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Company Report

Himatsingka Seide Ltd. 7th

January, 2014 BUY

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CMP Rs.60.75

Target Price Rs.80.00

BSE Code 514043

NSE Code HIMATSEIDE

Market Cap (Rs Cr.) 598.39

52 Week High/Low 60.80/25.90

Industry Textile

Face Value Rs.5.00

Shares O/S 9.85 Cr.

EPS 7.12

Book Value 73.82

P/E 8.53

P/B 0.83

Shareholding Pattern

Research Analyst: Vineeta Mahnot research@hemonline.com

The Himatsingka Group is a vertically integrated Home Textile

major with a global footprint. It focuses on the manufacturing,

retailing and distribution of Home Textile products.

The company has registered robust results for the quarter ending

September 2013. The consolidated revenues from operations

grew by 16.3% to Rs.549.79 crores vs. Rs.477.70 cr. in the

corresponding quarter last year. Operating profit climbed sharply

by 31% at about Rs.54.77 crores as against Rs.41.80 crores in the

previous year quarter; driven by cost optimization measures. The

net profit skyrocketed at Rs.18.05 crore for the quarter as

compared to Rs.9.36 crore (pre-exceptional). EPS for the quarter

stood at Rs.1.83.

Manufacturing revenues represented by the Drapery/Upholstery

and Bedding Divisions grew by 35.1% to Rs.251.22 cr. vs.

Rs.185.94 cr in the like quarter last year; helped by higher

volumes in Bed Linen and improved constant currency

realization per meter.

Distribution revenues in North America the portfolio of 6 brands

including Calvin Klein Home and Barbara Berry grew by 13.7%

to Rs.452.69 cr. vs. Rs.398.23 cr in the corresponding quarter

previous year. Revenues from Europe represented by the

“Bellora” brand showed a growth of 38.2% to Rs.30.26 vs.

Rs.21.89 cr in the corresponding period last year. Revenues from

India/Middle East/ South East Asia represented through the

Atmosphere brand grew by 10% at aR.14.05 cr as against Rs.12.78

cr in Q2FY13.

Valuation

With increasing geographical presence, strong brands, efficient cost

optimization measure and improved realisation; Himatsingka Seide

Ltd. revenue visibility looks clear. We believe the company is trading

at an attractive valuation at 8.57x and 5.49x of FY14EPS of Rs.7.09 and

FY15EPS of Rs.11.07. We initiate a ‘BUY’ on the stock with a target

price of Rs.80 (appreciation of about 32%) with the medium to long

term investment horizon.

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Business Details

The Himatsingka Group is a vertically integrated Home Textile major with a global footprint. The Group focuses on

the manufacturing, retailing and distribution of Home Textile products. On the manufacturing front, the Group

operates amongst the largest capacities in the world for producing upholstery fabrics, drapery fabrics and bed linen

products. Spread across Asia, Europe and North America, its retail and wholesale distribution divisions carry some of

the most prestigious brands in the Home Textile space and cater to Private Label programs of major retailers across

these geographies. The Group's manufacturing operations epitomize cutting edge technology, best-in-class

manufacturing processes and embrace the highest standards of quality control.

Bed Linen: The vertically integrated Bed Linen manufacturing facility

is equipped with warping, sizing, weaving, processing, cut and sew

and captive co-generation facilities. Commissioned in 2007, this USD

125 million facility is amongst the largest in the world for its class of

products.

Drapery & Upholstery: The vertically integrated Drapery and

Upholstery manufacturing operation is equipped with yarn

preparation, yarn dyeing, weaving and finishing capabilities. The

facility is amongst the largest in the world in its class of products.

Silk & Blended Yarn: The Spun Silk manufacturing facility is

equipped with best-in-class spinning equipment and specializes in manufacturing Spun Silk and Silk blended yarns.

The Himatsingka Group is seamlessly integrated from manufacturing in India to retail and distribution networks

across North America, Europe and Asia. The Group's retail and distribution networks cater to over 8000 points of sale

including 200 shop-in-shops of its licensed brands in major departmental stores and 25 exclusive retail stores. An

integrated model and supply chain expertise enables the Group to service retail and distribution networks across 22

countries.

