Tried to gather the contribution of different segments over last 3 years and this is how it looks. The valuation has been sub 1x Price/Sales due to sub 10% EBITDA margins the business has had and Asbestos/ESG overhang and post Parador acquisition, the perception that it was a poor one and the debt on the books.
At 2850 Cr sales now and EBITDA margins hovering around 12%, with bulk of the contribution from non-asbestos from high-growth businesses, with Long-term debt reduced to 92 Cr (as per most recent concall), the character of the business has changed substantially of-late.
I have been going through recent ARs and concalls and here are some notes to some of the questions I had in mind (in no particular order).
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Parador Sales - 142.2 million euros in 2017. HIL bought for 82.8 million (687 Cr). Parador was loss-making then. Modular One was introduced post-acquisition and is doing quite well in Germany and Austria.
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Most of the sales is from online so I checked with a friend in Germany to see if the store locations are valid ones (can never be too careful with these foreign acquisitions) and turns out they are big DIY retailers (DIY flooring is very common in Germany). Some of the vendors I checked are OBI and Hagebau. Reviews for the product in these sites is very positive. Reviews are scattered across SKUs and not consolidated so absolute count could be small.
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It looks like the Germany & Austria business is now primarily B2C, with the company using Augmented reality software Roomvo. The live version that is bringing in business is here. Shipments go directly from factory to Customer and no other competitor in Germany is currently doing this.
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Pipes business is actually Pipes + Putty (50:50). Pipes alone can do 350 Cr in next 1-2 years
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Building materials business will catch up with RE pickup
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Flooring - 60% from Germany+Austria. China probably after that. Only 8 Cr in India as of now.
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Would have fully repaid Parador India debt by Q4
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Parador EBITDA margin at 12%
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200million euro parador. will be going to 350-500 million euro in the next couple of years
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Parador at 70% capacity utilization
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16% market share in Australia in Parador
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Billion dollar sales target is what the company is working with before 2025. Main contributions will come from Pipes (expecting exponential growth), Parador, non-Asbestos roofing from industrial Capex and building materials (currently at 100% capacity utilization)
Risks
- Once lockdown lifts in Germany (yes there is still lockdown there), there is possibility of competitors gaining back market share
- Margins in roofing business could be hit slightly due to fiber imports from Russia instead of Brazil
- Pipes margins can come down with Resin prices (There could have been some inventory gains in last quarter)
- Parador margins are at 12%. Although company has hinted that margins could go up owing to large fixed costs in Europe as volumes pickup and utilization goes higher, they still keep giving conservative guidance of 10% for this business in Europe. There is also perhaps currency risk if INR appreciates, in terms of revenue recognition in INR.
Disc: Invested around 2500.