ABAKKUS EMERGING OPPORTUNITIES FUND-1, the PMS Fund run by Sunil Singhania, holds 2,42,000 shares of HIL Ltd comprising 3.21% of its equity apital.
HIL Limited was formerly known as Hyderabad Industries Limited. It has business interests in construction materials, machinery, industrial supplies and components; logistics network It is a group company of CK Birla Group. It has two brands – Charminar and Birla Aerocon.
HIL has 5 major brands- Charminar, Birla Aerocon, Charminar Fortune, Birla HIL, and recently acquired German flooring brand, Parador. The company boasts of 21 state-of-the-art manufacturing facilities in India and 2 manufacturing sites in Germany and Austria.
The Company reported Q1FY24 results were below than estimates, mainly due to lower margins in the roofing solutions segment and higher than estimated loss in the flooring solutions segment. In Q1FY24 company reported ~6.4% YoY decline in overall sales due to decline in sales of the flooring & polymer solutions segment. Parador business was impacted due to high inflation & interest rate in Europe which led to weak consumer sentiments. Polymer solution segment reported volume growth of ~17% YoY in Q1FY24 but sales value was impacted due to lower resin prices. In Q1FY24 EBIDTA margin declined by ~273 bps YoY led by ~39 bps YoY reduction in gross margins and operating de-leverage in the business. Margins in all the business segment (except polymer solutions) of the company were impacted YoY mainly due to increase in raw material cost.
According to a research report by SMIFS, Management has set a target to achieve sales of Euro 500 mn in Parador in the next 3-4 years. SMIFS expects performance in Parador segment to improve from Q3FY24 once company starts to get incremental sales from newly entered commercial segment which accounts for ~40%-60% of the flooring market.
Roofing Solutions: In the roofing solutions segment company expects to continue maintain its market leadership with a strict focus on cost reduction. A good monsoon should have a positive impact on the rural income which is expected to drive demand for roofing products.
Building Solutions: Company’s building solutions business is performing well and the next leg of growth will be driven by capacity enhancement at existing plants. Margins in the segment is expected to improve with increase in capacity utilisation levels and better product mix.
Polymer Solution: In the polymer solutions company is aggressively growing its distribution network, increasing reach and is also investing in expanding its product range. Company now has ~1500+ SKU’s in the pipes and fitting segment. Company has also entered into underground drainage pipe segment by commissioning a state of the art facility. Sales realisation is now among the best in the industry and the segment is poised for significant growth going forward.
Flooring Solutions: Company has appointed Mr David Bradham as the CEO of Parador in order to strengthen the leadership team and make Parador one of the most valuable interiors & flooring brand globally. Company is entering new markets in America, Middle-east and Asia and building the commercial channel to hedge against the current weak demand scenario in Europe.
Vision- 2026: Management reiterated that HIL is well on the way to achieve revenue of $1 bn by 2026 & progressively advancing towards becoming a “One-Stop” building material & Solution provider. In order to reach this target, management would also take resort of any in-organic opportunities. Going forward growth will be driven from Flooring, Polymer & Building solutions segment, supported by growth from Roofing solutions segment.
Outlook and Valuation:
SMIFS has advised that considering HIL’s dominant market position in the domestic fibre cement sheet industry and its commitment to achieve USD 1 bn revenue by 2026, the stock is valued at 10xFY25E EPS of Rs. 345.9 to arrive at a target price of Rs. 3459. It continue to have a “Buy” rating on the stock.