Himatsingka Seide

Himatsingka Seide Limited (HSL) is a vertically integrated Home Textile major with a global footprint, engages in themanufacture, marketing, distribution, and retail of home furnishing fabrics in India, the North America, and Europe. The company provides decorative fabrics, such as fabrics for drapes and upholstery for home, as well as for contract andhospitality. In addition, the company manufactures spun and silk blended yarn products. The company commissionedgreen-field bed linen project at Hassan SEZ in 2007-08. As part of its forward integration initiative it acquired 70% stakein Giuseppe Bellora SpA, Italy and 80% stake in Divatex Home Fashions Inc., and 100% stake in DWI Holdings, New York,in 2007-08. The company used the distribution channel of Divatex, DWI and Bellora to sell its bed linen business. Thedistribution business is engaged in both the private label and branded space. The company also operates 14 retailstores, including 2 international stores at Dubai and Singapore under the ATMOSPHERE brand name.

Himatsingka Siede Ltd. (HSL) profitability got impacted in the last four years onaccount of delay in commissioning of new bed linen business at Hassan SEZ,acquisition of 80% stake in Divatex Home Fashions Inc., New York, in July 2007(distribution company) at peak time, slow down in US economy, volatility inraw-material prices (raw silk and cotton) and long open derivative contracts.To combat the crisis, the company had introduced product mix changes,addition of new customers, enhancing focus on the brands, launching valueadded products and higher capacity utilization will lead growth in the sales andimprovement in margins. The last leg of derivative contract also got closed inAugust 2012.

All issues behind now, we can see some stable earnings outflow if the managementdoesn’trepeat their previous mistakes. Debt is reducing, there is no major capex lined up in next 2 years and they intend to reduce debt further, so we will see higher growth in bottom line for next few qtrs. Seems like a decent bet at current level.

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Himatsingka is indeed a worth looking stock. Only two concerns:-

  1. As company has strong presence is Europe and considering the European conditions revenues may get effected further.

  2. High in fact huge debt on books.

The profits are much better and on a growth path: http://www.bseindia.com/xml-data/corpfiling/AttachHis/Himatsingka_Seide_Ltd1_250513_Rst.pdf

Yes, this used to be an excellent co and management. Looking at the recent nos, things seem to be improving here.

Any insight on growth prospects?

Also under my watch-list for recent open market purchases by promoters:


High debt remains a concern

The Company had better margins as compared to other players in the sector. Got hit big time on account of derivative bets going haywire. Not sure if it was a genuine mistake or some body trying to punt on the currency. If i recollect Vaghul (ex ICICI Chairman) was on the board and quit after the issues came to light. Hopefully they would have learned their lessons. The issues to dig / or atleast I would be concerned with are 1) bloated capital employed / capital intensity of the business and 2) the retail footprint …they had few stores such as atmosphere or something similar. This business is low margin and drain on capital. Have not tracked the company in the recent past, some of my views could be based on historical info but wanted to share what little I know.

This is a turn around which never seems to be turning around. Azim Premji had bought some stake and lost some money on this. Avoid.

I looked at Himat as quite a few folks were bullish/interested in it and here are my takeaways -

a) If there is any sort of play here, it’s only for short term. According to me, it doesn’t qualify for a long term investment (3-5 years) - given the nature of business and many variables affecting it.

b) They have a net debt of about 700 cr and they plan to repay 88 cr this year and 120 cr next year. So, a reduction of about 200 cr. Considering their effective cost of debt is about 6-7%, that’s hardly a saving of about 12-15 cr per year (of course, this might be a positive for the markets). About 200 odd cr is from TUF and 300 odd from US (low cost debt). They may keep the low cost debt as-is and pay slowly.

c) Their bed linen business (majority of their revenue) is already operating at 92% capacity. Assuming their business grows slightly next year, they will be operating at 100% capacity and would have to incur another capex (debt, mostly) of about 75-100 cr to increase capacity. 92% capacity here indicates that the EBITDA margins are close to optimum.

d) Their upholstery (silk) business capacity utilization is very poor (50%), although it gives them good margins. The mgmt indicates they can take it to 60-70% in the next 2 years. Good positive.

e) For some strange reason, they have hedged at Rs.55-56. If the dollar depreciates further (inspite of being a net exporter), they will have substantial forex losses. Anyway, most of the guided revenue increase is coming through dollar depreciation and not significant volume growth.

f) Management seems fantastic on all parameters - it just might be the case of great managers in the wrong business kind of thing (look at the trend of RoE over a period of time)

g) All in all, I think on this stock, the entry price has to be spot on. I expect them to close FY14 at Rs.7-7.5 EPS, and the current price is about 6x - which I think is fairly valued. Well, let me not say fairly valued - let me say, given the same capital, and given a similar PE multiple, I’d rather deploy my limited cash in other undervalued and easily understandable business (with lesser variables) than Himat.

I also had a look at this one but there was a big amount of goodwill sitting on the books. Besides debt seems quite high although due to TUFS they might be comfortable with it.

European operations are / were? serious risks. if they continue to perform like q2, it will be good for co and shareholders. With 2x cashflows it semms reasonably cheap still.

Weekly charts shows flag like pattern for Himatsingka Seide. Also, stock is above 150 DMA(84.44) and 200 DMA (87.13) for some reason its showing incorrectly on chart.

Disc: Invested. This is not a buy recommendation.

The company seems to be turning around. The results of last quarter was good, going for expansion, whole of textile sector have favorable tailwinds, started seeing advertisements in newspaper of there retails furnishing venture Atmosphere.

why is the tax payout so low…over the past 10 yrs the tax payout has remained the same…for a company that generated 300 crs of operating profit and 170 crs of PBT the tax paid is just 2.5 crs…

i think they have prior losses and hence tax payout is low. From next year they will need to pay 30% as per con call.

Edelweiss report on HSS

From Bloomberg:

In the past year, the microscopic stamps have started to appear on products carried by some of America’s largest retailers. Indian textile manufacturer Himatsingka Group, which makes products sold under the Calvin Klein Home brand at department stores and the Kirkland Signature brand at Costco, started tagging the California Pima cotton in its products in 2014. Bed Bath & Beyond started selling its first DNA-stamped cotton product this year—a down comforter with a Pima cotton lining. “We have arrived at the beginning of a new era when it comes to protecting product integrity,” says Leah Drill, a spokeswoman for Bed Bath & Beyond.

Seems not much activity in this thread. I have been tracking this company for a while now. Last couple of years has been better on profit front, what worries me is the debt on books. Screener shows debt to equity of 1.84. With raising interest rates all over world and trade tarrif issues, even after so much of correction it is not giving confidence to buy. Any opinions on risks and valuation? Will many of these companies which may have taken advantage of low cost of capital, how they fare going forward when interest rates go upwards?

I believe in the current currency depreciation scenario, this stock represents a very unique opportunity. For most exports such as IT, while currency depreciation is a definite positive, over a couple of quarters the benefit if the depreciation passes on to the customer in pricing. This is probably the only export company where they own the brands for a significant portion of exports so they get the full benefit of the forex gain (to the extent they are selling own brands). This will definitely help P&L. Q1 results/ concall should give more clarity on extent of gain.

Disc: own the stock since many years.


Any views ?

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The stock is 48% down from a 52week high. I think it’s the right time to buy the stock because of the following:

  1. P/E ratio is just 9
  2. systematic repayment of debt in future
  3. Huge capital expenditure of Rs. 2500 cr is already done

What are your views on this?