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Hindware Home Innovation Ltd (HHIL) was demerged from AGI Greenpac Ltd (erstwhile HSIL Ltd) in August 2019.Hindware Home Innovation Limited (formerly known as Somany Home Innovation Limited) is a prominent player in the building products industry and a rapidly growing force in the Indian consumer appliances sector. The company is dedicated to serving consumers and engages in manufacturing, branding, marketing, sales & distribution, and servicing across various product categories.The company is structured into three business verticals, each overseen by its own CEO or COO, and has established a framework of independent Strategic Business Units (SBUs).

Investment Rationale

The primary beneficiary of the growth in the Sanitaryware and faucet industry: Hindware is India's one of largest bathware company with a market share of 23/6% in organized sanitaryware and faucetware market respectively. The Rs 180bn industry is likely to grow by 8% CAGR over next 3-years & HHIL having prominent market share should witness healthy growth. In 2014 Hindware ventured its product offering from Sanitaryware to faucets later due to rise in competition in the bathware segment, Hindware entered into the consumer appliances segment in 2015, and into plastic pipes and fittings in 2018. (revenue share increased from 15% FY20 to 26% 9MFY24). Hindware has lost market share due to competition. However, the company has managed to stabilize its decline in revenue market share compared to Cera, showing improvement from FY22 onwards (rising from 47% in FY21 to 57% in 9MFY24) and during the same period revenue grew at CAGR 15%. This positive trend is attributed to the successful performance of its faucetware portfolio such as coloured faucets of Gold, Rose-Gold and Chrome Black and the introduction of new sanitaryware products. These Products contributed 24% of revenue as of 9MFY24.

Expanding presence in rapidly growing pipe market: Hindware via its brand “TRUFLO” has done excellent sales growth to Rs 7.8bn in FY23 a revenue CAGR of 57% over FY19 to FY23 and we expect going forward Volume/Revenue to grow at CAGR 13/10% over FY23 to FY26E, to fuel this growth Hindware expanding and putting up the new capex in Roorkee (Uttarakhand) of  Rs 1.8bn and increasing pipes capacity by 12,500MT P.A (expandable up to 25,000MT P.A.) after this, total capacity will be 66,500MT P.A. and this project is expected to complete by 3QFY25, total addressable market for hindware will increase from Rs400bn to RS>600bn by FY26. Hindware has adjusted revenue mix to reduce dependence on Bathware sales. In FY19, Bathware accounted for (76%) of revenue, but now it's down to (53%). Hindware diversified into pipes (27%), consumer products (17%) and Retail (2%) to create a more balanced income portfolio.

Improving Balance Sheet and Return Ratios: As of 1HFY24, HHIL's debt amounted to Rs8.35 billion,(Debt/Equity – 1.4x) mainly attributed to capacity enhancement and working capital requirements. While the company plans to reduce debt by Rs1 billion annually, we expect this will support the improvement in return ratio. Therefore, we project ROE/ROCE to expand to 18.8%/18.9% in FY26E, compared to 10.4%/14.8% in FY23.

View and Valuation: We initiate coverage on Hindware Home Innovation with outperform rating led by 1) focusing on expanding its bathware product range to capture more market share and increase profitability, 2) Growing Plastic piping business by setting up the Greenfield plant at Roorkee with capacity of 12,500MT P.A. 3) strengthening its balance sheet by lowering its debt burden 4) increasing its market size by venturing into new business segments. We expect HHIL to registered a healthy revenue/EBIDTA/PAT growth of 7/20/40% CAGR over FY23-26E and RoCE expansion from ~14.8% in FY23 to ~18.9% in FY26E. We ascribe a multiple of 23x on FY26E EPS to arrive at a TP of Rs.503 with a rating of “OUTPERFORM”. 

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