Retail Research Initiating Coverage

Sanitaryware 22 November 2012 BUY: Rs 123 Target: Rs 171

HSIL Ltd.

HSIL Ltd is the largest Sanitaryware manufacturing company in India with organized market share of 40 percent; in addition it is also the second largest manufacturer of container glass with market share of 20 percent. In addition to above, HSIL also has presence in faucet segment, tiles, kitchen appliances and have acquired faucet division, of Havells India 'Crabtree' which was rebranded as Benelave in Jan 2011. HSIL has also acquired 100% stake in PET bottle manufacturer Garden Polymers Pvt. Ltd.' In Aug. 2011 to synergies with its existing container glass division. The company is on rapid capacity addition mode across all product categories to maintain its leadership. We initiate coverage on stock with 'BUY' Rating.

Investment Rationale
Largest Sanitaryware manufacture in India: HSIL is the largest sanitaryware manufacturer in India with organized market share of 40 percent. It offers complete range of products for bathroom. The company has strong brand name Hindware which is widely recognized and has strong brand recall. The company has recently unveiled super premium luxury brand QUEO' from its 100% subsidiary Barwood Products Ltd. in UK, which was acquired in 2010. These premium products command much higher realization and growing at 20-25 percent which faster than mid and low end segment growth of 12-15 percent per annum. HSIL plans to garner near 25 percent market share in premium segment over next few years. The company has strong 2000+ distributors and above 15000 retailers to support its market penetration. The company presently has capacity to produce 3.5 million pieces p.a. and has further plans to increase its existing capacity to 5 million pieces over next two years. Aggressive Capex Plan: The company has chalked out Rs600 crore capex plan for building product and container glass divisions, which is expected to be completed over next two years, HSIL has already spent Rs415 crore till date and remaining Rs185 crore to be spend over next 2 years including Rs100 crore for 2.5 million pieces Greenfield faucet project in Kaharani, Rajasthan. We expect company to generate ~Rs260 crore additional revenue under faucet segment at its full capacity. Besides manufactured sales, HSIL will also generate additional Rs75-100 crore worth of revenue from outsourcing. The company has also spent Rs300 crore to add another 475 TPD container glass capacity at Bhongir in Andhra Pradesh. The new capacity is already operational and we expect the benefit to reap in coming quarters.
FINANCIAL SUMMARY (CONSOLIDATED) Year 2011A 2012A 2013E 2014E Sales (Cr) 1,095.5 1,462.8 1,739.3 2,012.5 EBITDA (Cr) 206.4 249.8 297.4 354.2 PBT (Cr) 118.2 147.9 159.3 209.0 PAT (Cr) 78.2 93.5 103.5 135.8 EPS (Rs) 11.8 14.2 15.7 20.6 DPS (Rs) 2.5 3.0 3.2 3.4 BV (Rs) 101.7 146.5 165.8 190.4

STOCK DATA BSE Code NSE Code Bloomberg Code 52 Week High / Low (Rs.) Face Value (Rs.) Diluted Number of Shares (Crore.) Market Cap. (Rs Crore.) Avg. Yearly Volume (NSE) SHAREHOLDING PATTERN (%) Particulars Promoters FII Other Institution Public & Others Total Sept. FY12 51.6 20.5 2.7 25.2 100.0 Jun. FY12 51.6 21.6 2.4 24.5 100.0 Mar. FY11 51.6 20.1 2.6 25.7 100.0 Dec. FY11 51.6 22.6 2.3 23.5 100.0 500187 HSIL HIS IN 246 / 104 2 6.6 806 117391

RETURNS STATISTICS (%) 1M HSIL Sensex (4.2) (1.3) 3M (1.4) 4.2 6M (23.2) 13.1 12 M (27.5) 9.4

FINANCIAL RATIOS Particulars PE (x) P/BV (x) EV/EBITDA (x) EV/Sales (x) Mcap/Sales (x) ROE (%) ROCE (%) 2011A 10.4 1.2 5.5 1.0 0.7 11.6 12.1 2012A 8.7 0.8 6.1 1.0 0.6 11.4 9.7 2013E 7.8 0.7 4.9 0.8 0.5 10.0 10.9 2014E 6.0 0.6 4.0 0.7 0.4 11.5 12.0

