The story so far ………..
Hindustan Tin Works-HTW is one of India's leading player in the metal packaging segment with a dominant market share of more than 20% in Tin Can manufacturing.
Tin Cans being fully recyclable and environment friendly offers the highest barrier properties for packing a host of food products besides non food products like paints, insecticides, room freshners and deodorants among others.
HTW by virtue of being an early entrant in this segment enjoys brand equity with marquee customers like Nestle, Britannia, Delmonte, Asian Paints and Reebok among others. It has successfully leveraged its dominant position in the food processing industry despite preferences for Tetra Packs as its products facilitate storage without cold chain refrigeration throughout the supply chain.
The story ahead ………..
The Rs2.5bn HTW exports close to 17% of its revenues and this acts as a natural hedge for its imports which is close to 22%. Tinplate trading revenues accounts for about 25% of its sales and this restricts margin expansion at HTW. However we believe that the cost rationalisation initiatives taken by the company should improve its margin profile from the current fiscal.
HTW has a JV-Rexam HTW Beverage Can (with the UK based Rexam who are world leaders in two piece beverage cans). This JV has recently commenced production in Taloja at a cost of Rs2bn. HTW has only a 2% share in this JV and its capital commitment is only Rs4crs.
We expect HTW to grow its earnings at a CAGR of 40% over FY'12-14 and the stock trading at half book value at 0.2x market capitalisation to revenues offers value.
Buy HTW trading at 6xFY'13E and 4xFY'14E earnings with a one-year price target of Rs100.
Thanks and Regards
LKP Advisory
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