HSIL Ltd.|Q2FY15 Result/Concall Update | Mixed performance; Packaging products shines but building products spoil the show; Maintain HOLD rating with revised target price of Rs 380-:: IndiaNivesh

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Mixed performance; Packaging products shines but building
products spoil the show; Maintain HOLD rating with revised
target price of Rs 380
 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.
 HSIL reported 9.3% yoy growth in topline at Rs 4161 mn led by the packaging
products segment. Packaging products segment grew 25% yoy to reach Rs
1965 mn against Rs 1572 mn in Q2FY14. This performance can be attributed
to recently merged subsidiary viz. Garden Polymers Pvt Ltd. Container glass
business grew by 11% yoy while the rest of the growth has been contributed
by PET bottle business. Building products segment de-grew by 1.3% yoy to
reach Rs 2268 mn in Q2FY15 against Rs 2298 mn in Q2FY14. This de-growth
was on account of 2 factors: 1) reduced sales to correct the increased inventory
in distribution channel and 2) discontinuation of tiles business (tiles business
contributed Rs 110-120 mn in Q2FY14).
 The company reported 41.6% yoy growth in EBITDA at Rs 680 mn in Q2FY15
against Rs 481 mn in Q2FY14. EBITDA margin stood at 16.3% in Q2FY15 against
12.6% in Q2FY14, 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. However for packaging
products, EBIT margin reported 7% profit against 5.5% loss in Q2FY14 and
2.4% profit in Q1FY15.
 PAT of the company stood at Rs 191 mn against Rs 91 mn in Q2FY14, signifying
growth of 109.1% yoy. This is on account of higher other income (81.1% yoy),
lower growth in depreciation (24.3% yoy) and interest cost (15.7%) and lower
effective tax rate (33.3% in Q2FY15 vs. 41.4% in Q2FY14).
 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.
Key highlights of the conference call with the management:
 With respect to building products, the management mentioned the following:
 There was inventory built-up in the pipeline in distribution channels.
This led to delay in payments from the channels increasing receivables
days. Hence to reduce the excess inventory, the sales push was lower in
building products segment. The management stated that the inventory
build-up would begin from the month of November which will result in
better sales growth going forward.

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