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Yes Securities Report
Six reasons to buy the stock
Hindware Home Innovation Ltd. is a credible play on rapidly growing building material segment. Hindware is a leading manufacturer of sanitaryware and faucets in India. Incrementally company is gaining market share in plastic pipe segment as well with focus on plumbing segment. Company also has a sizeable presence in consumer appliance business wherein company offers vide range of products and possesses strong distribution network.
Biggest beneficiary sanitaryware and faucet industry growth: The Rs 180 billion industry is likely to grow by 10% compound annual growth rate over next five-years and HIndware having prominent market share should witness healthy growth. Moreover, with growing consumer preference for branded products and company growing presence in tier-II and III cities, Hindware should outperform industry growth by registering 14% CAGR over FY23-FY25E.
Expanding presence in rapidly growing plastic pipe industry: Hindware via its brand “Truflo”, has registered stellar volume growth of 16% over FY20- FY23E and given company's focus on plumbing segment and higher contribution of CPVC, Hindware's average selling price improved by 26% CAGR over similar period. With upcoming capacity and growing brand presence of Truflo, we reckon plastic pipe biz to report volume growth of 13% CAGR over FY23-FY25E. Further, with company's higher share of value-added products, Ebitda/Kg should be Rs 15 in FY25E.
Double digit margins on cards: With manufacturing and selling under same company, Ebitda margins are bound to improve. Incrementally the input cost is expected to remain steady, gas cost is contracting and company is enhancing the contribution of high margin products. Moreover, with worst of PVC volatility behind, plastic pipes biz should also report better profitability. Hence, we reckon Ebitda margins to come in at 11.6%/11.9% for FY24E/ FY25E. Therefore, Ebitda should grow by 31% CAGR over FY23-FY25E.
Improving balance sheet and return ratios: Hindware's debt stood at Rs 7.11 billion as on FY23, which is largely pertaining to restructuring and working capital requirements. Though company plans to reduce debt by Rs 1 billion annually, we haven't factored the same in our estimates. With improvement in margins, return rations are also likely to expand, hence we reckon return on equiyt/return on capital employed to come in at 24%/24% in FY25E from 12%/18% in FY23.
Lucrative valuations: We expect Hindware's revenue/Ebitda/profit after tax to grow by 11%/31%/71% CAGR over FY23-FY25E and have valued the company at price/earning (x) of 30 times on its FY25E earnings per share of Rs 26.8, arriving at a target price of Rs 803, implying an upside of 44% from current market price. Hence, we initiate coverage on Hindware by assigning a 'Buy' rating to the stock.
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