INVESTMENT IDEA

PCG RESEARCH

23 Sep 2016

HIMATSINGKA SEIDE LTD.

Industry

CMP

TEXTILES

Rs.268

HDFC Scrip Code

HIMSEI

BSE Code

514043

NSE Code

HIMATSEIDE

Bloomberg

HSS IN

Recommendation

Add on Dips to band

Target

BUY

Rs. 268-235

Rs. 305-340

Time Horizon
3-4 Quarters

Himatsingka Seide Ltd promoted by Ajoy Kumar Himatsingka and Dinesh Himatsingka is engaged in the manufacture of
textiles, its distribution and retail. It is a home textile group that manufactures, retails and distributes bedding, bath,
drapery, and upholstery and lifestyle accessory products. These products are offered across Germany, France, England, Italy,
South America, Australia and USA.

CMP as on 23 Sep 16

268

Investment Rationale:

Equity Capital (Rs Cr)

49.2

The integrated approach of Himatsingka combines the consumer facing domain of brands and distribution with the
complexity of the manufacturing value chain. With over 10 brands, the Group has amongst the largest portfolio of home
textile brands.

Face Value (Rs)

Equity O/S (Cr)

9.8

Market Cap (Rs Cr)

2635

Book Value (Rs)

Avg. 52 Week
Volumes
52 Week High

99.9

52 Week Low

457679
298
145

Shareholding Pattern (%)

Promoters

57.2

Institutions

14.9

Non Institutions

27.9

Total

100

The Group is at its expansion phase over the next 3 years and will be investing Rs1300 Cr in strengthening its manufacturing
capacities and capabilities. In addition to increasing its installed sheeting capacity, the Group will backward integrate into
ultra-fine-count spinning by setting up the worlds largest cotton spinning plant under one roof with capex around ~Rs600
Cr. Further, the Group also envisages setting up a green field Terry Towel plant, capex ~Rs450 Cr to complement its current
home textile portfolio. On the retail and distribution front, the company is also developing its market presence in developing
market.
US dominates Global home textiles market with over a 40% of market share. This market is run by retailers who operate
large Specialty store chains, Department store chains and Big Box discount chains. And as companys 90% Revenue come
from the North American market, the company has great potential lying ahead.
The inclusion of State-level taxes in the computation of duty drawback will address a long-standing demand of the industry
and provide a major relief for exporters.
The Global Textile & Apparel trade for 2015 stood at USD 756 Billion and contributed to 4.6% of Global trade (4.3% during
2014). Of USD 756 Billion, USD 444 Billion came from the Apparel sector and USD 312 Billion came from the Textiles sector.
The Global Textile and Apparel trade has witnessed a Compounded Annual Growth Rate (CAGR) of 4.7% from 2005 through
2015. The global Textile and Apparel trade is estimated to grow in the band of 4.5% 5% going forward and likely to touch
approximately USD 1 Trillion by 2020.

Nisha Sankhala
nishaben.shankhala@hdfcsec.com

Private Client Group - PCG RESEARCH

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PCG RESEARCH
Risk & Concerns:

Continuous increase in cotton price will remain an issue for the company
Slowdown in western economies may affect the companys revenue further.
Heavily dependent on North Americas business.
Delay in Terry Towel plant operation.

View & Valuation:

We expect 11% revenue and 22% PAT CAGR over FY16-18E on the back of strong revenue growth and improvement
in operating performance. We also expect Himatsingka Seide Ltd to post 23% CAGR in EBITDA in FY16-18E. EBITDA
margins are expected to expand 370bps to 20.2% with the all the expanded capacity. We value the stock at ~13.5x of
FY18 EPS of ~Rs25.2. We recommend BUY at CMP of Rs268 and add on declines of Rs235 with price targets of Rs305
and Rs340 over the next 3-4 quarters.

Financial Summary (Rs Cr)

(Rs Cr)
Sales
EBITDA
Net Profit
EPS (Rs)
P/E
EV/EBITDA

Q1 FY17
458.6
66.3
45.4

Q1 FY16
453.1
42.9
26.8

YoY
1.2
54.5
69.3

Q4 FY16
426.6
56.4
32.0

QoQ
7.5
17.6
41.9

FY14
2028.2
204.8
54.5
6.4
41.7
17.0

FY15
1943.2
221.5
94.5
9.7
27.7
15.7

FY16
1886.8
312.1
166.6
16.9
15.8
11.1

FY17E
2078.6
378.9
196.2
19.9
13.5
9.2

FY18E
2322.6
469.5
248.3
25.2
10.6
7.4

Source: Company, HDFC sec Research

Revenue of the company dipped 1.2% at 458.6 Cr for the quarter ended June 2016, compare to Rs 453.1 Crs last year.
Net Profit for the company rose to 69.34% to Rs 45.35 cr compare to last year, where on the sequential basis it grew
up to 42%. EBITDA has also improved with a healthy growth rate of 55% on account of operational efficiencies.

