I think the market is skeptical about the lack of business focus due to several BUs, scalability of appliance division, and management ability to execute. As soon as these things work out, significant re-rating can happen from here. 1.3x sales is quite cheap IMO for a company with 20%+ ROCE.
But this promotor purchase gives some confidence in the business.
I had done some scruttlebutt
= I went to croma and vijay sales .I had asked about hindware chimney and cooktop but i could not find single product of hindware . I found elica and other company products .
=Then I visited hindware dealers and they told good sales of hindware chimneys and coocktop
= I had visited 2 hindware dealers and they have variety of chimney models, cooktops etc.(I think chimney may have good sell otherwise why dealer keep so much inventory. )As per district level distributer, he was selling 20 hindware chimneys per month and hindware is among top 2 companies .I asked to that dealer that why croma and vijay sales are not selling hindware products ,he told that if company sales its products through croma and other malls,then company will loose trustable dealers like us
=I called few local dealers( other than hindware dealer ) for kitchen appliances where chimney were sold .Some have few model of hindware and some dont have sigle model .But most of them replied that many people inquire about hindware chimney and their quality is good .
==As per most dealers , hindware chimney and cooktop sales has definately increased in last 3 yrs. Heaters are not much famous.
=I had asked few interior designers of modular kitchen and they told that they dont use hindware
= So i will summarize that
A…Hndware has definately made place in kitchen appliances ,may be among top 5.
B…They have their distinct channel for distribution.
C…Their main distribution is through their own channels and not through croma like malls or interior designers
D…Online shopping also shows good rating and products of hindware.Online croma shows its products
E…For truflow ,they are in direct contact with plumbers and they are seriously expensing on branding
(on photo u can see contact number of plumber ,thus they are encouraging plumbers for their products)
=This truflow advertise was at village in gujarat. I think they are focused on brand building of their products
Disc…Recently invested
This is my portfolio
An interesting thread indeed.I read all concalls and Annual reports since the demerger to gain some insights into the fluctuating revenue and profits. My two cents:
(i) SHIL is heavily investing in R&D, JVs and tie ups to expand it’s product portfolio of IoTs.
One major takeaway is company is trying to innovate and bring in technology in most of the product be it faucets, heaters,air purifier, chimneys or sanitarware which as a result has put it in strong postions in all the verticals. Moreover, studied the product lines of Cera and parryware etc though it has been consistently rolling out new products, IoT enabled product offerings are less as compared to SHIL Company has gained traction after having the first mover advantage in IoTs.Good to see management understanding the market sentiments and future growth drivers.
Lost its market share to Cera 2-3 years back however capex and R&D efforts are reaping results.
(ii)Is continuously trying to reduce raw material dependency from China and other foreign suppiliers. Aims to reduce kitchen appliance raw material import from 90 to 15-20% . Will result in being less susceptible to global supply bottle -necks.
(iii) Signs of Real estate demand picking up in tier 2 and tier 3 cities in last 2 quarters will be a massive driver for sanitaryware after some years of muted growth.
(iv) Management vocal in addressing that geographical areas where they have a weak presence.
(v) Weeding out inefficiency: Shut down 8 IVOK retail stores which as a result has helped to turn EBIT positive in last quarter.
(vi) Targeting an EBITDA range of 15-16 % in next 5 years. If margins expand , will imply more cash flows , better return ratios, thus better value.
(vii) Pipes and fittings business has been a major determinant for double digit growth of Building products, however will be interesting to see if Truflo can gain the market share of the big guns(Astral, Prince, Supreme,finolex ) in this sector. Will it be able to sustain high growth in a very competitive industry? What does it offer differently to outgrow it’s competitor in case of downturns?
(viii) Since SHIL financials has been quite volatile over the last few quarters and not so much information for reliability of management execution on an independent basis, it Boils down to whether the management can “Walk the talk” of 20+ CAGR in next 5 years?.
(ix) Rise of UPI coupled with consumer online shopping sentiments change post Covid ,will benefit organized players and offer more opportunities due to higher visibility of online products.)
(x)However personally liked the fact 7 years prior, although being the market leader the parent company didn’t grow complacent .Took an aggressive approach and Forayed into faucets(more volume growth factor vis a vis Sanitaryware )thereby increasing their TAM. Also entering into pipes, home appliances and retail has leveraged it’s TAM by 10x. The company is in the top 6 players in every segment it’s in! Having 3 different streams of revenue and wide product line reduces the overdependence on it’s primary Sanitaryware vertical.
