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Brokerage Recommendations

Monday, October 03, 2011

Pinc Research calls a ‘Buy’ on HSIL
CMP: Rs. 185        Target Rs. 270

HSIL’s stock price has corrected by 20% in the last one week from Rs 200 to Rs 160. However, we believe there is no fundamental concern for the company. The correction is overdone and gives a buying opportunity for investors. HSIL’s Sanitary and container glass segments are likely to witness a CAGR of 30% and 23% over FY11-13 along with margin expansion of 317 bps over FY11-13. Key highlights (1) Brownfield sanitary expansion in Bibinagar, AP completed in Sept’11 and is likely to commence operation from 1st week of Oct’11.(2)The new Faucet capacity of 0.2 mn pcs in Bhiwadi, Rajasthan has already commenced operation in Sept’11 as per schedule. We believe the company is not facing any slowdown in any of the segments and all its plants are running over 100% utilisation. We reiterate our ‘BUY’ recommendation on the stock with a TP of Rs 270 (66% upside) and maintain our valuations (see next pg). At our TP, the stock discounts FY12E and FY13E EPS of Rs 20 and Rs 27 by 13.5x and 10x respectively.

Robust demand in sanitary and container glass: The company is seeing very strong demand from both the retail and institutional segments which form 74% and 26% of building product division (50% of revenue) respectively. All its sanitary plants are running at full capacity following robust demand. After speaking with the management, we have a sense that its container glass division is performing better than expectation.

Valuation And Recommendation: We maintain ‘BUY’ rating on the stock with a TP of Rs 270. At CMP of Rs 162, the stock is attractively valued at PE of 8.1x and 5.9x on FY12E and FY13E EPS’ respectively. Moreover, the company has recently acquired Garden Polymers (PET business) which is likely to be EPS accretive by Rs 1.6-2.0 in FY12 post consolidation (not captured in the valuation). There is no slowdown or any fundamental concerns on the company and recent stock price correction gives an opportunity to BUY.

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