Recommendation Review: HSIL

We had recommended HSIL in DSIJ Vol. 28, Issue # 1 (dated December 30, 2012) when it was trading at a price of Rs 136. The counter, however, has shown a sharp underperformance in the last six months. On January 8, 2013, the stock touched Rs 145 a share but turned volatile from then on. On June 24, it fell to Rs 88, down 33% from our recommendation.

The dismal Q3 results did not help, as the company’s net profits halved despite a 19 per cent growth in sales. The problems faced by the container glass division were further aggravated in the quarter. In March 2013, the company also sold its entire investment in AGI Glasspack for an undisclosed sum.

The March quarter results, though, surpassed expectations. HSIL’s total income came in at Rs 494 crore, marking a 28 per cent growth, while its net profit rose by a handsome 47 per cent to Rs 48 crore. The EBITDA margins too showed remarkable improvement. The glass division’s margins moved smartly up, in contrast to the sluggish numbers seen in the previous two quarters.

In January, private equity fund Henderson Equity Partners sold its entire 8.2 per cent stake in the counter. Post that, institutional investors like Sundaram Mutual Fund (5.47 per cent) and T Rowe Price Associates (0.69 per cent) have upped their holdings. The domestic institutions’ stake stands higher from 2.94 per cent in December 2013 to 8.71 per cent in March 2013, revealing that institutions are bullish on the counter.

Though HSIL has moved down a lot, it still has huge upside potential. We remain optimistic on this counter on the back of the recovery in its glass business. The building products division is also expected to post robust numbers this year as the company will commission new facilities. We advise investors to hold the stock with a target price of Rs 165.