RELATIVE TO SENSEX
HSIL Ltd
145 110 75 40 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

Sensex

RAJESH GUPTA - Research Analyst Regd. Office: SBICAP Securities Limited, 191, Maker Towers 'F', Cuffe Parade, Mumbai 400 005 For a list of our branches refer to our website: www.sbicapsec.com

HSIL Ltd.
Second largest in container glass, with strategic presence HSIL is the second largest container glass manufacturer in India with organized market share 20 percent. The company presently has two plants located at Bhongir and Hyderabad in Andhra Pradesh. The plants are strategically located in the Andhra Pradesh which is also happen to be the largest consumer of soft drinks, liquor and beers in India. Beer and liquor industry account for nearly 58 percent of revenue under container glass division whereas south Indian market forms nearly 2/3rd of container glass revenue. HSIL has recently added another furnace of 475 TPD at Bhongir plant in Andhra Pradesh to take its total capacity to 1600 TPD from earlier 1125 TPD. The new plant is already operational since May 2012 and we expect full benefit to be accrued during FY13. We expect this division to contribute incremental revenue of ~Rs230-260 crore at its full capacity.
CONTAINER GLASS CAPACITIES Plants Hyderabad (AP) Bhongir (AP) Total Current Capacity (tpd) 650 475 1125 Expansion (tpd) 475 Total Capacity (tpd) 650 950 1600
Source: Company

Sanitary ware

~ HSIL is the second largest container glass manufacturer in India with organized market share 20 percent.

The strategic acquisitions to create overall positive business synergies The company in the year 2010 acquired the faucet division of Havells India Crabtree' and which was later on rebranded it as Benelave' in Jan. 2011. The present capacity of 5 lakh pieces is expected to reach 3 million by FY14. The company has acquired PET bottle manufacturer Garden Polymers Pvt. Ltd.' for Rs87 crore to synergies with its existing container glass division. PET bottles are increasingly finding applications in water, pharma, beverages packing etc. In addition HSIL also acquired UK based Barwood Products Ltd. for Rs~6.22 crore in June 2010 and recently unveil super premium brand QUEO' in sanitaryware and faucet divisions. All these acquisitions are expected to yield positive business synergies for the respective business verticals. ~ Acquired UK based Barwood Products for Rs~6.22 crore and re cen tly u nve il pre miu m bra nd QUEO' ~ Acquired the faucet division of Havells India Crabtree' and has rebranded it as 'Benelave'

