Hil CD 230910

CD Equisearch Pvt Ltd
23rd September, 2010
COMPANY REPORT HYDERABAD INDUSTRIES LTD.

Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance

(i)
Hyderabad Industries Ltd. (HIL) Company Brief

Hyderabad Industries Ltd. (HIL) is one of the leading manufacturers of
No. of Shares (Crore) 0.75
Fibre Cement Sheets in India with a market share of about 20.5%. Its key
Face Value (`) 10.00
product range include Fibre Cement Roofing Sheets sold under the brand
Mkt. Cap (`. Crore) 466.09
name CHARMINAR, AAC Blocks and Panels called AEROCON, and
Price (22/09/2010) 623.95 Calcium Silicate Insulation Product (thermal insulation) called HYSIL.
Book Value (`.) 380.74
Highlights
P/BV 1.64
BSE Code 509675 ⇒ HIL has an extensive presence across the country and enjoys premium
brand equity in the market based on superior quality, strength and
NSE Code HYDRBADIND
durability.
Bloomberg HYI IN
⇒ The company has diversified into value added (environmental
Reuters HYDI.BO
friendly green) products, which will de‐risk its business model and
Volume (weekly) (NSE) 159516 diversify its revenue stream. Given the diversification into value
52 W H/L (`.) 761.80 / 349.80 added products, we strongly believe that HIL is due to get re‐rated
and command much higher multiple in times to come.
Shareholding pattern % ⇒ Demand of such green building products is increasing across the
Promoters 43.10 world on account of serious concerns about the environment and the
MFs / Banks / FIs 2.89 impact on energy consumption.
Foreign 5.63 ⇒ HIL is increasing the cement sheet capacity by 180000 tpa to 1079500
Govt. Holding 4.10 tpa & thermal insulation by 3000 tpa to 11500 tpa in CY11. This will
Non-Promoter Corp. 11.04 help the company to keep pace with the growing demand for its
Total Public 33.24 products and retain significant share in the market.
Total 100.00 ⇒ Relatively speaking, HIL has far superior earnings profile and return
(As on 30th June, 10) ratios in comparison to its peers. It has a stronger balance sheet with a
Debt:Equity Ratio of 0.3, ROCE of ~44%. The company has the highest
Recommendation operating margins in comparison to its peers.
BUY Section 1.01
⇒ At the current price of ` 624, the stock trades at a P/E multiple of 4.1 x
Analyst FY12E earnings and P/BV multiple 1.0 x FY12E earnings. We
recommend a “BUY” on the stock with a price target of ` 754,
ROHIT AGARWAL assuming a P/E multiple of 5 x FY12E earnings, an upside of 21% from
Phone: +91-33-22805601/02
the current levels, over a period of 12 months.
E-Mail: rohit.agarwal@cdequi.com
` in Crores
Financials FY08 FY09 FY10 FY11E FY12E
Net Sales 480.96 618.85 703.69 830.14 999.35
Other Income 5.57 4.20 6.75 7.50 8.30
PBIDT 40.80 92.83 157.54 179.76 206.32
Net Profit 13.67 44.84 89.75 98.64 113.00
EPS 18.25 59.87 119.83 131.69 150.87
EPS Growth (%) (15.72) 228.02 100.16 9.90 14.56
P/E (x) 7.98 2.01 4.89 4.74 4.14
P/BV (x) 0.74 0.48 1.67 1.32 1.00
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Company Background
Hyderabad Industries Limited (HIL), incorporated on 17 June 1946, is a flagship company of the
C.K.Birla group of companies. The company is one of the leading manufacturers of Fibre Cement Sheets
in India with a market share of about 20.5%. HIL markets its product fibre cement sheets under the well‐
known brand ‘Charminar’.
Business Segment Over the years HIL has evolved

