HSIL: Good results this quarter

The market is booming, and how. In this booming market (actually in all bull runs), all kinds of scrips go crazy- share prices of companies that are NOT doing well, and companies that ARE doing well. A long term investor has to pick and choose the latter type of companies. As the great Buffett once said, and i strongly believe as well, a company with good management is the best place for your money- and then it doesn't matter if you've invested in a bull run or during a bear market.

HSIL Limited was established in 1962 with a joint venture of the Somany Group with Twyfords, UK. HSIL Limited is the largest Indian manufacturer of Sanitaryware products with a market share of 40% in the industry. HSIL's products are available across the country and are supported by over 1000 direct dealers and 12000 sub dealers. HSIL Limited was the first Company in India to manufacture Vitreous China Sanitaryware.

HSIL posted its results this (last) Sunday. They were up two fold QoQ at Rs 19 crore. The company's net sales for the March quarter increased by 13.44 per cent to Rs 177 crore. For the year ended March 2009, the company reported a 40.14 per cent increase in net profit at Rs 40.15 crore as against a net profit of Rs 28.65 crore in 2007-08. Although the standalone results are good as they seem, the consolidated profit for the quarter is lower on account of a loss of Rs 7.39 crore incurred by Hindware Home Retail Pvt Ltd- a wholly owned subsidiary of the company.

The company is looking at overseas acquisitions (in Western Europe) and has identified Rs 250 crore in current fiscal for the purpose. There was news recently that it is planning to introduce 125 new products. The company is also planning retail expansion ("exclusive brand megastores" as the company calls it)for which it is planning to invest close to Rs 300 crore. Also, the greenfield plant for Container Glass at Bhongir has started operations on 30th March, 2009.

Now if we analyze the valuations of the company, the consolidated EPS of last year (ending March 09) was Rs. 5.94. The CMP of Rs. 56.5 rupees shows a P/E of 9.5 which shows the share is slightly expensive in this market. There are other companies (in other verticals) that have a lesser P/E ratio. It touched a low of Rs 20 a share, and has bounced back from that level. It's all time high is Rs 119.95 in 2007 (market price of a 2 rs share). The share price at the moment is high, and i am telling this straight. But the growth prospects of this company justify the premium in the share price that has built over this past week (of 29%) after it had announced the results. A month ago, it traded at around Rs. 28.

So, thats our pick this weekend - a sanitaryware major that is eyeing inorganic growth by overseas acquisitions and also planning to increase its market share in the domestic market. If only the share was available at a lower price! (But that's the case everywhere, isn't it?)