~ Acquired PET bottle manufacturer Garden Polymers Pvt. Ltd.' for Rs~87

2 November 22, 2012

SBICAP Securities Limited

HSIL Ltd.
Home furnishing business to turnaround by 2015 The company entered the home interior fashion design retail industry through its 100% subsidiary Hindware Home Retail Pvt. Ltd'.(HHRRL) in 2008. It provides specialty home furnishing products and solutions under its brand EVOK'. This division has reported a turnover of Rs66 crore along with EBITDA and Net Loss of Rs10 and 17 crore respectively due to high fix overheads during FY12. The company presently operates 18 stores and plans to add another 6 stores during FY13E and further 5 each in FY14E and FY15E. The company expects home furnishing division to turn around by FY15. HSIL to spend Rs2-2.5 crore per stores which entails total capex of Rs15-18 crore during FY13E. In addition to above, HSIL has also entered into tiles business in July 2010. Its focus would be in mid and high segment. The current industry size is Rs14,000 crore and growing at 10-12 percent due to rapid urbanization especially in tier two and tier three cities Attractive industrial outlook India is the second largest sanitaryware market by volume in Asia Pacific with an estimated market size at Rs2000 crore of which nearly 60% is organized, where HSIL has 40 percent market share. This industry is growing at 15-16 percent pa. In India only 40 percent of households have access to safe sanitation facilities with 90 percent is fresh demand as compared to developed economies which accounts for 80 percent as replacement demand. India's container glass industry is estimated at Rs~4000 crore and growing at 10-12 percent. The freight cost is critical for container glass and HSIL is strategically present in Andhra Pradesh which is the largest market for Beer, Liquor, Soft drinks etc. The per capita consumption of Beer in India is just 1.5 liters as compared to double digit in most of developing and developed economies. Indian faucet industry is estimated at Rs~4000 crore of which 45 percent is organized and rest is unorganized. Major players are Jaquar, Parry, Marc etc. With its rapid capacity expansion, HSIL is targeting to generate Rs350-400 crore of revenue under faucet segment in two years from date of commissioning on of Kaharani faucet plant. Valuation: At current price of Rs123, the stock is trading at 7.8x and 6.0x of its FY13E and FY14E consolidated earnings respectively whereas on P/BV front the same is available at 0.7x and 0.6x respectively. The recent capacity expansions across different segments like Container Glass, Faucet and Sanitaryware to reap the benefits in coming quarter. Apart from that, new plant at Gujarat is also expected to get gas supply form GSPL which would boost EBITDA margin going ahead. We recommend a buy on the stock with price target of Rs171 valuing 8.3x of its FY14 consolidated earnings.

Sanitary ware

~ Home Furnishing provides specialty h ome fu rn ishi ng p ro du ct s an d solutions under its brand 'EVOK'

~ The company presently operates 18 stores and plans to add another 6 stores during FY13E and further 5 each in FY14E and FY15E.

~ The sanitaryware market estimated at Rs2000 crore growing at 15-16 percent

~ India's container glass industry is estimated at Rs~4000 crore and growing at 10-12 percent.

~ Indian faucet industry is estimated at Rs~4000 crore of which 45 percent is organized and growing at 15-20 percent PA.

SBICAP Securities Limited

November 22, 2012 3

HSIL Ltd.

Sanitary ware

Company Background & Business Model:

HSIL Ltd is over 5 decades old, largest sanitaryware company in India with organized market share of over 40 percent. The company initially incorporated as Hindustan Twyfords Ltd in collaboration with Twyfords of UK and later it was renamed as Hindustan Sanitaryware & Industries Ltd in 1967 and further it was renamed as HSIL Ltd. in 2009. In addition to sanitaryware, HSIL also entered into container glass business with an acquisition of Associated Glass Industries Ltd in 1981 and presently it is the second largest container glass manufacturer in India with market share of 20 percent and 60 percent in Southern India In addition to above, HSIL also has presence in faucet segment and has acquired faucet division of Havells India 'Crabtree' in 2010 which was rebranded as Benelave in Jan 2011. The company has also entered into tiles segment in July 2010 and has home furnishing business through its 100% subsidiary Hindware Home Retail Pvt. Ltd' under the brand EVOK. The company presently operates 18 exclusive retail stores and plans to add another 6 stores during FY13E and further 5 each in FY14E and FY15E. The business of the company is broadly classified in to two parts viz building product and container glass. It is also into PET bottles and Home furnishing through its 100% subsidiries viz. Garden Polymers Pvt. Ltd. and Hindware Home Retail Pvt. Ltd. respectively.

HSIL Ltd.
Building Product Division Sanitaryware (Capacity 3.5 Mn Pcs. pa.) Brands ~ Premium- Hindware Italian, Hindware Art ~ Standard- Hindware Art & Hindware ~ Basic - Raasi ~ Super Premium - Queo Faucet (Capacity 0.5 mn Pcs. pa.) Brands ~ Premium Benelave ~ Standard Benelave ~ Hindware ~ Queo Other allied products (Outsourced) ~ Tiles ~ Kitchen Appliances ~ Wellness Products PET Bottles ~ Acquired Garden polymer for Rs87 crore in FY12 ~ Current capacity is 8000 MTPA ~ Garden Polymers Pvt. Ltd. is the 4th largest PET bottle manufacturers in India ~ The product offering will be extended to PET bottles, caps and closures etc Container Glass 1600 MT (TPD) ~ Operating with plants in Andhra Pradesh, Sanathnagar and Bhongir ~ Recently added 475 MT capacity at Bhongir ~ Supplies to diversified clients across food & beverages, pharma, Liquor & Beers industries Hindware Home Retail Pvt Ltd ~ End to End services in home furnishing ~ Having 18 stores and plans to add 6 in FY13 ~ Mainly sales furniture ~ Currently loss making and expected to turnaround in next few years