from a roof manufacturing
Segment Product Brand Name company to a multi product, green
Fibre Cement Roofing Sheets Charminar, Malabar building products organization,
Building Products Division
AAC Blocks & Aerocon Panels Aerocon
manufacturing building products,
Thermal Insulation Products Calcium Silicate Insulation Product Hysil
engineering goods and industrial
Source: Company, CD Research
products.
HIL is the largest manufacturer of calcium silicate, insulation blocks, pipe sections and jointing for
gasketing, thereby meeting the critical needs of the fertilizer, engineering and chemical industries. It also
manufactures aerocon prefab panels, autoclaved aerated concrete (AAC) blocks which find applications
in the construction of residential quarters, malls, shopping complexes and office partitioning etc.
Revenue Mix HIL has an extensive presence across the country with 12
AAC manufacturing facilities, 52 sales depots and more than 5,000 sales
Thermal Blocks Aerocon points, thereby providing extensive product reach.
Insulation 4% Panels
More than 85% of the total turnover is derived from Fibre
5% 3%
Cement Roofing Sheets followed by Thermal Insulation
Products, AAC Blocks and aerocon panels. In terms of operating
margins, the aerocon panels have the highest margins (30%
Fibre plus), followed by thermal insulation products (~30%), AAC
Sheets
blocks (~20%) and then building products (13%‐16% range).
88%
Product Segment
Fibre Cement Roofing Sheets
HIL is one of the leading manufacturers of Fibre Cement Sheets in India with an estimated market
share of about 20%. The company markets its product fibre cement sheets under the well‐known brand
‘Charminar’, which commands a band premium of between 2‐4%.
The company derives more than 80% of its total turnover from this product segment. 80% of the sales
come from rural markets (making it also a rural play) with the balance 20% coming from the industrial
and other segments (warehouses, poultry, urban slums etc).
To retain its leadership position, the Company has been increasing its manufacturing capacity and is also
further strengthening its marketing and distribution network.
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Thermal Insulation Products (Green Product)

HIL is market leader in this product segment with a market share of 76% in India. This group of Calcium
Silicate based insulating materials services industries such as cement, power, petrochemical, fertilizer etc.
HIL’s Calcium Silicate insulation product, HYSIL, is made from Hydrated Calcium Silicate, reinforced
with non‐asbestos fibres. Due to their superior properties and high quality, the companyʹs products have
good acceptance over its substitutes.
This product contributes about 4.4% to revenue and is a high margin product in comparison to the
building products division with PBIT margins in the range of 30%. In view of the increasing demand,
HIL has increased the production capacity by 2,500 tpa taking the total capacity to 8,500 tpa in April
2010. It is further contemplating putting up another 3,000 tpa plant in FY11 for a Capex of about ` 25‐30
crore.
Aerocon Panels (Green product)

HIL is one the largest players in this segment with a market share of around 60% and has developed a
patented process to manufacture the same. The company manufactures various boards and panels that
find application in housing, partitioning, interiors etc. Charminar Aerocon panels are an excellent
substitute for plasterboard, plywood, particleboard and brickwalls because of their sheer strength
coupled with fire and moisture‐resistance properties and ease of installation.
While currently this segment contributes only around 3% to the total revenues, HIL is excited about
the prospects of the use of panels in the low cost housing market.
Autoclaved Aerated Concrete Blocks (AAC) (Green Product)

