I don’t have a view per se on Visaka or on the sector in detail as such. Just that I had glanced through companies in this sector at the beginning of the yearpurely’cozthey were trading at very low valuations. But same was the case withfew forging/auto ancillary players at that time and I decided to go with them as I thought chances of re-rating were better there.
This thread just reminded me of glancing through the companies in this sector. I guess most of the companies in this sectorcan have major earnings growth for next couple of years. I am not sure on the pe expansion part ro how much of a re-rating take place. But going by this thread HIL looks like a good candidate if earnings growth is supportedby favorable changes in the revenue mix.
In the interest of full disclosure let me start by saying that i am an investor in HIL from lower levels (avge cost of c.350/sh.). While it is rumored that Lubrizol is looking to tie up with one additional vendor in FY14-15, it is not yet clear who that will be. Could you kindly point me to the page in the AR where you find the lubrizol tie-up mentioned or any press release for the same. Since such a disclosure would have an obviously positive impact on the stock i am looking forward to your reply
Decent Q3 results by HIL - topline growth of 23 % yoy and 9 M EPS is 72 giving creddence to a full year EPS of Rs. 100-115 or so. That makes it 7 x at CMP which gives it a lot of head room. With the company’s capex in haryana for aerocon blocks over and sales starting, operating leverage should improve. There is no commentary on the CPVC pipes and how they are doing.
Surprisingly, the stock has not moved- In this market, with a 30% OCF and a 10% FCF yield, the stock looks quite undervalued. Add to that, the pedigree of CK birla group - clean numbers, good board and professional management and it looks like a decent bet for a 2 x in about a year’s time.
Of course, the management has to be a little more proactive and do investor meets/analyst calls to shed the image of an asbestos company. If that happens, it can get re-rated.
Despite posting very good nos for last 4 quarters, being available at very reasonable valuations, why has it not got due market attention so far? What are your views?
Good results by HIL in Q1 in a tough environment - bottomline up 20%. With a big respected investor on board with 5 % + and a slow but steady improvement on non cement sheet products - HIL should re-rate in a year or two.
At 6 x FY 15 with a 15% OCF yield and 3 % dividend yield, I see little downside and a good upside.
Why do you think re-rating will take an year or two? Topline has grown from 363cr to 404cr YoY growth of 11% and bottomline has grown from 31cr to 39cr 26% growth YoY, this quarter q1fy16.
The company is sustaining growth for more than an year now and management which is very high quality has put in annual report
“Now our relentless focus on process… beginning to pay off”.
I expect much better results for the remaining year. The company is available at very cheap valuation and I believe investors should mop-up everything soon.
@vardharaj Sir any comments on the 2015 Annual Report? Aren’t they diversifying too much ? Suddenly everybody wants to ever PVC segment. In the report, they said that they have already started production but I did not see any revenues from that division. I hold it as a conviction stock with 10% of my PF. Added all at 675 price recently
HIL has been quite an enigma for me - company delivers decent results but no one seems to care because of the asbestos overhang. I cut my exposure at about 680 and hold a smaller quantity not because I do not believe in the business but because of my conviction that the valuation gap will never get corrected as institutions stay away from this stock because of the asbestos overhang.
on PVC, at theri scale, I see no reason - infact, CFO told me last year they did about Rs. 35 Cr. and this year they will do Rs. 70 Cr. or so without too much effort.
I live in Bangalore and I have seen that every new building is now made of blocks(I guess these are AAC only). I got interested in HIL because of that. Their Balance sheet is very clean and management is sound. Also I can’t understand why Asbestos overhang is there? In India we don’t see such stringy conditions implementing anytime soon. They are a dominant player in Telangana and AP which I guess would be a big consumer for their AAC building blocks. Still I would love to know from you that what was the exact reason for you to sell of your stock holding from HIL? Was is just price inaction ?
Thanks
The problem is neither mutual funds nor FII’s want to touch this stock because of the fear that asbestos is banned in all developed countries.
Also AAC blocks is a commodity with low entry barriers and no brand (read the MD & A in their AR) and is sold purely on L1.
Agree on the quality of management etc.and debt free company - but CK birla has little or no concern for shareholder value.Said all this, i had a decent run - I made 40% in about 15 months or so but I don’t see the PE re-rating anytime soon here. it will take 2-3 years of consistent performance for the market to get out of this,
I thought that they have a good brand there. Don’t you think they can leverage Charminar Brand for AAC ? Also L1 orders are meant for Government, I was talking about consumer play in AAC blocks. I think there are many businesses with little moats but great brand (brands become the moat). Don’t you think they can do that? I have not done any scuttle but as I was based in North India earlier and have recently migrated to Bangalore.
Topline is ok at 218cr, bottomline disappoints at -0.2cr. Promoters are very ethical. The company is in turnaround mode (foray into PVC pipes) and may take sometime before it could realise its full potential.
just to add on AAC blocks, my understanding is that it is at best 15% ROCE business (assumptions based on their new plant which came up one year back i guess)
i believe as long as asbestos is contributing >50% to topline company will always remain a cyclical play and never receive multiple greater than 7-8x earnings (its long terms medium) and 1-1.5x book. Since it is highly dependent on rural income, its fortunes are linked to good monsoons to a large extent and other types of govt initiatives to increase rural income. If this again comes back to 0.5-0.6 times book, it could be interesting.
HIL is a ultra short term cyclical play - as it does well for 2 years and does badly for another 2. So the key is to buy at 0.5 book and sell at around 1.5 pb. although management is good, its in a terrrible industry and its best a medium term trade. Its’ a pity that CK birla group companies are suhc poor capital allocators and get stuck emotionally to businesses forever - eg., ambassador cars, paper etc.
i bought at 300 and sold at 750 but will add again at 350 levels - the dividend yield is a good bonus.