4 November 22, 2012

SBICAP Securities Limited

HSIL Ltd.
Building Material Products: The Building Product division of HSIL consists of diversified product portfolio of Sanitaryware, Faucets, Kitchen Appliances, Wellness Products and Tiles. The company has entered into a strategic alliance with one of the largest European companies, manufacturing extractor fans under the brand name, Vent'. HSIL offer 20 designs of consumer fans and 2 designs of industrial fans This division contributes nearly 45% to total revenues in FY12. The company has unveiled luxury brand QUEO' from its wholly owned subsidiary Barwood Products Ltd which was acquired in June 2010, these premium products segment growing faster and has better realization. HSIL is also involved in export of sanitaryware and bathroom fittings to its 100+ satisfied (B2B) customers across 40 countries like Pacific Island, UK, Middle East, Africa, New Zealand Australia, Russia and more. The company generates nearly 26 percent of revenue from institutional sales whereas rest is from retail sales. The company has 21 depots, 15000+ retail networks, 2000+ dealers and 1235 strong institutional clients to support its business.
Building Product Division Sanitary Products Bahadurgarh (Har) Bibinagar (AP) Gujarat (Greenfield) Total Faucet Bhiwadi- Rajasthan Kaharani- Rajasthan (Greenfield) Total
* Already completed

Sanitary ware

~ The company has 21 depots, 15 000+ re tail ne tworks, 200 0+ dealers and 1235 strong institutional

Units

Before Expansion

Expansion

Total Capacity Post Expansion

Mn Pieces Mn Pieces Mn Pieces

1.5 1.3 2.8

0.3 0.7* 1.2 2.2

1.8 2.0 1.2 5.0

REVENUE CONTRIBUTION (%) IN FY12

55
Mn Pieces Mn Pieces 0.3 0.3 0.2* 2.5 2.7 0.5 2.5 3.0 Building Product

45

Container Glass

Source: SBICAP Securities Research / Company

Manufactured
Sanitaryware Wash basins Water Closets Cisterns Bidets Faucets Tap Showers Flush Valves Kitchen App Microwave Owens Chimney Cooktops Built in Ovens

Outsourced
Wellness Steam rooms Bath Tubs Shower Enclosures Shower Panels Tiles Floor Wall Sanitaryware & Faucets

SBICAP Securities Limited

November 22, 2012 5

HSIL Ltd.
Container Glass HSIL is the second largest manufacturer of container glass in India with organized market share of 20% and 60% in Southern India. The division caters to pharmaceutical, food, beverage and liquor & beer industry. It contributes nearly 55% to HSIL's total revenue in FY12. Following the acquisition of Garden Polymers for Rs87 Cr, its product offerings have been extended to PET bottles, caps and closures, offering one more packaging solution besides container glass bottle and shall contribute to the overall revenues. The company presently has two plants located at Bhongir and Hyderabad in Andhra Pradesh. The plant is strategically located in the Andhra Pradesh which is also happen to be the largest consumer of soft drinks, liquor and beers in India. Beer and liquor industry account for nearly 58 percent of revenue under container glass division whereas south Indian market forms nearly 2/3rd of container glass revenue. HSIL has recently added another furnace of 475 TPD at Bhongir plant in Andhra Pradesh to take its total capacity to 1600 TPD from earlier 1125 TPD. The company has strong 490+ institutional clients mainly from southern parts and south. Home Furnishing It has also forayed into home interiors by floating a 100% subsidiary company Hindware Home Retail Pvt Ltd which provides end to end solutions for home interiors through its retail format store under the brand name EVOK.