AAC blocks are lightweight, building material that provides structure, insulation, fire and mold
resistance in a single material. Charminar Aerocon Autoclaved Aerated Blocks are an excellent
alternative to traditional clay bricks for construction of walls for buildings.
This segment contributes around 4% to HIL’s topline. The company has recently augmented its AAC
block manufacturing capacity from 1 lakh Cu M to 3.2 lakh Cu M by setting up a Greenfield plant of 2.2
lakh Cu M at Gujarat. HIL commands 40% of market share in the South and with the commencement
of Gujarat unit, the company will cater to the growing demand for AAC Blocks in the western part of
the country.
Highlights – FY10
Particulars Fibre Cement Sheets Thermal Insulation AAC Blocks Aerocon Panels
Capacity 854500 MT 6000 MT 100000 CuM 460000 MT
Production 771639 MT 5353 MT 79660 CuM 21788 MT
CaUT 90.3% 89.2% 79.7% 4.7%
Sales Qty 729767 MT 5332 MT 74882 CuM 21580 MT
Sales (` Cr) 609.3 33.3 29.3 22.0
Realisations (`) 8349.1 per MT 62359.3 per MT 3906.2 per CuM 10171.5 per MT
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Industry Outlook
⇒ Growth for Cement product industry depends on Real estate and construction and infrastructure
related activity. With the initiatives made by the government in various infrastructure projects, road
networks and housing facilities, coupled with the housing sector boom and urban and rural
development, high growth in the cement product industry is expected in forthcoming years.
⇒ There is a strong correlation between the demand for roofing and GDP growth. The demand for
roofing grows at about 1.3‐1.5x GDP growth. Hence, with the Indian economy expected to report
GDP growth upwards of 8% in FY11 as per the RBI’s estimates, demand for roofing is expected to
grow in the 10.5‐12% range.
⇒ The Fibre Cement Sheet business is poised for growth over next few years on account of anticipated
migration from thatched and tiled roofing to more refined roofing. Fibre Cement Sheets are gaining
popularity as they are better insulator of heat, less‐expensive, safer, need no maintenance and last
longer when compared to competing roofing material.
⇒ The implementation of the UIN Programme is expected to further boost income for the rural poor
thereby increasing the potential market for usage of fibre cement sheets in rural areas. The
Government of India, with an aim to provide adequate shelter to the rural poor has introduced
programmes like Indira Awas Yojna (63% higher allocation in FY11 compared to last year), Golden
Jubilee Rural Housing Finance Scheme, Pradhan Mantri Adarsh Gram Yojana, Productive Housing
in Rural Area and Rural Housing Fund which is a positive development for the industries in the
roofing sector.
⇒ The demand for Green Building Products is increasing the world over on account of serious concerns
about the environment and the impact on energy consumption.
⇒ Demand for insulation products will continue to remain robust due to fresh investments for green
field projects as well as replacement and modernization of plants in the cement, fertilizer,
petrochemical and other industries. All the user industries have huge industrial capex lined up
during next 2‐3 years. According to Crisil, Indiaʹs total industrial capex over the FY09‐FY12 period
will grow at CAGR of 7%.
⇒ The market for AAC Blocks is directly dependent on the construction of multistory apartments and
commercial buildings in particular. With the recovery in real estate sector we expect the demand to
start growing henceforth.
⇒ Lately AAC blocks are gaining popularity compared to conventional clay bricks. Compared to clay
bricks, AAC blocks are one‐third lighter. Moreover usage of AAC blocks reduces ambience heat
inside the building in a great manner. Construction is also much faster. The annual demand for AAC
blocks is estimated at around 3‐4% of total clay brick demand and it is fast gaining popularity
among big builders. Hyderabad Industries being the only listed player is expected to benefit
immensely.
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Investment Arguments
Diversified business model
From a mere roof manufacturing company, HIL has evolved into a multi product, green building
products organization. The company has gradually diversified from a one‐product company into other
areas such as Autoclaved Aerated Concrete (AAC) blocks, thermal insulation products and other
products like Prefabricated building panels, Hysil powder, Spares and accessories etc.
With the “Green Building” concept gaining
importance and growing acceptability for
cement boards and panels as a substitute for
plywood, HIL’s strategy to diversify into allied
products like cement blocks, boards, panels etc
should gain acceptance and market share going
ahead.
This will help HIL de‐risk its business model and
diversify its revenue stream. Moreover these
value added (green) products command much
higher EBIT margins as compared to cement
sheets (commoditized product), thereby helping
in improving overall margins of the company.
Source: CD Research
Robust capacity expansion plans
HIL has been constantly exploring the option of enhancing the capacity at its existing location and also to
set up new plants in new strategic locations to keep pace with the growing demand for its products and
retain significant share in the market.
Capacity Expansion - Snapshot It has recently augmented its cement