(A good question asked on over-diworsification and nicely answered as well)
@Dinesh.Bomma @vnktshb Would like to know what key risks you foresee other than Execution capabilities?
Nice observations Pragnesh. I will like to add some of mine.
A simple microwave/oven costs between 6k-11k. But a built in microwave/oven will cost you 25k-40k easily.
Similarly a gas stove will cost 2-5k but a built in hob will cost you 10-20k.
As more middle/upper-middle class Indians are moving towards modular kitchens, these built in appliances are becoming neccessities.
I am from Delhi NCR and have seen almost all new residential projects coming up with modular kitchens only. Last year I visited a showroom (Non-Chroma/Non-vijay). He showed me whirlpool, elica(now owned by whirlpool), kaff. There was no hindware neither did i ask for it as i was not aware. This year I again visited the showroom and to my surprise he gave more than 40% visibility to Hindware appliances. Hindware products were cheaper than similar models of other brands. Also i sensed more ‘push’ from the store-owner towards hindware.
Now coming to the other point, Yes, high market builders will not prefer hindware as they commit to their clients of ‘premium’ brands. What i sense is that hindware is using VALUE BASED Pricing so as to capture entry-level customers. In sanitaryware also their clientele is completely different from that of Kohler/Grohe or even Jaquar. IMO they focus on higher volumes rather than on skimming the milk.
Right now there is a huge potential in modular kitchen appliances and so far they have played their cards right.
One more segment which grabbed my attention is HINDWARE FGV (furniture fittings) where in they are selling high end channels and soft close hinges. This is one more area where there is a premium pricing in market and is dominated by expensive brands such as hettich, blum, hafele etc. I am yet to see hindware’s visibility in this segment (i think its a relatively new launch), but hindware can greatly benefit from the brand recall by worksmen and builders. Think about it. Dealers network is already present, brand value is already there, and product segment is growing robustly. These premium fittings were used only in upscale projects few years back, but now every worksman knows their application and consumers are also aware of the benefits over normal channels or no channels. One thing is unclear to me is how much of these businesses is owned by SHIL.
Disclosure: Invested, looking to add if corrects more.
SHIL does only branding and selling.It does not manufacture single item.It procures BPD and CPD segment products from third party.
As far as BPD is concerned,it procures 60% from HSIL and 40% from other companies. This is the reason why SHIL has low margin compared to CERA and others.
Agreement between HSIL anf SHIL is that all manufactoring of pipes and Brollica products will be done by HSIL and marketing will be done by SHIL hence maximum margins will be secured by SHIL only.
I had observed few negatives things about management
1…They had closed LACASA ,Ahmedabad show room but not disclosed to exchanges or even not informed in concall or annual report.(If some one find it, please share it)
2…They have definate place in chimney but as per my scruttlebutt and google search ,other products have not so good response
As per management, they are
No1@sanitary
No2@faucets
No2@chimney n kitchen
No5@Air cooler
No6@Water heater
=Ceiling fans (Hindware Snowcrest)
Reached 2,500+ retail touch
points across the country
and crossed sales milestone
of 3,00,000 units in the first
operational year of business
But on google search for air cooler and water heater, they have hardly any presence.Even at dealers show room ,i could not find single air cooler or water heater
I am even surprised to read that they have sold 3 lakhs fans in just 1 year.
3…In annual reports also it seems like they are hiding their failures and not mentioning risks and negative sides about business
Kindly share yr experinces
Disc…invested
Risk disclosures were done in Management discussion and analysis part in the Annual report.
Quote from Annual report 2020-21 page 51 under Management Discussion and Analysis Retail segment:
‘We decided to shut down our 8 out of 10 owned large format stores to focus on franchise-based large format store and online portal model. This has helped the business turn EBIT positive from Q3 FY21 onwards.’
These are EVOK STORES
I m concerned about LACASA stores
"LACASA STORES
Lacasa stores are an exciting chain of display and concept stores. They are the one-stop place for home makers, architects, interior designers and business buyers to envision and explore Hindware’s dream products.
I had asked to dealer about lacasa ahmedabad.
He replied that it is closed but the products u can see at lacasa store are now also available for display at each hindware galleria dealer.
Company may have closed lacasa store to reduce expenses but i think they should inform.