North America: In North & South America, the Group operates through its divisions DWI Holdings and Divatex.

While DWI Holdings is the licensee of brands such as Calvin Klein Home and Barbara Barry, Divatex is the licensee of

Esprit and caters to Private Label programs of major retailers.

Europe: In Europe, the Group has extensive retail and distribution networks and operates through its division

Guiseppe Bellora S.p.A. Bellora is amongst the most recognized Italian luxury-bedding brand and has broad

distribution reach across Italy and other parts of Western Europe.

Asia: In Asia, the Group operates through its division Himatsingka Wovens. This division controls the atmosphere

brand and has retail networks in India, the Middle East and South East Asia

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Decent growth ahead

Himatsingka Seide has basically been doubled in five years. It current CAGR is in the region of 15% and it expects to

continue to hold a growth rate in the region of 15% plus going forward as far as its organic growth is concerned. On

the top line, the management is estimating a growth in the region of 18 to 20% for FY14. It will look at further de-

bottlenecking of certain manufacturing capacities to support such growth. The company continues to see stable

demand for its brands (through DWI Holdings) as well as its private label business (through Divatex) in North

America. The company has currently working at about 95% capacity utilization and is looking at its options on

bedding capacity expansion of processing. Looking at the sluggishness in the utilization in other division the company

plans to look at entering new price points across global markets, stepping down the pyramid on pricing, getting new

fibres into product mix, including fibres like Nylon and Polyester. Further, its focus on Research and Development

will lead the way for new product introductions in order to give the Group a strong product pipeline to drive

sustainable growth. While it will look to enhance revenue streams with new product introductions and enhanced

market share, the Group plans to focus on stringent Cost optimization measures across the value chain to be able to

deliver an improved operating performance. Capex for half year ending September 2013 stood at Rs.2.09 crores. The

order book for the manufacturing division stood at Rs.334 crores i.e. Rs.312 crores for the bedding division and Rs. 22

crores for Drapery and upholstery as on September 2013.

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Strong Brands

Himatsingka holds exclusive licenses for its brands like Calvin Kelin and Barbara Barry and Espirit etc. in North

America. The company has been growing at a fairly healthy organic growth rate in the region of 17 to 18%

compounded over the last three years in this segment. Calvin Klein is the second largest selling home brand in

department stores in its segment. The group has a strong presence in India and Europe through its Atmosphere and

Bellora brands respectively. While in North America the Group is focused on servicing major retailers, in Europe and

India/Asia, the Group operates exclusive stores for its brands. In addition, it reaches the end consumer through high

end Multi Brand Outlets and Department stores. As far as Bellora brand is concerned; the company is looking at

entering to new geographies for the brand over the next two-three years. Currently, it has concentrated its presence in

Italy. The retail business ‘‘atmosphere” launched its first online store ‘‘atmospheredirect.com”. This e-commerce

initiative is part of its overall focus to expand its customer base and provide an enhanced shopping experience. The

strong portfolio of brands gives the Group an edge in tapping global shelf space to reach the end consumer. The retail

fraternity and the end consumer are inclined to have marquee brands that enhance the shopping experience and drive

potentially superior value propositions across markets.

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Consolidated Profit & Loss Account Rs. Crore

