HIL Ltd – Strong Buy Recommendation By SMIFS For 47% Gain

HIL Ltd.: Renowned brand with multiple offerings

We initiate coverage on HIL Ltd. (HIL) with a Strong Buy rating. Founded in 1946 and having completed 70+ glorious years, HIL is the acknowledged leader in the Building Material space in India and has recently entered into the global wooden flooring market. It is a C.K. Birla Group company and its Charminar brand is an established market leader in roofing solutions. Birla Aerocon provides green building solutions that includes Dry Walling and Wet Walling products. Birla HIL manufactures pipes and putty while the brand Parador covers wooden flooring solutions. The key aspects which draw attention to HIL’s business are:

Market leadership in Roofing business: HIL is India’s largest manufacturer of fibre cement roofing solutions and offers an exhaustive range of innovative and eco-friendly roofing solutions. HIL’s flagship Charminar brand remains the most trusted and renowned brand in the roofing solution space. Current market share of HIL in the fibre cement category stands at c. 21%.

Huge opportunity in Parador: As of now c. 50% of sales of Parador originate in Germany and Austria. 25% in Rest of Europe and balance 25% in Rest of the World. HIL is working on strategies to increase sales contribution from Rest of Europe, China and other Emerging Markets and the US. This would lead to operating leverage thereby enhancing the EBITDA margin to c. 10% from current level of c. 7-8%.

Non asbestos roofing could be the next big offering after Parador : HIL believes Charminar Fortune will be a game changer and will take the Company to newer heights in the years to come.

Brand ‘Aerocon’ is synonymous with AAC blocks and panels in India: HIL’s ‘Aerocon’ brand is synonymous with Wet Walling and Dry Walling products in India, enjoying the highest market shares.

Superior expected growth from Polymer segment: As of now HIL is a small player in the polymer segment, particularly in pipes and thus there is huge room for growth in this segment, once the brand is established.

We have valued the stock at 10x FY23E EPS to arrive at a Target Price of Rs 3014, which provides an upside of 47% based on the current market price. We thus recommend a “Strong Buy” rating on the stock.