HSIL Ltd.|Q2FY15 First Cut Analysis | Mixed performance; Packaging products shines but building products spoil the show | We maintain HOLD rating on the stock with target price of Rs 425 :: IndiaNivesh

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 HSIL Ltd declared standalone Q2FY15 results which were far below our
estimates; though they were in-line with street expectations on the bottomline
front. The company reported topline growth of 9.3% yoy while bottomline
growth of 109% yoy. This strong bottomline growth is on account of low base
in Q2FY14 where the company had reported losses in packaging products
segment. Packaging products performance surprised positively while building
products segment performance surprised negatively.
 HSIL reported 9.3% growth in topline at Rs 4161 mn against our expectation
of Rs 4543 mn, underperforming by 8.2%. This underperformance was mainly
on account of building products segment. Building product segment reported
1.3% yoy decline in sales at Rs 2268 mn against our expectations of Rs 2873
mn (i.e. growth of 25% yoy). Performance of packaging products segment
surprised us positively with 25% yoy growth at Rs 1965 mn against our
expectation of 10% growth at Rs 1729 mn.
 The company reported 41.6% yoy growth in EBITDA at Rs 680 mn against our
expectation of Rs 772 mn. EBITDA margin stood at 16.3% against our
expectation of 17%, an improvement of 371 bps yoy. This is on account of
lower power cost which reduced to 18.2% of sales in Q2FY15 from 26% in
Q2FY14. This saving was partially offset by higher raw material and employee
cost. EBIT margin in building product segment contracted 150 bps yoy to
reach 18.5% against 20% in Q2FY14 and 21.1% in Q1FY15 (INSPL est: 21%).
However for packaging products, EBIT margin reported 7% profit against 5.5%
loss in Q2FY14 and 2.4% profit in Q1FY15 (INSPL est: 4%). PAT reported at Rs
191 mn against our expectation of Rs 270 mn.
 PAT of the company stood at Rs 191 mn against Rs 91 mn in Q2FY14, signifying
growth of 109.1% yoy. This was far below our estimate of Rs 270 mn,
underperforming by 29.4%. In our opinion, this can be attributed to
underperformance in building products segment both on topline and
profitability fronts.
 In H1FY15, HSIL reported 11.7% sales growth to reach Rs 8243 mn from Rs
7382 mn in H1FY14. This was driven by 5.7% yoy growth in building products
and 17.7% yoy growth in packaging products segment. EBITDA grew 47.1%
yoy to reach Rs 1295 mn in H1FY15 against Rs 880 mn in H1FY14. This is on
account of decline in power and fuel cost (17.5% of sales in H1FY15
against27.6% of sales in H1FY14). This is partially offset by increase in raw
material cost (34.3% of sales in H1FY15 against 27.2% in H1FY14). Building
products segment reported flat margins of 19.7% in H1FY15 against 19.6% in
H1FY14. Packing products segment reported profit of 4.6% in H1FY15 against
loss of 2.9% in H1FY14. PAT stood at Rs 341 mn in H1FY15 against Rs 150 mn
in H1FY14, growing by 126.5% yoy. This strong growth was aided by lower
growth in interest cost and lower effective tax rate.

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