HSIL Ltd. | Event Update | HSIL Ltd enters into water heaters business | Maintain BUY rating on the stock with SOTP based target price of Rs 485 :: IndiaNivesh, report

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HSIL Ltd enters into water heaters business
HSIL Ltd signed Distribution agreement with Atlantic International of France, for
distribution of domestic water heaters manufactured by Atlantic International.
The agreement provides exclusive distribution to the company for pan-India and
other territories as may be agreed between the companies. Water heaters would
be distributed under joint brand name of “Hindware Atlantic”.
Atlantic International is an affiliate of the French Group (Groupe Atlantic), which
is one of the leading players in Europe. The group specialises in the manufacturing
and marketing of electric storage water heaters, heating products, ventilation
among others. The group has revenue of USD 1.1 bn.
Our take
Electric water heater market in India is approximately Rs 7 bn and is growing at
~7% per annum. It is a competitive market with organised sector market share of
70%. Major players in the segment include Bajaj, Crompton, Racold, V-Guard,
among others.
In our view, this would add a product line to the total product offerings of the
company. The company has a distribution system wherein it supplies vents, which
can be capitalised to supply these products. Also, there is an opportunity to
capitalise its relationship with real estate players to supply water heaters along
with its current products. However, we do not foresee this product to contribute
sizably to the topline of the company in near term as the market is competitive.
Also, the margins are not likely to be as high as its current building products
business due to fierce competition in the segment.
Valuation
At CMP of Rs 415, the stock trades at PE of 29.1x and 18.4x its FY15E and FY16E
earnings of Rs 14.2 and Rs 22.5 per share respectively. We are positive on the
company due to improved performace in packaging products segment. We also
believe that the pain in building products segment due to inventory build-up in
distribution channel is now behind. The demand in the sector remains robust due
to favourable demographic profile of the country and government thrust on
eradicating open defecation by 2019. We maintain BUY rating on the stock with
SOTP based target price of Rs 485.

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