What are the prospects of HSIL?
-Shadab
HSIL, formerly known as Hindustan Sanitaryware & Industries, is a leading player in building products and container glass segment. It is the largest sanitaryware player in India with a market share of around 40 per cent in the organised segment. It enjoys a strong brand equity through its flagship brand Hindware.
Being one of three key players in the Indian sanitaryware industry, HSIL enjoys reasonable pricing power. This partially insulates it against margin erosion from increasing input costs. The operating profit margin and net profit margin of HSIL have averaged around 16.1 per cent and 5.32 per cent respectively, over five years.
Owing to the growing demand, the company has undertaken a capacity expansion plan by increasing its sanitary ware capacity by around 79 per cent over the next three years, to 5.0 million pieces by the end of FY14 from 2.8 million pieces currently.
The stock's PE is trading at a discount of 3.2 per cent to its five-year median PE of 9.7. Based on an earnings per share growth of 16.5 per cent, over five years, its price-to-earnings to growth (PEG) ratio comes at an comfortable level of 0.6 times. The company has ambitious expansion plans but one must not forget that HSIL has taken leverage for implementing these capacity expansion across segments and any delay in the planned capacity expansion can put additional stress on the company's interest burden. Therefore, factor in the above clause before investing.
This article was originally published on July 11, 2012.
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