sheet manufacturing capacity by
Segment FY09 FY10 Current FY11E FY12E
90,000MT taking it to 8.5 lakh tonne.
Fibre Sheets (MT) 764500 854500 899500 989500 1079500
Moreover, it has also enhanced its AAC
Thermal Insulation (MT) 6000 6000 8500 11500 11500
block capacity by 220% to 320,000 CuM
AAC Blocks (CuM) 100000 100000 320000 320000 320000 and its thermal insulation products by
Aerocon Panels (MT) 460000 460000 460000 460000 460000 2,500 tonne taking it to 8,500 tonne by 1st
Source: Company, CD Research April 2010.
HIL has recently acquired a Fibre cement sheets manufacturing facility situated at Punjab with a capacity
of 45,000MT/Annum. This unit shall cater to the needs of the growing Fibre cement sheets market in the
state of Punjab and its adjacent states and facilitate the company to increase its market share. It is further
expanding its cement sheet capacity by setting up a 90,000 tpa plant at Bihar at cost of ` 40 crore;
expected to be operational by Mar 2011 and increasing capacity at existing UP plant by 90, 000 tpa at cost
of ` 30 crore; expected to be operational by 4QFY11.
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HIL is also contemplating putting up another 3,000 tpa thermal insulation plant in FY11 for a Capex of
about ` 25‐30 crore. The company plans to fund most of these capex through internal accruals.
The company is expected to immensely benefit on the back of increasing demand for its product
segments. Demand for cement sheet is expected to grow at a CAGR of more than 10%. Demand for
AAC blocks and thermal insulation products will remain robust due to ongoing infrastructure push
and industrial capex.
Strong and extensive presence

HIL has an extensive presence across the country having ~20.5% share in the Roofing industry (Asbestos
Cement Fibre Sheet) with 12 manufacturing facilities, 52 sales depots and more than 5,000 sales points,
thereby providing extensive product reach. The widespread presence has reduced the time and distance
to market for HIL products and has also reduced the freight cost.
HIL sells its Cement Fibre Sheet under the brand ‘Charminar’ which it has established over the past 6
decades. Charminar brand continues to enjoy premium brand equity in the market based on superior
quality, strength and durability. The company has also been able to leverage on the brand supremacy for
its new allied products like AAC Blocks, building panels and boards, which are rapidly gaining
acceptance as a substitute for plywood and other traditional material use for building constructions.
Large capacity, brand superiority of “Charminar” and strong distribution network places HIL in a
leadership position.
Fibre Cement Roofing Sheets on a strong foothold

The Fibre Cement Sheet Industry is estimated to grow at a CAGR of more than 10% in the coming
financial years on account of increased income in rural areas coupled with various initiatives by
Government by way of low‐cost/affordable housing schemes for the betterment of the rural population.
HIL being one of the leading manufacturers of Fibre Cement Sheets in India will be one of the prime
beneficiaries of the increasing demand.
Cement Sheet Installed Capacity (in lakh tn) In order to participate in the future growth opportunities and to retain

its share, the Company has been setting up of new plants at strategic
9.9
10.8 locations and increasing the production capacities of existing plants.
12.0
8.5 In the last financial year, it has augmented its cement sheet
10.0 7.6 manufacturing capacity at Vijayawada plant by 90,000MT taking it to
8.0 8.5 lakh tonne. The full benefit of the Vijaywada capacity will be seen
6.0 in FY11. Further in the current financial year, HIL acquired a Fibre
cement sheets manufacturing facility situated at Punjab with a
4.0
capacity of 45,000MT/Annum. Now, it is planning to set up two new
2.0 plants (of 90,000 MT each), one in Bihar and the other at an existing
0.0 location in UP at a capex of around ` 70 crore. The plants are expected
FY09 FY10 FY11E FY12E
to come on stream in CY11. With these plants, HIL intends to
strengthen its presence in the East of India.
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With the additional capacities established and

10000 895075 1000000 planned further during the year, HIL is would be
784353
698119 729767 able to fully exploit the emerging opportunities
8000 800000
in the sector.
6000 600000 We expect HILʹs cement sheet sales volumes to
increase by 7.5% and 14.1% YoY to 7.84 lakh
4000 400000
tonnes and 8.95 lakh tonnes in FY11E and FY12E
respectively. Cement sheet realizations are
2000 200000
expected to to increase by 5% and 3% YoY to `
0 0 8767 per tonne and ` 9030 per tonne in FY11E and
FY09 FY10 FY11E FY12E FY12E respectively. Revenue from cement sheet
business is expected to grow by 12.9% and 17.5%
Realisations (per tn) Sales (In Rs Mn) Volumes (MT) YoY to ` 688 crore and ` 808 crore in FY11E and
FY12E respectively.
Source: CD Research
AAC Blocks to drive growth in long term