Private Client Group - PCG RESEARCH

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PCG RESEARCH
Business Background:
Himatsingka Seide Ltd is an India-based company, which is engaged in the manufacture of textiles consisting of fabric and
yarn. It is a home textile group that manufactures, retails and distributes bedding, bath, drapery, upholstery and lifestyle
accessory products. These products are offered across Germany, France, England, Italy, South America, Australia and USA.
Himatsingka Seide Ltd was incorporated in the year 1985 and was promoted by Ajoy Kumar Himatsingka and Dinesh
Himatsingka.
About the Subsidiarys:
The company operates through their spinning and weaving divisions. Himatsingka Filati, the spinning division, was
established in technical collaboration with Filati Buratti of Italy, which produces a wide range of regular and fancy 100% silk
and silk blended yarns and the weaving division offers yarn dyed decorative, bridal and fashion fabrics. The entire operation
of winding, doubling, twisting, dyeing, weaving and finishing is integrated under one roof.

Private Client Group - PCG RESEARCH

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PCG RESEARCH
Industry Background:
Indias US$108bn textiles Industry is the second largest producer of textiles and garments in the world and largest cotton
producer in the world. The Indian textiles and apparel industry is expected to grow to a size of US$ 223bn by 2021,
according to a report by Technopak Advisors. This industry accounts for almost 18% of the worlds spindle capacity and 9%
of global rotor capacity. Abundant availability of raw materials such as cotton, wool, silk and jute as well as skilled
workforce have made the country a sourcing hub.
The textiles industry has made a major contribution to the national economy in terms of direct and indirect employment
generation and net foreign exchange earnings. The sector contributes about 14 % to industrial production, 5% to the gross
domestic product (GDP), and 27 per cent to the country's foreign exchange inflows. It provides direct employment to 60
million people. The textiles sector is the second largest provider of employment after agriculture. Thus, growth and all
round development of this industry has a direct bearing on the improvement of the Indias economy.
Major Growth Drivers for the Industry:
Rising per capita income, higher disposable incomes, favorable demographics and shift in preference for branded
products.
Increase in participation of women in workforce and awareness about hygiene & safety by Indian consumers.

Exports
37%
Domestic
63%

Private Client Group - PCG RESEARCH

USD 223
Billion

2021

USD 108
Billion

2015

Changing lifestyles and increasing demand for quality products are set to fuel the need for apparel.

Exports
37%
Domestic
63%

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PCG RESEARCH
INVESTMENT RATIONALE:
Dominating Brand
The integrated approach of Himatsingka combines the consumer facing domain of brands and distribution with the
complexity of the manufacturing value chain. With over 10 brands, including CalvinKlein Home, Barbara Barry, Peacock
Alley, Esprit, Waverly, Bellora, Beekman 1802, Desigual, Kate Spade New York and Atmosphere etc, the Group has amongst
the largest portfolio of home textile brands, catering to its markets across North America, Europe and India-Asia. The strong
portfolio of brands gives the Group an edge in tapping global shelf space to reach the end consumer. These brands are
either owned or exclusively licensed by the Group.
Increasing Foot Print
The Group is at its expansion face over the next 3 years, it will be investing INR 1,300Cr in strengthening its manufacturing
capacities and capabilities. In addition to increasing its installed sheeting capacity of around 23 Million Meters Per Annum,
the Group will backward integrate into ultra-fine-count spinning by setting up the worlds largest cotton spinning plant
under one roof with capex around ~Rs600 Cr. Further, the Group also envisages setting up a green field Terry Towel plant,
capex ~Rs450 Cr. to complement its current home textile portfolio. This will add capacity of around 25000 Metric Tonnes
Per Annum. On the retail and distribution front, the company is also developing its market presence in developing market.
Further the emerging trend of Ecommerce business growth will proved further revenue growth for the company as the
customer reach will be at increased level at domestically as well as globally.
US continues to dominate Global Home Textiles market
The United States has increased its sourcing of Cotton Sheets, Pillow Cases, Bed Spreads and Quilts from India over the
years. While total imports from India of these products stood at USD 462 Million in 2009, the same has grown to over USD 1
Billion in 2015. This translates to a CAGR of 14.15% over the same period. US dominates Global home textiles market with
over a 40% of market share. This market is run by retailers who operate large Specialty store chains, Department store
chains and Big Box discount chains. 90% of revenue is derived from the North American market, so this shows great
potential lying for the company considering large market size.
New Textiles Policy
New policy is going to focus on signing free trade agreement with major textile importers to have better access to their
markets and provide support to the textile parks being developed across the country.
The inclusion of State-level taxes in the computation of duty drawback will address a long-standing demand of the industry
and provide a major relief for exporters. There is an ample scope for negotiation, for example India is paying duty of 17 per
cent to access some markets while Bangladesh does it duty-free.

