homemarket NewsMidcap Mania: HIL pins hope on Parador acquisition, domestic expansions to increase revenue
Midcap Mania: HIL pins hope on Parador acquisition, domestic expansions to increase revenue
The Indian Premier League (IPL) fever has rubbed off on midcap mania this Monday. This week's midcap mania is focusing on one of the sponsors of the defending champions Chennai Super Kings -- HIL Limited, a group company of CK Birla Group.
Formerly known as Hyderabad Industries Limited, HIL manufactures a comprehensive range of products. Its Charminar brand is an established market leader in roofing solutions. It also manufactures products such as HYSIL -- thermal insulation used in a range of applications in energy-intensive industries -- and Birla Aerocon, which provides green building solutions that include drywalling, wet walling and plumbing materials.
The financials of HIL for the first nine months of the financial year look pretty solid with a strong 20 percent growth in revenues and margin improvement of around 150 basis points (bps). The profit after tax (PAT) has also swelled up to Rs 86 crore.
One basis point is a hundredth of a percentage point.
The mainstay of the company is the roofing solutions business which has grown by 10 percent. HIL's smaller building solutions business has grown by 46 percent in this fiscal so far and the pipes and fittings business has delivered revenue of Rs 85 crore and is set to achieve Rs 110 crore revenue number comfortably in FY19.
In August 2018, HIL had acquired German-based Parador Holdings GmbH, which manufactures and distributes a wide range of flooring solutions. Parador has manufacturing plants in Coesfeld (Germany) and Gussing (Austria), which are running at sub 70 percent capacity utilisation levels and in the calendar year 2017, it did revenue of €142.2 million though margins were around 7 percent.
Parador was acquired by HIL for 82.8 million euro which was an all-cash consideration funded through a combination of euro debt, rupee debt and internal accruals.
The management of the company said that the Parador deal is earnings per share (EPS) accretive and it will almost double HIL's revenue from FY20.
They are also looking to enter into flooring solutions, transition into a global player in building materials segment and also cross-selling opportunity by leveraging a strong network in India with the acquisition of Parador. Post this acquisition the consolidated debt-to-equity (D/E) ratio stands at 1x.
The key monitorable that will give direction to the stock includes:
Valuations Matrix
For the erstwhile roofing business, the market gives lower multiples as for many years the business is prone to the risk of being banned but the company's move towards building solutions business and flooring business will aid it to get a relatively higher multiple of 12x to 15x.
However, the multiple will be determined as the Parador acquisition ramps up and the various expansions were undertaken by HIL domestically start showing in its books. It also needs to also note that slowing global economy and in particular the Eurozone poses a risk to HIL prospects.
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