HIL - Lower volumes in 3Q; FY15 offtake to be better; Hold
Sales down 10.5%, 4.7% above our estimate. HIL reported 3QFY14 revenue of `1.99bn (down 10.3% yoy), but 4.7% above our estimated `1.91bn. Sales were down yoy since sales in its building products (BP) division declined by a sharp 10.5% to `1.91bn because of lower offtake. Sales in its thermal-insulation division also declined, 3.6% to `80m. Volumes were hit as demand was lower because of the prolonged monsoon and the non-reduction in prices.
Lower volume impact margin. On account of the sales decline, HIL reported an EBITDA margin drop of 691bps yoy. Employee cost (as percent of sales) climbed 165bps. Margins were also struck by the high cost of raw material and the higher cost of power in Andhra Pradesh. Management has indicated that volumes have started to pick up in January, and is hopeful of a recovery. The South continues to see a decline in volumes, though.
Loss of `1m reported during the quarter. After suffering a huge loss of `74m in 2QFY14, HIL recovered, reporting a net loss of only `1m in 3QFY14. Margins were lower on account of inflated imported raw-material costs and lower other-operating income. We expect the company to turn around in the next quarter.
Our take. The 3QFY14 results have not been up to the mark as margins and PAT dropped below consensus and our estimates. The company posted aconsecutive quarterly loss. We believe this should improve in FY15 as business activity is increasing and most industry operators would succeed in raising prices. We maintain a Hold recommendation, assign a PE of 6x to FY15e and derive a revised target of `268. At the ruling price, the stock quotes at PE of 5.9x FY15e and 5.3x FY16e EPS of `44.6 and `49.7 respectively. Risk. Rise in input costs.
| Thanks & Regards Anand Rathi Institutional Research |
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