Scripscan:Hyderabad Industries Ltd
Long term target:35-40% CAGR for the next 5 years
Story:Here's a company which has excited me a great deal and gives me the hunch of digging out a huge infinite bagger in the coming years.I was looking for a counter which would be nearly debt free(high inflationary environment,double digit interest rate you see),should have a great brand,better if its a household name,market leader and domestic consumption(recall our jockey company,page ind?-how about hawkins or a ttk prestige?ah all 10-15-20 baggers re,attractive valuations(to get that great midnight comfort and sleep),good dividend yield(so that if it doesn't perform the dividend cheque may come to the rescue)and a business model which would be simple to understand coupled with stunning prospects and potential.Hyderabad Industries Ltd just fits in everything so perfectly.
Hyderabad Industries (HIL) is a flagship company of C K Birla Group.HIL's product range include Fibre Cement roofing sheets (Charminar), Autoclaved Aerated Concrete Blocks and Panels (Aerocon) and Calcium Silicate insulation product (HYSIL) and Jointing material for gaskets.HIL’s most modern manufacturing plants are located at 12 locations in 8 states of Andhra Pradesh, Gujarat, Haryana, Jharkhand, Kerala, Maharashtra, Orissa and Uttar Pradesh. HIL being a market leader over several years has a strong & extensive distribution network with nearly 8000 sales points spread across the country which is serviced by its 45 depots.Company is the market leader in the asbestos-based roofing industry, with an estimated market share of 21% and its famous brand "Charminar" established over six decades and enjoys a premium of 6-8% over others in the market.From a mere roof manufacturing company,this company has evolved into a multi product, green building products organization.The demand for these building products is likely to stay firm led by growth in rural housing and price advantage of asbestos sheets over galvanized iron sheets.It has gradually diversified from a one-product into other areas such as autoclaved aerated concrete (AAC) blocks, thermal insulation products and other products like prefabricated building panels, Hysil powder, spares and accessories etc.The expansion of ind. capacities and the overall buoyant economic scenario are boosting demand from this segment.Over half of our population still lives under thatched roofs (Kuccha roofing) and clay tiles. Thatched roof is not waterproof, and poses a fire hazard besides needing regular replacement. Tiled roof needs recurring maintenance and is also not safe. Hence security concern coupled with rising income level, the desire to shift from kuccha house to pucca house is increasing.Asbestos Cement Sheet(acs)are good insulators of heat and sound as compared to thatched, tiled or galvanized metal roofs. Additionally, ACSs are water resistant and fire resistant. ACSs are also relatively cheaper than galvanized metal roofs. ACSs require minimal maintenance and infrequent replacement unlike thatched and tiled roofs. Hence, whenever disposable income increases, switching to ACS roofs is the most obvious choice.The ACS industry de-grew by ~5% in FY10, grew by ~3.5% in FY11 and grew further by ~7% in FY12. The industry is estimated to grow at 6-9% for the next few years on account of increased income in rural areas coupled with various initiatives by the Government for affordable housing such as Indira Awas Yojna, Golden Jubilee Rural Housing Finance Scheme and Pradhan Mantri Adarsh Gram Yojana. Additionally, other schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) guarantee employment to low-income individuals, which also helps generate demand for the roofing industry.This Government sponsored initiatives in providing homes and schools for the masses in general and the poor in particular will increase the demand of Hyderabad ind products many a times.The company has delivered a topline of 860crs in fy-12(730crs in fy10-11) and targets the topline to cross 2000crs by 2016.Profits jumped to 60crs from 50crs in the same period.It paid a dividend of 18.5rs,translating to an yield of around 4%.The company should at-least grow by 25-30% this fiscal.The company is expected to deliver an EPS of 105rs for fy13.A mere PE multiple of 6x helps me to arrive at the target.This company is nearly a zero debt one having reserves(335crs) of nearly 50 times its equity cap(a liberal bonus which could be another trigger to rally always remains in the offing).At present prices it quotes at just 4 odd times which is incredibly cheap for a quality company having a neat visionary management.In a single line I presume I can just pen the whole stuff,"In a country of 122crs where 75% remains below poverty-Hyderabad industries caters to exactly those ones".ROE and ROCE too should comfortably be above 20% respectively in the coming years which provides the required conviction to own a quality business.A pizza franchise with 100crs profit attracts a mcap of 8000crs,a company which provides you the required shelter trades at just around 300crs mcap having a profit of as high as 60crs.Rationality may not be in vogue but would be someday for sure.With time as it grows,rather at some point of a time there would be a complete PE re-rating which can take it to miles away from the present price.Also, its Hyderabad factory is situated on 70 acres land in a very prime area of Sanatnagar which is like Heart of the city. Govt policy is to shift all factories from Sanatnagar so that residential and office buildings can come up.Currently, some inds. in this area, specially polluting pharma industries have already shifted.It is not very far fetched that management of HIL plans to shift this factory in next 1-2 years itself.As and when it happens, it will bring huge value for the stake holders.Altogether,A lovely bet to make your rich over the long haul.