The market for AAC Blocks is directly dependent on the construction of multistory apartments and
commercial buildings in particular. They are lightweight building material that provides structure,
insulation, fire and mold resistance in a single material. AAC Blocks with its inherent advantages such as
a favourable weight to compressive strength ratio, usage of flyash and energy saving property and faster
rate of construction are fast becoming the choice of the new generation builders compared to
conventional clay bricks.
With the realty sector having recovered from the slowdown, this product is set to witness significant
growth in volumes as builders convert from their conventional bricks to green AAC Blocks. HIL being
the only listed player in this segment is expected to reap benefits in coming times. The company has
recently augmented its AAC block manufacturing capacity to 3.2 lakh Cu M by setting up a new unit of
2.2 lakh Cu M in Gujarat in the last quarter to cater to the growing demand in Western region. It has a
market share of almost 38% in South.
240000
4800 250000 We expect AAC blocks sales volume to more than
157500 double to 1.58 lakh Cu M in the current financial
4000 200000
year and further increase by 52.4% YoY to 2.4 lakh
3200
90328 150000 Cu M in FY12E.
2400 74882
100000
Realisations are expected to increase by 3.5% and
1600 3% YoY to ` 4043 Cu M and ` 4164 per Cu M in
800 50000 FY11E and FY12E respectively.
0 0 Revenue from AAC block segment is expected to

FY09 FY10 FY11E FY12E increase by 117.7% and 57.0% YoY to ` 64 crore and
` 100 crore in FY11E and FY12E respectively.
Realisations (per CuM) Sales (In Rs Mn) Volumes (CuM)
Source: CD Research 8
8

We expect the contribution of AAC block business to the total turnover to increase in coming years,
which will de‐risk its business operations and will provide further stability to overall revenues as
demand for AAC block comes from industrial segment unlike demand for cement sheets that
depends on cyclicality of housing segment. AAC block business also commands much better EBITDA
margins of around 20% as compared to cement sheets, where margins hover at 13‐15% depending on
cyclicality.
Thermal Insulation Products to maintain its growth momentum

HIL manufactures calcium silicate based insulating materials called HYSIL and is the undisputed leader
with a market share of 76% in this special variety of insulation product. These products are used across
different industries such as cement, power, petrochemicals, fertilizer etc.
Installed Capacity This product segment is expected to maintain its growth
momentum as all its user industries are in expansion mode and
11500 11500
12000 have huge industrial capex lined up during next 2‐3 years.
10000 According to Crisil, Indiaʹs total industrial capex over the FY09‐
8000 6000 6000 FY12 period will grow at CAGR of 7%.
6000 In view of the increasing demand and to maintain its leadership
4000 position, HIL has increased its thermal insulation capacity by
2000
2,500 tpa taking the total capacity to 8,500 tpa in April 2010. As
per the management, this enhanced capacity is fully booked for
0
FY09 FY10 FY11E FY12E 6 months. It is further contemplating putting up another 3,000
tpa plant in FY11 for a Capex of about ` 25‐30 crore.
We expect thermal insulation sales volume
to increase by 37.1% and 25.9% YoY to 7310
1200 7310 9200 10000 MT and 9200 MT in FY11E and FY12E
respectively.
1000 8000
5332 Realisations are expected to decline by 3.8%
800
6000 to ` 60000 per tonne in FY11 and remain
600 2728 stable in FY12.
4000
400 Revenue from this segment is expected to
200 2000 increase by 31.9% to ` 44 crore in the current
financial year and by 25.9% to ` 55 crore in
0 0 FY12E.
Realisations (per '00 tn) Sales (In Rs Mn) Volumes (MT)
Source: CD Research
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Healthy financial outlook