Sanitary ware

~ The company has two plants located in Andhra Pradesh having combine capacity of 1600 TPD.

Key Clientele
Building Product Division
The 3C Company Emaar MGF Jaypee Mahindra Lifespaces Oberoi Realty Prestige TATA Projects Ansal Group Godrej Properties Larsen & Toubro Marriott Omaxe Puravankara Unitech TDI DLF Indiabulls M2K NBCC Parsvnath Developers Shapoorjee Pallonjee Vipul

~ Th e co mp an y ha s 12 35 + institutional clients in building product division and 490+ institutional clients in container glass division

Container Glass Division

Abbott Healthcare Dr. Reddy's Lab. GSK Pharma Jagatjit Industries Pernod Ricard India Radico Khaitan Tilaknagar Industries Apex Laboratories Global Green Co. Hind. Coca-Cola John Distilleries Pepsico India Reckitt Benckiser United Breweries Carlsberg India GSK Con. Healthcare Hindustan Unilever Nestle India Pfizer SAB Miller India United Spirits

6 November 22, 2012

SBICAP Securities Limited

HSIL Ltd.

Sanitary ware

Industrial Opportunity:
Building Product Division Overall sanitaryware industry divided into 60 percent organized and rest unorganized, HSIL has 40 percent market share within organized market. Indian sanitaryware Industry is pegged at Rs2000 crore growing at 15-20 percent within which premium segment growing faster at 20-25 percent per annum due to rapid urbanization, improving living standard and rising awareness. According to census data, only 47 percent of Indian household have proper sanitation facilities and around 69% of rural and 19 percent of urban household still do not enjoys basic sanitation facilities. Government of India increasing expenditure sanitation every year and as per the planning commission report estimated Rs~44000 crore will be spend during 12th plan. The demand for sanitaryware basically comes from two segments viz new demand and replacement demand with bulk (~90 percent) forms new and rest account for replacement demand. Unlike in India, the US sanitaryware demand is driven by replacement (~80 percent) and rest from new demand.
% OF POPULATION DOES NOT HAVE BASIC SANITATION India 32 31 China 90 Nigeria Indonesia Pakistan Bangladesh 3 3 4 4 19 4 Euthopia Rest of the world
Source: WHO, Unicef, 2012

SANITATION LEVELS IN VARIOUS COUNTRIES 120 90 63 60 40 30 0 India China Korea Indonesia S.Lanka Thailand
Source Crisil

95

66

50

Demand drivers The correlation between sanitaryware and housing demand is as high as 93 percent. The present urban population account for nearly 29 percent which is expected to reach 37 percent by 2025. With such rapid urbanization, the urban housing demand is expected to increase ~3 percent CAGR from 74 mn units to 85 mn units between 2011 and 2016 In addition to above, the middle class population is also expected to touch 585 million by 2025 The consumer is moving up from mid segment to premium segment sanitaryware due to changing life style and rising disposable income.
URBAN HOUSING DEMAND (MN UNITS)

Mn Units 100 75 50 25 0 2001 2005 2008 59 62 69

Growth 74 85 16 12 8 4 2011 2016

Source Crisil

SBICAP Securities Limited

November 22, 2012 7

HSIL Ltd.
RISING MIDDLE CLASS POPULATION
108% 90% 72% 54% 36% 18% 0% 1985 Lower 1995 2005 Middle 2015 Upper Middle 2025 Upper Lower Middle 93 80 54 36 0 1 6 0 2 18 1 4 41 43 36 22 2 19

Sanitary ware
RATE OF URBANIZATION (%)
100.0 81 65 40 29 25.0 0.0 Indonesia Malasiya Vietnam India China USA 5 Brazil 2 India Japan Korea 1 Indonesia 27 48 66 69

