
relief to power, coal and railways sectors etc are industry positives and
would enhance the demand of building materials.
Foray into Renewable Energy
HIL has forayed into renewable energy sector in FY11 in line with the
Company's mission of pursuing green businesses. HIL took the initial step by
setting up a 3.60 MW (2x1.80MW) Wind Power Project in Vandhiya Village,
Kutch Dist, Gujarat. The two wind turbines have been commissioned in
March and April 2011, respectively. A part of the energy generated from the
project shall be used for captive consumption at its AAC Blocks
manufacturing unit at Golan, Gujarat and the surplus energy generated shall
be sold to Gujarat Electricity Board.
Valuation & Recommendation
Key Risks
From a mere roof manufacturing company, HIL has evolved into a multi
product, green building products organization. It has gradually diversified
from a one-product into other areas such as autoclaved aerated concrete
(AAC) blocks, thermal insulation products and other products like
prefabricated building panels, Hysil powder, spares and accessories etc.
Over 50% of the Indian population still lives under thatched roofs (Kuccha
roofing) and clay tiles. Thatched roof is not waterproof, and poses a fire
hazard besides needing regular replacement. Tiled roof needs recurring
maintenance and is also not safe. Hence security concern coupled with rising
income level, the desire to shift from kuccha house to pucca house is
increasing.
Implementations of Government of India's infrastructure development
projects have started gaining momentum. This together with other
Government sponsored initiatives in providing homes and schools for the
masses in general and the poor in particular is expected to increase demand
for construction materials.
A reasonably good monsoon expected in ensuing season and Government's
continued thrust to provide adequate shelter to the rural poor by
introducing programs like Indira Awas Yojna, Golden Jubilee Rural Housing
Finance Scheme, Pradhan Mantri Adarsh Gram Yojna, Productive Housing in
Rural Area and Rural Housing Fund will boost the demand for building
products and increase the market potential for fibre cement sheets.
At the CMP of `328, the share is trading at a P/E of 4.6x on FY12E. We
recommend BUY with a target price of `430 at which the share will trade at
a P/E of 6.0.
A number of players are increasing capacity in the roofing segment. In case
rural demand falls, this could lead to over capacity, pressure on realizations
and profitability.
Seasonality – Since HIL’s building product business is largely driven by sales
in rural India it is seasonal in nature (impacted by Kharif and Rabi crop
cycles) and hence the March and June quarters are generally better than the
rest of the year
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Company Description:
HIL, a C K Birla Group was incorporated as Hyderabad Asbestos Cement in June
1946 and was renamed to the present one in 1985. HIL is into the business of
producing building products, engineering goods and industrial products. Its first
public issue was in 1946. HIL is the market leader in its segments. HIL markets its
product AC and fibre cement sheets under the well-known brand “Charminar”.
HIL is also the largest manufacturer of calcium silicate, insulation blocks, pipe
sections and jointing for gasketing, thereby meeting the critical needs of the
fertilizer, engineering and chemical industries. It also makes aerocon prefab
panels, autoclaved aerated concrete (AAC) blocks which find applications in the
construction of residential quarters, malls, shopping complexes and office
partitioning etc.
Plants:
HIL’s most modern manufacturing plants are located at 12 locations in 8 states-
Andhra Pradesh, Gujarat, Haryana, Jharkhand, Kerala, Maharashtra, Orissa and
Uttar Pradesh. HIL being a market leader over several years with its strong brand
"Charminar" and a strong & extensive distribution network with nearly 8000 sales
points spread across the country which is serviced by its 45 depots.
100% asbestos-free:
Everest range of Fibre Cement Boards is manufactured from a homogeneous
mixture of portland cement, treated cellulose fibres, finely ground silica quartz
and other selected mineral fillers in a state-of-the-art unit using sophisticated,
digitally controlled processes.
Strengthening supplier base:
The major constituents of building products are OPC Cement, Raw Chrysotile,
Fly-ash and Lime. Cement prices are volatile and availability is a constraint in
some regions and thus HIL is taking steps to strengthen its supplier base.
Green Building Products:
Emphasis on environment and preference for Green building products remains a
focus area for the construction Industry. The Company's drive in growing the
Green Building Products business also meet with considerable success.
