Buy Hindware Ltd For Target Rs. 325 - Choice Broking Ltd
Management optimism on better times is reasonable, in our view
We maintain our BUY rating on HINDWARE with an increased TP of INR 325 (from INR 254 earlier) as we factor in 1) FY25-FY28E Revenue/EBITDA CAGR of 11/25% for Bathware Segment, 2) FY25-FY28E Volume /Revenue /EBITDA CAGR of 18/17/25% for Piping Segment, driven by improvement in Real Estate and Infra activity, and 3) FY26E/FY27E/FY28E EBITDA margin of 3/4/5% for Consumer Appliance Business which implies a rebound to FY23 levels due to focus on profitable product categories. Consequently, we arrive at FY25-FY28E consolidated Revenue/EBITDA CAGR of 12/43%.
We now value HINDWARE on 1 year forward (blend of FY27E-FY28E) EV/EBITDA multiple of 9.5x which we believe is conservative given significant turn round expected in ROCE from 1.4% in FY25 to 15.8% by FY28E. We do a sanity check of our EV/EBITDA TP using implied P/BV, and P/E multiples. On our TP of INR 325, FY27E implied PB/PE multiples are 3x/26x. Slowdown in construction activities due to external factors and sudden fall in PVC/CPVC prices as a result of various global dynamics are risks to our BUY rating.
Demerger value unlocking is not considered in our INR325/sh TP
HINDWARE announced the de-merger of loss making Consumer Appliances Business in Apr 2025. We have not factored in the benefits of the composite scheme of demerger i.e. 1) revising higher the valuation multiple of Building Products Business, and 2) ascribing a positive value to the Consumer Products Business as the proposed demerger scheme receives the requisite regulatory approvals. Based on 1 and 2, our proforma valuation workings (Exhibit 4) indicate a valuation of INR 310 per share for the Building Products Business and INR 36 per share for the Consumer Appliances Business. It could take 6 to 12 months for all the regulatory approvals to be completed. Link to our Note on Value Unlocking due to demerger dated 01/04/2025.
Q4FY25 Results: Moderation in revenue decline is encouraging
* Consolidated revenue came in at INR 6,990Mn, (vs CEBPL est of INR 6,289Mn), down 9.5%YoY but up 17.6% QoQ.
* Consolidated EBITDA came in at INR 409Mn, (vs CEBPL est of INR 573Mn), down 45.4% YoY but up 39% QoQ. EBITDA margin declined by 384bps YoY to 5.8%, whereas it improved by 90bps QoQ.
Segmental Results: Pipes business volume growth is impressive
* Revenue from Building Products segment came in at INR 6,071Mn, (vs CEBPS est of 6,279Mn), down 9% YoY but 15% QoQ and EBIT margin came in at 5.7% down 410bps YoY but up 160bps QoQ.
* Revenue from Bathware Segment came in at INR 3,600Mn, down 14% YoY but up 7% QoQ and EBITDA margin came in at 10.3%.
* Pipes segment reported volume growth of 14% YoY to 15.3KT, while revenue was up 1% YoY to INR 2,470Mn (impacted due to lower realisations), while EBITDA margin improved by 280 bps QoQ to 9.7%.
* Revenue from Consumer Appliances Segment came in at INR 968Mn, down 12% YoY but up 43% QoQ and EBIT margin came in at -8.2%.
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