9 32
75.0 50.0

Source: Santo Investment Bank Research

Source: United Nations State of the World population, 2011

Container Glass World packaging industry pegged at $500 billion and India occupies 11th position. Glass packaging accounts for nearly 12 percent of overall packaging space. The current estimated size of glass industry is Rs~4000 crore which is growing at 10-12 percent PA. The per capita consumption of glass is 1.5 kg as compared to 89 kg in South Korea, 10.2 kg in Japan and 5.2 kg in China. The key drivers like Liquor and Beer industry which is the largest consumer of container glass is expected to grow at 14-15 percent. The per capita beer consumption in India is just 1.5 liters as compared to China and Brazil at 34 and 64 liters respectively. In Addition to above, the other key driving industries like Pharmaceuticals, Foods & Beverages are also expected to grow in double digit over next few years.
INDIAS PACKAGING INDUSTRY (%) PER CAPITA GLASS CONSUMPTION (KGS)
100
14 8 17 22 6 3 12 18

89 64 50 28 28 20 10 Mexico UK South Korea Spain USA France Japan 6 China

80 60 40 20 -

Glass Printed Cartoon Caps & Closure

Rigid Plastics Metal Cans Labels

Flexible Packaging Others

Source: Crisil

Source: Crisil

8 November 22, 2012

SBICAP Securities Limited

HSIL Ltd.

Sanitary ware

Financials & Valuations:

We expect HSIL's consolidated net sales and profit to grow at 17 and 21 percent CAGR to Rs2013 and Rs136 crore respectively between 2012A and 2014E, within total sales, building product division to grow at 21 percent CAGR and container glass segment to grow at 15 percent CAGR to Rs911 and Rs950 crore respectively. We expect EBITDA margin to improve between 50-100 bps owing to new faucet plant which will boost the share of manufactured faucet products. The consolidated operating profit is expected to grow at 19 percent CAGR between 2012A and 2014E to Rs354 crore whereas the margin is expected to stabilize at 1718 percent level. The net margin is expected to improve by 100-200 bps due to lower interest on debt as majority of its debts are in the form of ECB loans which are at LIBOR+250-300 bps making the effective cost of debt at 9.2 percent on fully hedge basis. At current price of Rs123, the stock is trading at 7.8x and 6.0x of its FY13E and FY14E consolidated earnings respectively whereas on P/BV front the same is available at 0.7x and 0.6x respectively. The recent capacity expansions across different segments like Container Glass, Faucet and Sanitaryware to reap the benefits in coming quarter. Apart from that, new plant at Gujarat is also expected to get gas supply form GAIL which would boost EBITDA margin going ahead. We recommend a buy on the stock with price target of Rs171 valuing 8.3x of its FY14 consolidated earnings.
INDIAS PACKAGING INDUSTRY (%)
Div. Yield (%) 20 15 10 5 0 FY11A FY12A FY13E FY14E Earning Yield (%)
180.0 135.0 90.0 45.0 FY11A FY12A FY13E FY14E
Source: Crisil

NET SALES (Rs. Cr.) & NET SALES GROWTH (%)

Net Sales (Rs Cr) 2,500.0 2,000.0 1,500.0 1,000.0 500.0 FY11A FY12A FY13E FY14E

Source: SBICAP Securities Research

EBITDA (Rs. Cr.) & EBITDA MARGIN (%)

EBITDA (Rs Cr) 375.0 300.0 225.0 150.0 75.0 FY11A FY12A FY13E FY14E 10.0 5.0 EBITDA Margin (%)

20.0 15.0

Source: SBICAP Securities Research

PER CAPITA GLASS CONSUMPTION (KGS)

Adjusted Net Profit (Rs Cr) Net Profit Margin (%) 7.5 7.0 6.5 6.0 5.5

Source: Crisil

SBICAP Securities Limited

November 22, 2012 9

HSIL Ltd.
ADJUSTED NET PROFIT (Rs. Cr.) & NET PROFIT MARGIN (%)
EPS (Rs.) 40 30 20 10 0 FY11A FY12A FY13E FY14E Cash EPS (Rs.)