Also noticed that in concalls the management haven’t been providing the exact Volume growth figures for the Building products segment. This question has been asked time and again while management has stern take on not disclosing Volume growth on standalone basis for Faucets, Sanitaryware and pipes.
Presently, Evok has 29 franchise and 2 standalone retail stores. By the end of this year, the brand plans to add 18 more franchise stores and take the count to 50 owing to demand from nuclear families, disposable incomes, and India’s middle-class population.
The business model for us is to be much leaner. And when you make a leaner business model, it’s inevitable that you focus more on your competencies, which at this point is more on product and brand and giving experience to the consumers. So our focus would be more on expanding franchise stores than our own stores.
Speaking on the company’s growth, Kaul said that the home innovation and the furniture business are poised for growth of around 25 to 30 per cent on the back of product expansion, increased domestic manufacturing, a vast franchisee network, and an increasing rate range and width of furniture.
Evok presently sells through its own website, franchise and retail stores, and online marketplaces such as Amazon, Pepperfry, and Flipkart. Going forward, the brand plans to focus more on its Direct to Consumer (D2C) strategy.
With D2C we focus on experience, that is, faster deliveries, great installation, and innovative EMI schemes for customers .At the same time, we plan to expand across the major towns and reach out to more than 18,000 pin codes.
Speaking about Evok’s manufacturing capabilities, Kaul shared that the furniture retailer has successfully built a supply chain in India. Evok claims to have reduced its dependence on imports to 15 per cent in comparison to 70 per cent last year. “Due to the closure of ports, global manufacturing hubs, higher fuel costs, and labor shortages, we as other players also realized we couldn’t be dependent on China and other markets for the products,” he said adding “We have developed a very strong network of almost 15 captive consumer vendors for contract manufacturing. And majority of them are MSMEs.” “We are working with our key Indian suppliers and helping them build the infrastructure for manufacturing the required range of furniture. We believe that our thrust towards Vocal for Local and Make in India along with e-commerce and franchisee growth will give a further boost to the Indian manufacturing sector,” said Kaul.
SHIL is now buying factories from HSIL for 650cr
Margin of SHIL will now improve.
But it is not injustice to HSIL shareholders?
Disc…invesed in shil
Management demerged business to create SHIL saying it will be asset light high ROCE business which will market and sell products and all manufacturing business will be under HSIL which is capital intensive. Now, they are doing exact opposite.
Disc - Not invested.
My guess is post covid there has been supply chain disruptions.
The report mentions some of the points that were considered to make this acquisition.
Brilloca has delivered rapid growth and the operating circumstances have also changed where it has become imperative for the company to have significant control over the entire value chain, including manufacturing, supply chain, etc. to drive sustained sector outperformance in the future.
With the emerging market scenario, a refreshed strategy has been undertaken to include critical manufacturing. This will also enable the Company to make agile decisions for enhanced market serviceability, achieve greater business security, and drive strong profitable growth going forward.
The key benefits for SHIL from the proposed transaction are:
Secure control over manufacturing processes will provide enhanced flexibility to the management to align its product placement with the evolving customer needs, strengthening its competitive position and significantly reducing Brilloca’s dependence on third party vendors
Given Brilloca’s strong financial position and cash availability, the Company is optimally positioned to augment its manufacturing processes and technologies
The backward integration will provide synergies in operations, resulting in better efficiencies
The transaction will help integrate the entire value chain into a single entity, thereby minimising related party transactions and reducing compliance and administrative costs
Disc: Invested
While on the face of this integration does make sense (although no specific numbers have been provided on the amount/quantification of the benefits/synergies) - but do the existing investors feel that this is unjust to the minority shareholders of SHIL?
Also there is mention of the independent valuation but no benchmarks provided therein - any other reference points available in the public domain (e.g. other comparables) through which we can assess if the the valuation ascribed to the factories is reasonable?
Not invested but have been tracking for past couple of months.
According to HSIL report, Revenue from operations for building products division for FY21 was 593 crore
Source: https://www.bseindia.com/bseplus/AnnualReport/500187/70339500187.pdf
If you see end of day SHIL is going to pay 650 cr to HSIL, promotors have increased stake in HSIL in past hence this news was a well planned strategy. HSIL will be now high margin cash rich company, SHIL margins will drop due to manufactoring ooerations, loan of 650 cr. Seeing stock value to come down for SHIL.
