HIL- 2QFY19 Results – Building Products Driving EBITDA Margin Expansion

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<p><strong><a href="https://www.smartkarma.com/entities/17390" target="_blank" data-smartkarma-citation="entities:17390:1">Hil Ltd (HIL IN)</a> is one of the market leaders in roofing and ~65% of its revenues in FY18 came from it. It sells fiber cement and steel roofing sheets. Its building solutions brand, ‘Aerocon’, offers AAC blocks, boards &amp; panels, pipes &amp; fitting. </strong><strong>AAC blocks offer effective and practical solutions for current building regulations and are manufactured using the latest technologies</strong>. <strong> Boards and panels are an ideal replacement for plywood, plasterboard, particle board, and brick walls.  These are used for building partitions, pre-fabricated structures, and mezzanine floors. HIL also offers CPVC (Chlorinated polyvinyl chloride) and UPVC (Unplasticized polyvinyl chloride) pipes and fittings, a more eco-friendly product. </strong></p>
<p>HIL could be a part of one's long-term portfolio because:</p>
<ul>
<li>Roofing solutions, building solutions, and others accounted for 65%,30%, and 5% respectively of the total revenues of FY18. We expect this revenue mix to change to 55%,38%, and 7% respectively by FY20E. We expect revenue from building solutions to grow as management expects good growth prospects from dry mix and pipes.</li>
</ul>
<ul>
<li>We expect revenues, EBITDA and PAT to grow at CAGR 12%/18%/23% (FY18-20E) respectively. We expect EBITDA margins to expand ~ 130 bps to 12.4% in FY20E from 11.1% in FY18 and PAT margins to expand ~ 130 bps to 7.4% in FY20E from 6.1% in FY18.</li>
</ul>
<ul>
<li>We expect ROE to expand ~440 bps to 19.9% in FY20E from 15.5% in FY18 and ROCE to expand ~430 bps to 25.5% in FY20E from 21.2% in FY18</li>
<li>Management expects good growth prospects in Dry mix and pipes, which will further boost building segment revenues. New product 'Charminar Fortune' launched in FY18 will start contributing to roofing  segment revenues from FY19E</li>
<li>Acquisition of M/s. Parador Holdings GmbH, Germany will likely increase PAT by almost ~20% from 3QFY19E. Parador is a Germany based floor solutions provider. Its 2017 revenues were 142m Euro and were bought for the enterprise value of 83m Euros.  </li>
</ul>
<p><strong>We initiate coverage on HIL with the fair value of Rs. 2,911 per share representing a potential return of 35% in the next 12 months. We arrived at the price target by </strong><strong>assigning a PE multiple of 15x on the EPS estimate of Rs 155.7 for the year ending June-20E  for HIL standalone business,  adding the value of Parador of Rs 485 per share and cash per share Rs 91.</strong></p>
<table class="table table-striped">
<tbody>
<tr>
<td>Particulars (Rs in mn)</td>
<td style="text-align: right;">FY17</td>
<td style="text-align: right;">FY18</td>
<td style="text-align: right;">FY19E</td>
<td style="text-align: right;">FY20E</td>
</tr>
<tr>
<td>Revenue</td>
<td style="text-align: right;">   10,536</td>
<td style="text-align: right;">   13,251</td>
<td style="text-align: right;">   14,848</td>
<td style="text-align: right;">   16,594</td>
</tr>
<tr>
<td>PAT</td>
<td style="text-align: right;">        546</td>
<td style="text-align: right;">        809</td>
<td style="text-align: right;">     1,075</td>
<td style="text-align: right;">     1,233</td>
</tr>
<tr>
<td>EPS (Rs.)</td>
<td style="text-align: right;">       73.2</td>
<td style="text-align: right;">     107.9</td>
<td style="text-align: right;">     143.3</td>
<td style="text-align: right;">     164.4</td>
</tr>
<tr>
<td>PE (x)</td>
<td style="text-align: right;">           29</td>
<td style="text-align: right;">           20</td>
<td style="text-align: right;">           15</td>
<td style="text-align: right;">           13</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source- HIL Annual Report FY18, Trivikram Consultants Research as on 27/09/2018</div>

Hil Ltd (HIL IN) is one of the market leaders in roofing and ~65% of its revenues in FY18 came from it. It sells fiber cement and steel roofing sheets. Its building solutions brand, ‘Aerocon’, offers AAC blocks, boards &amp; panels, pipes &amp; fitting. AAC blocks offer effective and practical solutions for current building regulations and are manufactured using the latest technologies.  Boards and panels are an ideal replacement for plywood, plasterboard, particle board, and brick walls.  These are used for building partitions, pre-fabricated structures, and mezzanine floors. HIL also offers CPVC (Chlorinated polyvinyl chloride) and UPVC (Unplasticized polyvinyl chloride) pipes and fittings, a more eco-friendly product. 
HIL could be a part of one's long-term portfolio because:

Roofing solutions, building solutions, and others accounted for 65%,30%, and 5% respectively of the total revenues of FY18. We expect this revenue mix to change to 55%,38%, and 7% respectively by FY20E. We expect revenue from building solutions to grow as management expects good growth prospects from dry mix and pipes.


We expect revenues, EBITDA and PAT to grow at CAGR 12%/18%/23% (FY18-20E) respectively. We expect EBITDA margins to expand ~ 130 bps to 12.4% in FY20E from 11.1% in FY18 and PAT margins to expand ~ 130 bps to 7.4% in FY20E from 6.1% in FY18.


We expect ROE to expand ~440 bps to 19.9% in FY20E from 15.5% in FY18 and ROCE to expand ~430 bps to 25.5% in FY20E from 21.2% in FY18
Management expects good growth prospects in Dry mix and pipes, which will further boost building segment revenues. New product 'Charminar Fortune' launched in FY18 will start contributing to roofing  segment revenues from FY19E
Acquisition of M/s. Parador Holdings GmbH, Germany will likely increase PAT by almost ~20% from 3QFY19E. Parador is a Germany based floor solutions provider. Its 2017 revenues were 142m Euro and were bought for the enterprise value of 83m Euros.  

We initiate coverage on HIL with the fair value of Rs. 2,911 per share representing a potential return of 35% in the next 12 months. We arrived at the price target by assigning a PE multiple of 15x on the EPS estimate of Rs 155.7 for the year ending June-20E  for HIL standalone business,  adding the value of Parador of Rs 485 per share and cash per share Rs 91.



Particulars (Rs in mn)
FY17
FY18
FY19E
FY20E


Revenue
   10,536
   13,251
   14,848
   16,594


PAT
        546
        809
     1,075
     1,233


EPS (Rs.)
       73.2
     107.9
     143.3
     164.4


PE (x)
           29
           20
           15
           13



Source- HIL Annual Report FY18, Trivikram Consultants Research as on 27/09/2018

HIL Ltd- Acquisition to Boost the Profitability