Daljeet Kohli understands the mechanics of HSIL (Hindustan Sanitaryware) like the back of his hand. He first put a buy on the stock on 16.04.2014 and later issued an initiating coverage report when the stock was at Rs. 215. Thereafter, Daljeet hand-held investors through numerous trials and tribulations, periodically egging them to shed their inhibitions and grab the stock.
HSIL touched an all-time high of Rs. 477 on 10.04.2015, exactly a year after the recommendation, giving fabulous returns of 121%.
However, thereafter, the stock has been in a free-fall. It presently stands forlorn at Rs. 284. In just the last month, the stock is down 20%.
The reason for HSIL’s fall from grace is the slowdown in the realty sector. With few big-ticket realty projects being announced, there are few takers for sanitary ware and other building products. The slowdown is reflected in the poor quarterly results that HSIL reported for Q1FY16.
|HSIL Ltd – Financial Results|
|Particulars (Rs. Cr)||Jun 2015||Jun 2014||% Chg|
However, this is where the opportunity arises for intrepid investors to load up on a top-quality company with a strong brand at low valuations. Daljeet has explained the position in succinct words:
“At CMP of Rs 313, HSIL trades at PE of 23.5x and 20.2x its FY16E and FY17E earnings of Rs 13.3 and Rs 15.5 per share respectively. The company’s dismal performance is a reflection of bleak demand scenario which is a short term phenomenon in our opinion. The long‐term outlook of the building products sector continues to be robust and HSIL should be the key beneficiary in such an event. Packaging products segment has attained breakeven in FY15 and is likely to improve performance going forward. However, near term pressure cannot be overlooked. We have revised our estimates taking into consideration the current scenario and would revisit them post witnessing uptick in demand. One of the key triggers for the stock would be the separation of building products and packaging products business which would reduce the volatility in segmental performance. Recent correction in stock price provides an opportunity to accumulate the stock. We maintain BUY rating on the stock with revised SOTP based target price of Rs 396 per share (earlier price target was Rs 434)”.
So, Daljeet’s advice is quite clear that the “bleak demand scenario is a short term phenomenon” and that the sharp correction provides an “opportunity to accumulate the stock”.
The same view was expressed earlier by Emkay in its initiating coverage report of May 2015. Emkay emphasized that HSIL is the “market leader in the Indian sanitary ware business with a dominant 40% market share” and that “Strong brand creation, varied product portfolio, wide distribution network and rising acceptance of premium products have been the key drivers for HSIL’s sustained leadership”. Emkay has foreseen a target price of Rs. 530 for HSIL.
Vikas Sethi of Sethi Finmart was of the same view. He advised investors to take advantage of the sharp cut and buy HSIL on the ground that it has a “very strong brand, variety of product portfolio, and a very strong distribution network across the country”. His target price is Rs. 550.
At this stage we must note that NAMO’s battle cry “Pehle Sauchhalya Phir Devalaya” (first toilets and then temples) means that it is only a question of time before sanitary ware stocks find their place in the sun again.
We must also note that a number of ace stock pickers are already sitting pretty in sanitary ware stocks. While Dolly Khanna, Vijay Kedia and Jwalamukhi have commandeered large quantities of Cera Sanitaryware, Porinju Veliyath has put his money on Sahyadhri Industries.
So, there may be some merit in Daljeet’s theory that sanitary ware stocks will sparkle once again!