HIL has been declaring excellent set of numbers over the last few years on the back of strong thrust of
Government on Rural Housing, diversified product segment, superior brand quality and strong
distribution network.
Revenue Breakup – Productwise Turnover has grown at a CAGR of 21% over the last
three financial years to ` 704 cr in FY10 driven by 23%
100% & 21% CAGR in Cement Sheet and Thermal Insulation
80% business respectively. Net Profit has grown at a
whopping CAGR of 156% over the same period on the
60% back of sharp improvement in margins and decline in
40% interest cost.
20%
The company has taken a number of initiatives to reduce
costs. These include increase in fuel efficiency,
0% manpower rationalization, more automation of
processes, reduction in fixed costs etc. The company has
Fibre Sheets AAC Blocks Thermal Insulation Others a very strong Balance Sheet with a Debt: Equity Ratio
of 0.25 and a RoCE of 43.50%.
In the first quarter of current financial year, HIL registered muted sort of performance mainly because of
poor monsoons last year leading to lower rural income and decline in margins on the back of increase in
excise duty from 4% to 10%.
Going forward, we believe HIL will maintain its growth
momentum on the back of aggressive capex plans
across the product segments.
1200 22.4% 21.7% 20.6% 25.0%
Top‐line is expected to grow at a CAGR of 19% over
1000 20.0% FY10 ‐ FY12E on the back of 85% growth in AAC Blocks
800 revenues (on the back of full scale operations leading to
15.0% 15.0% 79% growth in volumes) and 29% growth in Thermal
600
10.0% Insulation business (on the back of 31% growth in
400 volumes). Flagship product Cement Sheet is expected to
200 5.0% register a top‐line CAGR of 15% over the same period
led by 11% increase in Cement Sheet sales volumes.
0 0.0%
FY09 FY10 FY11E FY12E EBITDA margins are expected to ease a bit and
stabilize around 20% on the back of moderate increase
Sales Profit EBITDAM% in raw material prices.
Source: Company, CD Research Increase in depreciation (Capex of ` 115 crore & ` 100
crore in FY11 & FY12 respectively) and interest expenses
would limit the CAGR in Net Profit to 12% over FY10 ‐
FY12E.
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Peer Comparison
Equity Market D:E ROCE EV/ PBIDTM
Company Name PE P/BV
(`. Cr) Price Ratio (%) PBIDTA (%)
Everest Industries 15.0 254.0 10.6 2.0 1.0 16.1 5.3 10.3
Hyderabad Industries 7.5 624.0 5.4 1.6 0.3 43.5 3.1 22.4
Ramco Industries. 8.7 70.5 10.4 1.7 0.8 16.3 6.1 21.2
Sahyadri Industries 9.6 166.0 6.2 1.8 1.2 32.3 3.4 19.0
Visaka Industries 15.9 157.5 4.7 1.0 0.8 26.2 2.7 18.3
Source: Capitaline, CD Research
⇒ HIL has far superior earnings profile and return ratios as can be seen from the above comparison.
It has a strong balance sheet with a Debt:Equity Ratio of 0.3, a consistent track record of healthy
performances and ROCE (return on capital employed) of ~44%. The company has the highest
operating margins in comparison to its peers.
⇒ Diversification into value added (green) products will lead to a de‐risking of the business model.
Moreover it would lead to further improvement in margins in long term as these advanced building
products and thermal insulation products enjoy better margins as compared to cement sheets
(commoditised product), thereby helping in improving overall margins of the company.
⇒ On relative valuation basis, HIL is better placed than most of its peers as the stock trade at a P/E of
5.4 x & P/BV of 1.6 unlike most other industry players that trades at higher multiples.
⇒ Given the superlative earnings profile, strong balance sheet, diversification into value added
products and reasonable valuations; we strongly believe that HIL is due to get re‐rated and
command much higher multiple in times to come.
Financials
Profit & Loss In `. Crores
Year ended 31st March FY08 FY09 FY10 FY11E FY12E
Net Sales 480.96 618.85 703.69 830.14 999.35
Other Income 5.57 4.20 6.75 7.50 8.30
Total Income 486.53 623.05 710.44 837.64 1007.65
Total Expenditure 445.73 530.22 552.90 657.88 801.33
PBIDT 40.80 92.83 157.54 179.76 206.32
Interest 7.78 9.42 6.25 7.98 9.18
PBDT 33.02 83.41 151.29 171.78 197.14
Depreciation 11.12 13.98 15.55 22.33 25.93
Tax 7.82 25.34 46.02 50.81 58.21
Reported PAT 14.08 44.09 89.72 98.64 113.00
Extra-ordinary Items 0.41 (0.75) (0.03) 0.00 0.00
Net Profit 13.67 44.84 89.75 98.64 113.00
EPS (FV ` 10) 18.25 59.87 119.83 131.69 150.87
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Balance Sheet In `. Crores