Private Client Group - PCG RESEARCH

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PCG RESEARCH
Companys revenue Break Up
Company has almost 51% of revenue generation come from the manufacturing segments, in FY16 it stood at Rs 961 Cr and
we have further estimated it to grow at 10% and 13% in FY E17 and FY E18. Traded good contributes around 45% in the
companys revenue. It stood Rs875 Cr in FY 16 and going forward we forecast it to grow at the healthy pace of around 7%
in FY17E and FY18E. Further If we see break up of manufactured goods, that includes Drapery & Upholstery (13% of total)
and Bedding products (87% of total).
Manufactured Goods

Segment Wise Revenue Breakup (%)

3.9

13.0

45.0

51.0

87.0

Manufactured goods

Traded Goods

Source: Company, HDFC sec Research

Others

Drapery and Upholstery

Bedding

Source: Company, HDFC sec Research

Risk & Concerns:

Continuous increase in cotton price will remain an issue for the company
Slowdown in European economy may affect the companys revenue further.
Heavily dependency on North America.
Delay in Terry Towel plant operation.

View & Valuation:

We expect 11% revenue and 22% PAT CAGR over FY16-18E on the back of strong revenue growth and improvement in
operating performance. We also expect Himatsingka Seide Ltd to post 23% CAGR in EBITDA in FY16-18. EBITDA margins are
expected to expand 370bps to 20.2% on the back of operational efficiencies. We value the stock at ~13.5x of FY18 EPS of
~Rs25.2. We assign BUY at CMP and add on declines of Rs235 with price targets of Rs 305 and Rs340 over the next 3-4
quarters.

Private Client Group - PCG RESEARCH

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PCG RESEARCH

Revenue trend & Revenue Growth

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH

Margin to Accelerate

Source: Company, HDFC sec Research

Profitability to surge

Region Wise Revenue Break up (%)

Source: Company, HDFC sec Research

Source: Company, HDFC sec Research

Page |7

PCG RESEARCH

Balance Sheet (Rs Cr)

Income Statement (Rs Cr)

Year ending March
Net Revenue
Other Income
Total Income
Growth (%)
Operating Expenses
EBITDA
Growth (%)
EBITDA Margin (%)
Depreciation
EBIT
Interest
Extraordinary Items
PBT
Tax
RPAT
Growth (%)
APAT
EPS

FY14
2028.2
4.7
2032.9

FY15
1943.2
20.9
1964.1

FY16
1886.8
20.1
1906.9

FY17E
2078.6
22.1
2100.7

FY18E
2322.6
25.4
2348.1

19.7
1828.1
204.8
22.7
10.1
54.4
150.4
82.8
-4.1
63.4
8.9
54.5
2.9
63.3
6.4

-3.4
1742.5
221.5
8.2
11.4
44.6
176.9
85.4
0.0
91.5
-3.1
94.5
73.4
95.5
9.7

-2.9
1594.8
312.1
40.9
16.5
48.7
263.4
94.2
0.0
169.2
2.6
166.6
76.3
166.6
16.9

10.2
1721.7
378.9
21.4
18.2
60.0
319.0
116.2
0.0
202.7
6.6
196.2
17.7
196.2
19.9

11.8
1878.6
469.5
23.9
20.2
79.1
390.4
129.6
0.0
260.7
12.4
248.3
26.6
248.3
25.2

