HIL Ltd. | Q3FY15 Result Update | Performed well on yoy basis; Maintain BUY rating on the stock with target price of Rs 898:: IndiaNivesh

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 HIL reported good Q3FY15 result on an absolute basis. Though it was in-line
with our expectations on topine front, it disappointed on profitability front.
 Net sales grew 23.1% yoy in Q3FY15 to reach Rs 2460 mn from Rs 1998 mn in
Q3FY14 (INSPL est: Rs2491 mn). The sales growth was driven by building
products segment (contributing 96.4% to revenue) which grew by 24.2% yoy
at Rs 2379 mn in Q3FY15 against Rs 1916 mn in Q3FY14.
 EBITDA grew 373.2% yoy to reach Rs 194 mn in Q3FY15 against Rs 41 mn in
Q3FY14. EBITDA margin expanded 583 bps yoy to reach 7.9% in Q3FY15 from
2.1% in Q3FY14. This was on account of better raw material cost which lowered
to 52.4% in Q3FY15 from 58% in Q3FY14. Despite this, the performance was
lower than our expectation of Rs 236 mn EBITDA and 9.5% EBITDA margin.
This was due to higher than expected other expenses cost. On segmental
front, building products segment (96.4% of revenue) reported EBIT margin of
8.1% while thermal insulin segment (6.8% of revenue) reported EBIT margin
of 8.5% for Q3FY15.
 Reported PAT stood at Rs 84 mn in Q3FY15 against loss of Rs 1 mn in Q3FY13.
However, this was lowe than our expectation of Rs 121 mn, primarily due to
lower EBITDA as compared to expectations. Adjusting for one-time income
from sale of asset and expenses on account of voluntary retirement scheme,
adjusted PAT stood at Rs 75 mn.
 For 9mFY15, net sales grew by 32% yoy to reach Rs 8344 mn from Rs 6321
mn in 9mFY14. Building products segment grew by 32.9% yoy to reach Rs
8116 mn in 9mFY15 against Rs 6107 mn in 9mFY14. Thermal insulation
segment grew 5.7% yoy to reach Rs 211 mn in 9mFY15 from Rs 199 mn in
9mFY14. EBITDA grew 221% yoy to reach Rs 915 mn in 9mFY15 from 285 mn
in 9mFY14. EBITDA margin stood at 11% in 9mFY15 against 4.5% in 9mFY14,
an improvement of 645 bps yoy. This improvement in EBITDA margin is on
account of better sales performance and lower raw material and staff cost.
Raw material cost as percentage to sales reduced to 54.5% in 9mFY15 against
60.2% in 9mFY14. Staff cost reduced to 9%% in 9mFY15 from 10.9% in 9mFY14.
On segmental profitability front, building products reported EBIT margin of
10.8% in 9mFY15 against 5.5% in 9mFY14. Thermal insulation segment
reported pressure in profitability at 8.8% in 9mFY15 against 15.6% in 9mFY14.
Adjusted PAT (adjusted for exceptional expenses and one-time income) stood
at Rs 474 mn in 9mFY15 against Rs 53 mn in 9mFY14, growth of 789.5%. This
is on account of higher EBITDA, higher recurring other income and reduced
interest cost. Interest cost reduced to Rs 40 mn in 9mFY15 against Rs 85 mn
in 9mFY14.
Valuation
At CMP of Rs 688, the stock trades at PE of 9.1x and 5.1x its FY15E and FY16E
earnings estimate of Rs 75.2 and Rs 136.2 per share respectively. The demand and
raw material scenario have improved for building products segment, which
contributes more than 95% to total revenue. We remain positive on the company
strategy to diversify its product mix and reduce dependence on asbestos sheets.
We maintain BUY rating on the stock with target price of Rs 898 (valuing the stock
at 6.6x FY16E earnings).

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