SOURCES OF FUNDS
Equity Share Capital 7.49 7.49 7.49 7.49 7.49
Reserves 143.52 178.71 254.29 325.32 430.72
Total Shareholders Funds 151.01 186.20 261.78 332.81 438.21
Secured Loans 70.31 46.84 32.02 42.49 52.73
Unsecured Loans 21.46 33.48 32.61 40.64 42.90
Total Debt 91.77 80.32 64.63 83.13 95.63
Total Liabilities 242.78 266.52 326.41 415.94 533.84
APPLICATION OF FUNDS
Gross Block 238.36 282.21 321.11 465.19 540.19
Less: Accumulated Depreciation 109.14 122.41 137.51 159.84 185.77
Net Block 129.22 159.80 183.60 305.35 354.42
Capital Work in Progress 22.99 36.53 69.08 40.00 65.00
Investments 9.45 9.34 9.23 9.23 9.23
Current Assets, Loans & Advances
Inventories 113.48 111.53 138.51 146.05 191.73
Sundry Debtors 47.89 50.61 52.49 59.77 70.45
Cash and Bank 16.28 10.46 10.50 15.02 23.32
Loans and Advances 22.07 19.03 21.77 25.57 30.68
Total Current Assets 199.72 191.63 223.27 246.41 316.18
Less: Current Liabilities and Provisions
Current Liabilities 91.90 97.52 123.59 144.44 169.89
Provisions 10.39 14.57 14.99 20.60 21.10
Total Current Liabilities 102.29 112.09 138.58 165.05 190.99
Net Current Assets 97.43 79.54 84.69 81.36 125.19
Net Deferred Tax (16.31) (18.69) (20.19) (20.00) (20.00)
Total Assets 242.78 266.52 326.41 415.94 533.84
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Key Financial Ratios

Growth Ratios
Revenue (%) 10.14 28.67 13.71 17.97 20.38
PBIDT (%) 10.60 127.52 69.71 15.89 14.78
Net Profit (%) (15.72) 228.02 100.16 9.90 14.56
EPS (%) (15.72) 228.02 100.16 9.90 14.56
Margins
PBIDTA Margin (%) 8.48 15.00 22.39 21.65 20.65
Net Profit Margin (%) 2.84 7.25 12.75 11.88 11.31
Return
ROCE (%) 12.23 29.59 43.50 37.85 33.79
RONW (%) 9.05 24.08 34.28 29.64 25.79
Valuations
Market Cap / Sales 0.21 0.13 0.57 0.56 0.47
EV/PBIDTA 4.47 1.68 3.06 2.98 2.62
P/E 7.98 2.01 4.89 4.74 4.14
P / BV 0.74 0.48 1.67 1.32 1.00
Other Ratios
Debt-Equity Ratio 0.61 0.43 0.25 0.25 0.22
Current Ratio 1.95 1.71 1.61 1.49 1.66
Interest Cover Ratio 3.81 8.37 22.72 19.73 19.65
Turnover Ratios
Fixed asset turnover 3.72 3.87 3.83 2.72 2.82
Total asset turnover 1.98 2.32 2.16 2.00 1.87
Debtors turnover 10.04 12.23 13.41 13.89 14.18
Inventory turnover 4.24 5.55 5.08 5.68 5.21
Risk & Concerns

⇒ Asbestosis is a lung disease associated with oneʹs exposure to asbestos products. Thus in the western
countries, due to uncontrolled usage of Asbestos, there were cases of people suffering from
Asbestosis. In India there is a ban on the usage of blue and brown varieties of asbestos. Any
government initiative to completely ban the usage of asbestos will force industry to look for
alternative and may increase the overall cost. However, with government thrust on affordable
housing projects, there seems to be remote chances of complete ban on usage of asbestos.
⇒ Any change or decrease in spending by the government through rural schemes like NREGA, Indira
Awas Yojna etc. could reduce the purchasing power of rural people.
⇒ Rural income is largely dependent on agriculture, which is a function of monsoon. A poor monsoon
could have adverse effect on the demand for roofing in rural India.
⇒ Increase in raw material prices higher than our expectations will negatively impact HIL’s margins.
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Valuation & Recommendation