Source: Company, HDFC sec Research

As at March

FY15

FY16

FY17E

FY18E

SOURCE OF FUNDS
Share Capital
Reserves

49.2
695.8

49.2
755.7

49.2
934.1

49.2
1090.8

49.2
1289.1

Shareholders' Funds

745.0

804.9

983.3

1140.0

1338.3

Long Term Debt

360.7

355.2

534.4

625.3

705.0

16.6

13.8

16.1

15.0

15.0

9.8
-33.2
1098.8

12.0
0.0
1185.9

14.9
0.0
1548.7

14.9
0.0
1795.2

14.9
0.0
2073.2

453.6
0.2
1.0
660.8
1115.7
0.0
638.3
13.7
87.3
26.6
26.0
791.8
323.0
313.9

465.0
0.2
1.0
724.8
1190.9
0.0
554.3
52.9
80.6
26.4
26.4
740.6
312.8
273.1

490.1
0.2
0.0
907.9
1398.2
0.0
584.2
77.3
87.1
114.4
41.8
904.8
373.8
262.5

818.1
0.0
0.0
959.3
1777.4
0.0
598.0
62.6
88.9
98.1
45.1
892.7
449.7
306.9

1171.0
0.0
0.0
945.7
2116.7
0.0
668.2
76.4
79.1
100.7
43.8
968.1
535.1
357.5

142.6
29.3
808.7
-16.9
1098.8

111.6
48.2
745.7
-5.1
1185.9

65.0
52.9
754.2
150.6
1548.7

61.7
56.6
875.0
17.8
1795.2

57.4
61.4
1011.5
-43.4
2073.2

Net Deferred Taxes

Long Term Provisions &
Others
Minority Interest
Total Source of Funds
APPLICATION OF FUNDS
Net Block
Investment
Deferred Tax Assets (net)
Long Term Loans & Advances
Total Non Current Assets
Current Investments
Inventories
Trade Receivables
Short term Loans & Advances
Cash & Equivalents
Other Current Assets
Total Current Assets
Short-Term Borrowings
Trade Payables
Other Current Liab &
Provisions
Short-Term Provisions
Total Current Liabilities
Net Current Assets
Total Application of Funds
Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH

FY14

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PCG RESEARCH

Key Ratio

Cash Flow Statement (Rs Cr)

Year ending March
Reported PBT
Non-operating & EO
items
Interest Expenses
Depreciation
Working Capital Change
Tax Paid
OPERATING CASH FLOW
(a)
Capex
Free Cash Flow
Investments
Non-operating income
INVESTING CASH FLOW
(b)
Debt Issuance / (Repaid)
Interest Expenses
FCFE
Share Capital Issuance
Dividend
FINANCING CASH FLOW
(c)
NET CASH FLOW (a+b+c)
Closing Cash

FY14
63.4

FY15
91.5

FY16
169.2

FY17E
202.7

FY18E
260.7

-71.5
82.8
54.4
59.3
-8.9

-145.9
85.4
44.6
-12.0
3.1

-90.4
94.2
48.7
-67.7
-2.6

-22.1
116.2
60.0
116.6
-6.6

-25.4
129.6
79.1
63.8
-12.4

179.4
-47.2
132.3
50.4
4.7

66.7
-23.5
43.2
13.7
20.9

151.4
-58.0
93.4
-91.1
20.1

466.8
-388.0
78.8
-51.2
22.1

495.4
-432.0
63.4
13.7
25.4

8.0
-79.0
-82.8
-29.6
-13.2
-14.8

11.1
-6.0
-85.4
-48.3
33.2
-19.7

-129.0
184.4
-94.2
183.6
0.0
-24.6

-417.2
89.8
-116.2
52.4
0.0
-39.5

-392.9
79.7
-129.6
13.5
0.0
-50.0

-189.9
-2.4
26.6

Source: Company, HDFC sec Research

-77.9
-0.2
26.4

65.6
88.0
114.4

-65.9
-16.2
98.1

-99.9
2.5
100.7

Key Ratios (%)

EBITDA Margin
EBIT Margin
APAT Margin
RoE
RoCE
Solvency Ratio
Net Debt/EBITDA (x)
D/E
Net D/E
Interest Coverage
PER SHARE DATA
EPS
CEPS
BV
Dividend
Turnover Ratios (days)
Debtor days
Inventory days
Creditors days
VALUATION
P/E
P/BV
EV/EBITDA
EV / Revenues
Dividend Yield (%)

FY14
10.1
7.4
2.7
9.2
13.7

FY15
11.4
9.1
4.9
12.3
14.9

FY16
16.5
14.0
8.8
18.6
17.0

FY17E
18.2
15.3
9.4
18.5
17.8

FY18E
20.2
16.8
10.7
20.0
18.8

3.2
0.9
0.9
1.8

2.9
0.8
0.8
2.1

2.5
0.9
0.8
2.8

2.6
0.9
0.9
2.7

2.4
0.9
0.9
3.0

6.4
12.0
75.7
1.5

9.7
14.2
81.7
2.0

16.9
21.9
99.9
2.5

19.9
26.0
115.8
3.5

25.2
33.3
135.9
4.4

2.5
94.1
172.5

9.9
112.0
191.1

14.9
110.1
175.0

11.0
105.0
183.0

12.0
105.0
185.0

41.7
3.5
17.0
1.7
0.6

27.7
3.3
15.7
1.8
0.7

15.8
2.7
11.1
1.8
0.9

13.5
2.3
9.2
1.7
1.3

10.6
2.0
7.4
1.5
1.6

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH

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PCG RESEARCH

Rating Definition:
Buy: Stock is expected to gain by 10% or more in the next 1 Year.
Sell: Stock is expected to decline by 10% or more in the next 1 Year.

Private Client Group - PCG RESEARCH

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PCG RESEARCH
I, Nisha Sankhala, MBA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
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