Hanung Toys & Textiles Ltd (Rs 72)
(BSE Code- 532770 NSE Code- HANUNG)
(P/E- 3, Market Cap- 181 cr., Promoters' stake-62.28%)
Hanung Toys & Textiles Ltd (HTTL) is engaged in the manufacturing & exporting of stuff toys & home furnishing products. Its business units consist of soft toys manufacturing facility, home furnishing production facility and textile processing facility, all located in Noida. HTTL's current installed capacity for soft toys is 20-mn pcs p.a, while capacity of made ups is 6.6 mn sets p.a. Its textile-processing unit has a capacity of 41 mn meters of fabric p.a. HTTL mainly deals with the overseas markets viz. Europe, USA, Latin America & the Middle East. The exports account for 80% of the total revenues (In FY08). In USA, HTTL's major buyers are Britannica Home Fashions & CHF Industries under Home Furnishings & Spring Industries, Mohawk Home & Kojo Worldwide under both, toys & home furnishings. In Europe, their major clientele under home furnishings include Metro Group & ASDA, while IKEA, Carpenter & Francodim are buyers under both segments. In the domestic market, HTTL has two brands for soft toys viz; "Play-n-Pets" & "Muskan". Its home furnishing products are marketed under the brand name "Splash". HTTL's soft toys are available across the country at more than 4000 retail stores & multi brand outlets including Kids Kemp, Lifestyle, Land Mark, Big Bazaar, Globus & Shoppers Stop.
In April 2008, HTTL signed a MOU to acquire 100% stake in Chinese soft toy manufacturing unit, having an annual installed capacity of 10 mn pieces. This unit is said to have infrastructure to double its toy capacity going forward. This seems to be a strategic move as it brings in strong synergies in the form of capacity, clients and product mix. This acquisition could further strengthen HTTL's international presence, improve its overall market share in the toys segment & help to expand the overall margins going forward. HTTL's new soft toys unit at Noida (SEZ) with an installed capacity of 6.3-mn pieces p.a. has commenced its commercial production from April 2008. This unit is expected to operate at 70%-80% utilization in FY10. HTTL also has plans to increase the total capacity of soft toys from the present 20 mn pieces p.a. to 35 mn pieces p.a over the next one year. This could improve the contribution of HTTL's soft toys segment to the total revenues going forward & improve the overall margins, since toys segment offers more margins than the home furnishing segment. HTTL has also set up a new home furnishings facility at Roorkee (spread over 25 acres) with an installed capacity of 35-mn meters p.a. of fabrics processing. The made up capacity has been increased from 1.3 mn sets p.a. to 6.6 mn sets p.a. HTTL is also going in for backward integration to manufacture fabrics & has set up 6.9 mn meters of weaving capacity. This facility would offer HTTL income tax, excise & sales tax benefits.
HTTL continues to record strong order flows amid an uncertain export environment. Entering into a long-term contract with buyers is not a standard practice in the textile industry, as international retailers tend to alter their sourcing plans based on changing fashions. Hanung has managed to enter into two-three year contracts with its clients. In the backdrop of concerns of a slowdown in US imports, the long-term nature of the contracts provides greater visibility to Hanung's revenue stream. At present, HTTL has a healthy order backlog of Rs. 1350 cr. (50:50 for both toys & textiles) of which Rs. 1060 cr. are long term orders, which are executable over a period of 2.5 years. Geographically, the orders have been directed equally towards US & UK.
For the Q1 ended June 2009, HTTL has posted net profit of Rs 15.11 cr.(down 19%) on net sales of Rs 168.2 cr.(up 15%).. HTTL's turnover & PAT had increased by 30% & 9% to Rs. 637.5 cr. & Rs. 66.2 cr. respectively for FY09. EPS for FY09 stood at Rs. 26.4 on a equity of 25.18 cr.(Promoter's stake- 62.28%, FII/MF stake-12.24%). The new home furnishings facility at Roorkee & the Greenfield & brownfield expansion of soft toys facility at Noida contributed to the turnover & profitability growth in FY09. Improved realisations in toys & home furnishing products, better capacity utilisation of existing as well as expanded capacity & economies of scale contributed largely to the sales & profitability growth in FY09 as compared to FY08
At CMP of Rs 72, the stock is currently trading at 2.7x FY09 EPS of Rs 26.4 and 3x FY10 EPS of Rs.24-25 With the aggressive expansion, better utilisation of the expanded capacity & increasing focus on capturing the retail presence, HTTL is well placed to capitalize on the growing market opportunities. Home furnishing segment is expected to contribute 65-67% to the total revenues in FY10. Exports shall continue to be a major growth driver, which would account for 80% of HTTL's total revenues in FY10. wever, going forward, the company is focusing more to improve on the domestic front with strategic alliances with companies like Percept Pictures, Star India Pvt. Ltd. HTTL is also planning to aggressively ramp up retail outlets (franchisee model) over the next two years. In view of the above, Investors can accumulate the Hanung stock at this level and add more on declines for decent appreciation of 40%-50% in the next 8-12 months. Accumulate.
Source: Internet (By Sanjay Chhabria)
