Key takeaways, Concall highlights
The Roofing Solutions division
HIL’s roofing volumes in Q4 grew 14% (industry growth: 9% in FY21)
backed by healthy rural demand. In FY21 the company raised its market
share 1%.
Asbestos-fibre mining has been allowed by a Brazilian Court and supply
to HIL was begun three quarters back. The advance payment required,
however, will keep working capital high. Further, the quality of the fibre
is not so good, leading to an increase in material costs. The R&D team
is working on this. Any low-cost benefits will show in Q2 FY22.
The division operated at 77% capacity, with demand continuing to be
encouraging. Despite Covid-19 hitting rural areas, demand in April was
good backed by efforts to create consumer pull (from distribution
push). Management expects demand slowdown, if any, will be
temporary.
Management expects single-digit revenue growth, backed by sound
demand due to a good monsoon/harvest and the greater emphasis on
farmer income in the Budget. Management talked of maintaining
margins at current levels, backed by price hikes (Rs3-4 in Q4, Rs2-3 in
Q3 FY21) and declining fibre prices (from Q2),which had already
peaked. The raw material cost rise (cement/flyash) and discretionary
expenses returning to pre Covid levels will be offset by price hikes.
HIL continued looking at and evaluating unlocked pockets in newer
regions and rural areas. Besides, it capitalised on opportunities at hand
such as roofing for Covid centres and hutments for labour built by the
government.
The 60,000-ton Faridabad unit for non-asbestos roofing sheets
commenced in Jan and has sold 7200 tonnes till now. Management aims
at over Rs.1bn revenue in the next 2-3 years.
The Building Solutions divisions
The building solutions division operated at 90% capacity. Its revenue
was split 70:30 between blocks and panels. With efficiency and reputed
brand names, both did well in the new tier-II and -III cities.
On 28th April, the Odisha government’s State Level Single-Window
Clearance Authority (SLSWCA) approved its application to set up a
manufacturing plant for blocks (150,000 cu. mtr), panels (36,000 ton)
and boards (30,000 tons) at Balasore, Odisha. Capex would be Rs820m
and generate Rs1.1bn revenue. The plant is expected to commence in
Q1 FY23. This would result in a 20% increase in capacity for blocks,
and 50% for panels and boards.
With an 18%-19% market share in AAC blocks and ~62% in panels,
HIL is the market leader. 50% of the AAC blocks market falls in the
regulated or formal sector. Management expects demand for AAC
blocks to grow due to rising construction in tier-II/-III cities. With
operations already in the south, west and north, the company is now
setting up a plant in the East.
Panels is a Rs1.2bn market in India; HIL’s share is Rs600m-700m. The
division benefitted from sales to Covid centres and labour hutments,
which brought 42% to panels revenue in Q4.
The cement boards market is of Rs3.5bn. HIL is very small player.
Management said HIL can produce boards at its Faridabad unit and
from its roofing plant in the east during the off season.
The Polymer Solutions Division
Polymer Solutions capacity utilization: Faridabad and Hyderabad units
100%, the Golan unit 45%. With its present capacity in plumbing
solutions, the company aims at Rs4bn revenue in coming years with a
15% EBITDA margin. Having operations in the north, west and south,
HIL started addressing the east through supply from existing factories.
The pipes market is 80-90% B2C. HIL is well positioned to reach
various pockets of India through Charminar, its roofing sheets. In tier-
II and -III cities, most stores earlier sold GI pipes with roofing sheets.
With less interest from big distributors who already have big brands,
HIL is focusing more on plumber connect. The pipes industry works
on brand and quality. Management says HIL is the only company with
the Birla pipe brand and the current focus is to get the right SKUs at
the point of consumption at the right price. Further, the quality is
similar to Aashirwad pipes
Wall putty is a negative working-capital business. The company has two
putty manufacturing plants, in Jhajjar and in Golan. Its operations cover
the north and west and it is now aiming to go all-India. For this, it has
started outsourcing the material, packing it under the HIL brand and
marketing it in the east and south.
Parador
With most of Europe out of lockdown, Parador has seen a significant
improvement in performance over the last few months. Re-opening of
trade routes has furthered the company’s expansion outside Europe
(North America/Nordic countries/Spain/France/ Switzerland etc.).
Parador grew 20% (in rupee terms) and is expected to grow 10% vs 3-
4% in the past for European companies, doubling revenue from €170m
to €300m in the next 4-5 years. Its EBITDA margin was 12%.
Management talked of a sustainable EBITDA margin of 10% (7.5%
when Parador was acquired). The RoCE is 14%.
The share from Germany and Austria rose 10-12% due to the lockdown
and travel problems for other countries. The revenue mix normally is
Germany and Austria (50%), Europe (25%) and the Rest of the World
(25%). The China JV contributed €3.5m revenue.
The HI FY21 performance is expected to be impacted by non-
availability of HDF boards and higher raw-material costs.
Others
HIL’s goal is to become a $1bn company by FY26 with Parador and its
India operations to double. Pipes revenue would reach Rs10bn (vs
Rs3.6bn in FY21), building solutions revenue would grow Rs1.1bn due
to the Odisha expansion and added products, and Rs10bn through
inorganic expansion.
HIL continues to look for newer markets to unlock and capitalise on
opportunities, so as to reduce the risk to business in case of further
lockdowns.
The business has not yet been impacted by the second Covid-19 wave
as manufacturing units are still functioning, and most states and cities
have not implemented full lockdowns.
The company has improved upon the various initiatives undertaken last year, such as zero-based planning, daily huddle meets, digital connect
with customers and daily cash-flow monitoring.
During FY21 and Q4 FY21, it reduced debt by Rs.3.32bn and Rs.910m.
It repaid in two years the debt taken for the Parador acquisition (vs the
scheduled six years) Net-debt-to-equity was 0.41x at 31st Mar’21 (1x at
end-Q4 FY20), which management expects to maintain.