Q3FY12 & FY11 Results During FY11, sales advanced by 2.8% to `726.2 crore but net profit fell by
43.6% to `50.6 crore. OP and NP margin stood at 13.4% and 7.0% against
22.3% and 12.7% respectively in the corresponding period last year. HIL was
forced to briefly shut down its Dharuhera plant because of certain labour
and regulatory issues, which resulted in decline in revenue from this
segment. FY10 was an exceptional year in view of the decreased cost of
production.
EPS for FY11 stood at `67.4.The DER as at FY11 stood at 0.29:1 whereas the
value of the gross block at `444.5 crore.
During Q3FY12, sales rose 14.8% to `194.3 crore and net profit by 59.5% to
`10.2 crore. (YoY). OPM and NPM stood at 10.5% and 5.2% compared to 8.5%
and 3.8% respectively in Q3FY11. EPS for Q3FY12 stands at `13.6.
Expansion
HIL continues to expand its production capacity from time to time. HIL setup
a new 90,000 tpa cement sheet plant at Balasore, Orissa, which started
commercial production in Q3FY09. It also augmented its cement sheet
capacity at Vijayawada plant by 90,000 tpa (commercial production started
in Q2FY10) taking total capacity to 8.5 lakh tonnes a year.
In FY09, HIL had increased its thermal insulation capacity from 3,000 tpa to
6,000 tpa. HIL is further expanded its cement sheet capacity by setting up a
90,000 tpa plant at Jharkhand at cost of `40 crore; and increased capacity
at existing UP plant by 90, 000 tpa at cost of `30 crore. A new unit at Golan,
near Surat, Gujarat for manufacture of AAC blocks started commercial
production during July 2010.
The total capacity of the cement sheet is at present 8, 54, 500 tpa. Prefab
building panels at 4, 60, 000 tpa and prefabricated autoclaved capacity is
increased to 3, 05, 000 from 1, 00, 000 tpa in 2010.
Aerocon Panels Aerocon Panels, used for construction of prefab structures and partition
walls, has been extensively used in the infrastructure sectors like roadways,
irrigation, power plants, airports etc and also in the construction of malls,
schools, colleges etc.
Aerocon Panels business is expected to grow in excess of 25% a year for next
few years. Aerocon AAC – Blocks, another key offering of HIL as part of its
Green Building Products initiative also registering a good growth. This was
possible due to the newly commissioned plant at Golan. After the
stabilization period of six months of operation, the Golan plant is operating
at above 60% of its capacity.
This has helped HIL to capture significant portion of the markets in west and
south in a short time amidst intense competition, which is a reflection of the
HIL’s aggressive and successful strategies in developing this business. The
division will continue to grow in volumes in the coming years, although there
will be pressure on prices as competition is likely to intensify further with
new entrants in the market. However, the high acceptance of its Aerocon
brand and focus on quality and reliability will help HIL to grow this business.
Thermal Insulation Products
This group of Calcium Silicate based insulating materials supplies to
industries such as cement, power, petrochemical and fertilizer plants. Due
to their superior properties and high quality, HIL’s products have gained
good acceptance over its substitutes. Efforts are being made for developing
new applications to expand the market size.
The thermal insulation products, which face capacity constraints, also suffer
owing to surge in imports from China. The augmented capacity,
improvements in efficiency and costs will help in recovery of this product
segment in 2011-12 and going forward on account of fresh investments in
green field projects and replacement and modernization of plants in the
Cement, Fertilizer, Petrochemicals and other industries.
Fibre Cement Sheets Fibre cement sheets/flat products continue to be the major sales generator
for HIL accounting for about 85% of HIL’s sales Revenue. HIL is the market
leader in the fibre cement roofing industry. The fibre cement sheet industry
is estimated to grow at about 8-10% in financial year 2011-12 on account of
increased income in rural areas coupled with various initiative by
Government by way of low-cost/affordable housing schemes like Indira Awas
Yojna. Golden Jubilee Rural Housing Finance Scheme, Pradhan Mantri Adarsh
Gram Yojana, Productive Housing in Rural Area and Rural Housing Fund,
which are positives for the companies in the roofing sector.
The implementation of the UIN (Unique Identification Number) Programme is
expected to further boost income for the rural poor thereby increasing the
potential market for usage of fibre cement sheets in rural areas. With rising
income and improving standard of living in rural areas, the demand for
cement sheets expected to grow by 8-10% over the next two-three years. To
meet the increasing demand from the housing and industrial segments, the
industry has scaled up its capacities.