With a healthy growth in GDP and expectations of a robust demand in the future from Rural India on
account of projects like NREGA & UIN leading to higher disposable income in the hands of the rural
population, cement sheet industry is poised to grow in double digits in the coming years. HIL being one
of the leading manufacturers of Cement Sheets will be one of the prime beneficiaries of this move.
Diversification into value added green building products augurs well for the company as demand for
these products are increasing across the world on account of serious concerns about the environment
and the impact on energy consumption. Moreover, these diversifications help HIL in de‐risking its
business model and diversify its revenue stream.
Increasing of capacity across the product segments will help the company to keep pace with the growing
demand for its products and retain significant share in the market. Going forward, we believe HIL will
maintain its growth momentum on the back of strong thrust of Government on Rural Housing,
diversified product segment, superior brand quality and strong distribution network.
We expect the top‐line to grow at a CAGR of 19% over FY10 ‐ FY12E on the back of 85% growth in
AAC Blocks revenues and 29% growth in Thermal Insulation business. Flagship product Cement
Sheet is expected to register a top‐line CAGR of 15% over the same period led by 11% increase in
Cement Sheet sales volumes. EBITDA margin is expected to stabilize around 20% on the back of
moderate increase in raw material prices. Net Profit is expected to grow at a CAGR of 12%.
Relatively speaking, HIL has far superior earnings profile and return ratios in comparison to its peers. It
has a strong balance sheet with a Debt:Equity Ratio of 0.3, ROCE of ~44%. The company has the highest
operating margins in comparison to its peers. Given the diversification into value added products, we
strongly believe that HIL is due to get re‐rated and command much higher multiple in times to come.
Given the favourable sector outlook, leadership position of the company, strong presence in niche
segments, robust demand of its products and lastly aggressive capex plans, this stock seems a good buy
for investors looking for strong growth in the coming years.
At the current price of ` 624, the stock trades at a P/E multiple of 4.7 x and 4.1 x FY11E and FY12E
earnings respectively. It is also attractively valued at EV/EBITDA basis of 2.6 x FY12E earnings and at
P/BV of 1.0 x FY12E BV. With this backdrop we believe this to be an excellent opportunity for investors,
we recommend a “BUY” on the stock with a price target of ` 754, assuming a P/E multiple of 5 x FY12E
earnings, an upside of 21% from the current levels, over a period of 12 months.
Disclaimer
CD Equi Search Pvt. Ltd. as a firm may have investment positions in the company shares discussed above. This document is meant for our clients only and is not for public
distribution. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. The material is based upon information that we consider
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any liability arising from the use of this document. The recipient of this material should rely on their own investigations and take their own professional advice. Opinions expressed
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be subject to change without notice. If you have any questions about this report please get in touch with CD Equi search Pvt. Ltd.
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CD Equisearch Pvt Ltd

23rd September, 2010

COMPANY REPORT HYDERABAD INDUSTRIES LTD.

Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance

Hyderabad Industries Ltd. (HIL) Company Brief

Business Segment Over the years HIL has evolved

Thermal Insulation Products (Green Product)

Aerocon Panels (Green product)

Autoclaved Aerated Concrete Blocks (AAC) (Green Product)

Capacity Expansion - Snapshot It has recently augmented its cement

Strong and extensive presence

Fibre Cement Roofing Sheets on a strong foothold

Cement Sheet Installed Capacity (in lakh tn) In order to participate in the future growth opportunities and to retain

With the additional capacities established and

AAC Blocks to drive growth in long term

0 0 Revenue from AAC block segment is expected to

Thermal Insulation Products to maintain its growth momentum

Realisations (per '00 tn) Sales (In Rs Mn) Volumes (MT)

Healthy financial outlook

Balance Sheet In `. Crores

Key Financial Ratios

Risk & Concerns

Valuation & Recommendation

Email: research@cdequi.com Website: www.cdequi.com

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