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Company Report

Himatsingka Seide Ltd.

CMP Target Price Rs.60.75 Rs.80.00

7th January, 2014

BUY

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.

BSE Code NSE Code Market Cap (Rs Cr.) 52 Week High/Low Industry Face Value Shares O/S

514043 HIMATSEIDE 598.39 60.80/25.90 Textile Rs.5.00 9.85 Cr.

EPS Book Value P/E P/B

7.12 73.82 8.53 0.83

Shareholding Pattern

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.

Research Analyst: Vineeta Mahnot

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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 debottlenecking 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
Net sales Growth Expenditure EBITDA Growth EBITDA margin Other income Depreciation & Amortisation EBIT EBIT margin Interest PBT Tax PAT Minority interest Share of profits in Associates Adjusted PAT Growth
Net Profit margins Exceptional item Reported PAT

FY11
1232.65 1145.58 87.07 7.06% 8.02 56.46 38.63 3.13% 52.62 (13.99) 1.80 (15.79) 0.80 0.00 (16.59) (1.35) 0.00 -16.59 49.23 9.85 -1.68

FY12
1428.69 15.90% 1284.00 144.69 66.18% 10.13% 2.93 55.57 92.05 6.44% 52.84 39.21 10.82 28.39 0.88 0.00 27.52 265.92 1.93 5.55 33.06 49.23 9.85 2.79

FY13
1689.43 18.25% 1531.57 157.85 9.09% 9.34% 8.98 52.16 114.68 6.79% 65.28 49.40 (1.21) 50.60 -4.37 0.00 54.97 99.76 3.25 2.35 57.32 49.23 9.85 5.58

FY14E
2010.42 19.00% 1799.32 211.09 33.73% 10.50% 5.03 55.67 160.45 7.98% 79.78 80.67 16.13 64.53 -5.24 0.00 69.78 26.93 3.47 0.00 69.78 49.23 9.85 7.09

FY15E
2342.14 16.50% 2091.53 250.61 18.72% 10.70% 7.03 59.66 197.98 8.45% 68.89 129.09 25.82 103.27 -5.77 0.00 109.04 56.27 4.66 0.00 109.04 49.23 9.85 11.07

Equity Capital Equity Shares Adjusted EPS

Ratios
Particulars
Return on Equity Return on Capital employed Debt/Equity Asset turnover Current Ratio Book value per share For Private Circulation Only

FY11
-3.17 3.05 1.42 0.83 2.48
53.12

FY12
4.84 7.27 1.23 0.93 2.28
57.74

FY13
8.65 8.57 1.11 1.06 2.20
64.55

FY14E
10.10 10.78 1.16 1.10 1.89
70.14

FY15E
13.98 13.48 0.88 1.26 1.80
79.22

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Balance Sheet
Rs. Crore Particulars
Share Capital Reserves & Surplus Shareholders funds Borrowings Deferred tax liability Minority Interest Sources of funds Gross block Accumulated Depreciation Net block Capital work in progress Investments Deffered tax assets Goodwill on consolidation Inventories Sundry debtors Cash and bank balance Other current assets Loans and advances Total current assets Current liabilities and provisions Net current assets Misc exp Uses of funds

FY11
49.23 473.75 522.98 744.57 2.33 0.64 1270.52 909.80 361.69 548.11 6.54 10.04 0.00 384.48 383.95 70.51 9.97 3.44 70.63 538.50 217.16 321.34 0.00 1,270.51

FY12
49.23 519.23 568.46 698.37 11.16 0.32 1278.32 906.08 418.89 487.19 8.87 13.01 0.00 431.32 427.04 81.71 8.38 1.90 83.44 602.46 264.54 337.92 0.00 1,278.32

FY13
49.23 586.35 635.58 703.01 6.48 -19.98 1325.09 915.76 458.97 456.79 5.98 3.28 0.00 532.63 407.50 67.22 28.97 3.79 91.31 598.80 272.39 326.41 0.00 1,325.09

FY14E
49.23 641.36 690.59 797.78 11.78 -25.22 1474.93 1030.98 514.64 516.35 8.25 7.01 0.00 622.48 449.52 88.46 27.22 6.80 108.87 680.87 360.03 320.85 0.00 1,474.93

FY15E
49.23 730.71 779.94 688.86 11.78 -30.99 1449.59 1104.78 574.30 530.48 9.02 8.84 0.00 572.28 488.53 96.23 29.61 7.40 118.43 740.20 411.22 328.98 0.00 1,449.60

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Quarterly Financial Highlights

Rs. Crore Particulars
Revenues Expenditures Operating Profit Adjusted Net Profit Reported Net Profit OPM% NPM % Adjusted EPS Q2FY14 549.79 495.02 54.77 18.05 18.05 9.96 3.28 1.83 Q2FY13 472.66 430.86 41.80 9.36 11.48 8.84 1.98 0.95 Q1FY14 477.70 428.10 49.60 16.54 16.54 10.38 3.46 1.68 YoY% 16.32 14.89 31.03 92.84 57.23 112bps 130bps 92.63 QoQ% 15.09 15.63 10.43 9.13 9.13 (42bps) (18bps) 8.93

Past Price movement of the stock

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