Particulars FY11 FY12 FY13 FY14E FY15E

Net sales 1232.65 1428.69 1689.43 2010.42 2342.14

Growth

15.90% 18.25% 19.00% 16.50%

Expenditure 1145.58 1284.00 1531.57 1799.32 2091.53

EBITDA 87.07 144.69 157.85 211.09 250.61

Growth

66.18% 9.09% 33.73% 18.72%

EBITDA margin 7.06% 10.13% 9.34% 10.50% 10.70%

Other income 8.02 2.93 8.98 5.03 7.03

Depreciation & Amortisation 56.46 55.57 52.16 55.67 59.66

EBIT 38.63 92.05 114.68 160.45 197.98

EBIT margin 3.13% 6.44% 6.79% 7.98% 8.45%

Interest 52.62 52.84 65.28 79.78 68.89

PBT (13.99) 39.21 49.40 80.67 129.09

Tax 1.80 10.82 (1.21) 16.13 25.82

PAT (15.79) 28.39 50.60 64.53 103.27

Minority interest 0.80 0.88 -4.37 -5.24 -5.77

Share of profits in Associates 0.00 0.00 0.00 0.00 0.00

Adjusted PAT (16.59) 27.52 54.97 69.78 109.04

Growth

265.92 99.76 26.93 56.27

Net Profit margins (1.35) 1.93 3.25 3.47 4.66

Exceptional item 0.00 5.55 2.35 0.00 0.00

Reported PAT -16.59 33.06 57.32 69.78 109.04

Equity Capital 49.23 49.23 49.23 49.23 49.23

Equity Shares 9.85 9.85 9.85 9.85 9.85

Adjusted EPS -1.68 2.79 5.58 7.09 11.07

Ratios

Particulars FY11 FY12 FY13 FY14E FY15E

Return on Equity -3.17 4.84 8.65 10.10 13.98

Return on Capital employed 3.05 7.27 8.57 10.78 13.48

Debt/Equity 1.42 1.23 1.11 1.16 0.88

Asset turnover 0.83 0.93 1.06 1.10 1.26

Current Ratio 2.48 2.28 2.20 1.89 1.80

Book value per share 53.12 57.74 64.55 70.14 79.22

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Balance Sheet

Rs. Crore

Particulars FY11 FY12 FY13 FY14E FY15E

Share Capital 49.23 49.23 49.23 49.23 49.23

Reserves & Surplus 473.75 519.23 586.35 641.36 730.71

Shareholders’ funds 522.98 568.46 635.58 690.59 779.94

Borrowings 744.57 698.37 703.01 797.78 688.86

Deferred tax liability 2.33 11.16 6.48 11.78 11.78

Minority Interest 0.64 0.32 -19.98 -25.22 -30.99

Sources of funds 1270.52 1278.32 1325.09 1474.93 1449.59

Gross block 909.80 906.08 915.76 1030.98 1104.78

Accumulated Depreciation 361.69 418.89 458.97 514.64 574.30

Net block 548.11 487.19 456.79 516.35 530.48

Capital work in progress 6.54 8.87 5.98 8.25 9.02

Investments 10.04 13.01 3.28 7.01 8.84

Deffered tax assets 0.00 0.00 0.00 0.00 0.00

Goodwill on consolidation 384.48 431.32 532.63 622.48 572.28

Inventories 383.95 427.04 407.50 449.52 488.53

Sundry debtors 70.51 81.71 67.22 88.46 96.23

Cash and bank balance 9.97 8.38 28.97 27.22 29.61

Other current assets 3.44 1.90 3.79 6.80 7.40

Loans and advances 70.63 83.44 91.31 108.87 118.43

Total current assets 538.50 602.46 598.80 680.87 740.20

Current liabilities and provisions 217.16 264.54 272.39 360.03 411.22

Net current assets 321.34 337.92 326.41 320.85 328.98

Misc exp 0.00 0.00 0.00 0.00 0.00

Uses of funds 1,270.51 1,278.32 1,325.09 1,474.93 1,449.60

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Quarterly Financial Highlights

Rs. Crore

Particulars Q2FY14 Q2FY13 Q1FY14 YoY% QoQ%

Revenues 549.79 472.66 477.70 16.32 15.09

Expenditures 495.02 430.86 428.10 14.89 15.63

Operating Profit 54.77 41.80 49.60 31.03 10.43

Adjusted Net Profit 18.05 9.36 16.54 92.84 9.13

Reported Net Profit 18.05 11.48 16.54 57.23 9.13

OPM% 9.96 8.84 10.38 112bps (42bps)

NPM % 3.28 1.98 3.46 130bps (18bps)

Adjusted EPS 1.83 0.95 1.68 92.63 8.93

Past Price movement of the stock

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Disclosure of Interest Statement Company Name

1. Analyst Ownership of the Stock No

2. Hem & its Group Company Ownership of the Stock Yes

3. Hem & its Group Companies’ Director Ownership of the Stock Yes

4. Broking relationship with company covered No