The government's focus on rural development is likely to heighten activity in
the rural housing sector, which will lead to higher demand for fibre-based
roofing sheets in the medium term. These sheets are emerging as a cheaper
alternative to galvanized steel sheets. Galvanized steel sheets are also used
in housing, as an alternative to asbestos-based products. But the rising steel
prices have made galvanized steel sheets more expensive, thereby
increasing the gap between the prices of the two products.
Budget Proposals Highly Positive For
Building Materials Industry
Indicators suggest that economy is turning around as core sectors and
manufacturing show signs of recovery. The spending on social sector was
increased to `1, 60,887 crore in 2011-12. For 2012-13, `30,000 crore is to be
raised through disinvestment. Temporary arrangement to use disinvestment
proceeds for capital expenditure in social sector schemes extended for one
more year. Allocation under Rural Infrastructure Development Fund (RIDF)
enhanced to `20,000 crore. Further `5,000 crore earmarked exclusively for
creating warehousing facilities.
To provide low cost funds to stressed infrastructure sectors, rate of
withholding tax on interest payment on ECBs proposed to be reduced from
20% to 5% for 3 years for certain sectors. Various proposals to address the
shortage of housing for low income groups in major cities and towns
including allowing ECB for low cost housing projects and setting up of a
credit guarantee trust fund, increased target for agricultural credit by `1-
lakh crore to `5.75-lakh crore in 2012-13 would spur the income, which
would encourage the demand of building products.
Investment in 12th plan in infrastructure will to go upto Rs 50-lakh crore;
half of this is expected from private sector proposed to allow External
Commercial Borrowings (ECB) to part finance Rupee debt of existing power
projects. The proposals to provide low cost funds to some stressed
infrastructure sectors, withholding tax on interest payments on external
borrowings (ECBs) is being reduced from 20% to 5% for 3 years and customs
relief to power, coal and railways sectors etc are industry positives and
would enhance the demand of building materials.
Foray into Renewable Energy
HIL has forayed into renewable energy sector in FY11 in line with the
Company's mission of pursuing green businesses. HIL took the initial step by
setting up a 3.60 MW (2x1.80MW) Wind Power Project in Vandhiya Village,
Kutch Dist, Gujarat. The two wind turbines have been commissioned in
March and April 2011, respectively. A part of the energy generated from the
project shall be used for captive consumption at its AAC Blocks
manufacturing unit at Golan, Gujarat and the surplus energy generated shall
be sold to Gujarat Electricity Board.
Valuation & Recommendation
Key Risks
From a mere roof manufacturing company, HIL has evolved into a multi
product, green building products organization. It has gradually diversified
from a one-product into other areas such as autoclaved aerated concrete
(AAC) blocks, thermal insulation products and other products like
prefabricated building panels, Hysil powder, spares and accessories etc.
Over 50% of the Indian population still lives under thatched roofs (Kuccha
roofing) and clay tiles. Thatched roof is not waterproof, and poses a fire
hazard besides needing regular replacement. Tiled roof needs recurring
maintenance and is also not safe. Hence security concern coupled with rising
income level, the desire to shift from kuccha house to pucca house is
increasing.
Implementations of Government of India's infrastructure development
projects have started gaining momentum. This together with other
Government sponsored initiatives in providing homes and schools for the
masses in general and the poor in particular is expected to increase demand
for construction materials.
A reasonably good monsoon expected in ensuing season and Government's
continued thrust to provide adequate shelter to the rural poor by
introducing programs like Indira Awas Yojna, Golden Jubilee Rural Housing
Finance Scheme, Pradhan Mantri Adarsh Gram Yojna, Productive Housing in
Rural Area and Rural Housing Fund will boost the demand for building
products and increase the market potential for fibre cement sheets.
At the CMP of `328, the share is trading at a P/E of 4.6x on FY12E. We
recommend BUY with a target price of `430 at which the share will trade at
a P/E of 6.0.
A number of players are increasing capacity in the roofing segment. In case
rural demand falls, this could lead to over capacity, pressure on realizations
and profitability.
Seasonality – Since HIL’s building product business is largely driven by sales
in rural India it is seasonal in nature (impacted by Kharif and Rabi crop
cycles) and hence the March and June quarters are generally better than the
rest of the year
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