Sanitary ware
DIV. YIELD (%) & EARNING YIELD (%) ROE (%) 16 12 8 4 0 FY11A FY12A FY13E FY14E ROCE (%)

Source: SBICAP Securities Research

Source: SBICAP Securities Research

1 YEAR ROLLING FORWARD PE Close Price 375.0 300.0 225.0 150.0 75.0 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 5.0x 7.5x 10.0x 12.5x

AVERAGE PE MULTIPLE
Daily PE 1+2SD 16.0 12.0 8.0 4.0 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 Average PE 1-SD 1+SD 1-2SD

Source: SBICAP Securities Research

Source: SBICAP Securities Research

1 YEAR ROLLING FORWARD P/BV

Close Price 280.0 0.5x 0.8x 1.0x 1.3x

AVERAGE P/BV MULTIPLE

Daily P/BVPS 1+2SD 2.0 Avg.P/BV 1-SD 1+SD 1-2SD

210.0 140.0 70.0 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12

1.6 1.2 0.8 0.4 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12

Source: SBICAP Securities Research

Source: SBICAP Securities Research

10 November 22, 2012

SBICAP Securities Limited

HSIL Ltd.

Sanitary ware

Financial Statements (Consolidated):

Income Statement
Particulars Gross Sales Excise Duty Net Sales Other Income Total Income Total Expenditure Raw Material Consumed As % of Sales Other Operating Cost As % of Sales EBDITA ( Excl OI) EBDITA ( Incl. OI) Interest PBDT Depreciation PBT Tax Net Profit Extra-ordinary Item Adjusted PAT Equity EPS Cash EPS FV BVPS 2011A 1,169.5 74.0 1,095.5 3.7 1,099.2 889.2 327.8 29.9% 561.4 51.2% 206.4 210.0 36.4 173.6 55.4 118.2 39.9 78.3 (0.2) 78.2 13.2 11.8 20.2 2.0 101.7 2012A 1,566.5 103.7 1,462.8 5.1 1,467.9 1,213.0 474.1 32.4% 738.9 50.5% 249.8 254.9 42.0 212.9 65.1 147.9 54.1 93.7 (0.2) 93.5 13.2 14.2 24.0 2.0 146.5

Figures in Cr.
2013E 1,862.2 122.9 1,739.3 7.0 1,746.3 1,441.9 554.8 31.9% 887.0 51.0% 297.4 304.4 69.3 235.1 75.8 159.3 55.7 103.5 103.5 13.2 15.7 27.2 2.0 165.8 2014E 2,154.7 142.2 2,012.5 8.0 2,020.5 1,658.3 631.9 31.4% 1,026.4 51.0% 354.2 362.2 65.8 296.5 87.5 209.0 73.1 135.8 135.8 13.2 20.6 33.8 2.0 190.4

Balance Sheet
Particulars 2011A 2011A 13.2 658.7 671.9 288.2 87.8 327.2 1,375.1 837.8 3.5 10.8 6.0 222.3 163.7 21.9 70.8 478.7 1,375.1 2012A 2012A 13.2 954.2 967.4 541.8 94.7 674.1 2,278.0 1,472.2 57.8 10.8 62.1 7.3 305.9 244.0 73.5 44.3 667.7 2,278.0

Figures in Cr.
2013E 2013E 13.2 1,082.2 1,095.4 494.2 104.3 733.8 2,427.7 1,560.4 57.8 10.8 59.1 8.7 316.0 262.1 90.3 62.4 730.8 2,427.7 2014E 2014E 13.2 1,244.1 1,257.3 452.9 110.8 800.6 2,621.6 1,571.9 57.8 10.8 80.5 10.1 386.2 330.8 91.4 82.1 890.5 2,621.6

Equities & Liabilities

Equities & Liabilities Share capital Reserves and surplus Total Shareholder's Fund Non-current liabilities Long-term borrowings Other Non-Current Liabilities Current liabilities Total Liabilities Assets Net Fixed Assets Goodwill on consolidation Non-current investments Other non-current assets Current Assets Inventories Trade receivables Cash and bank balances Other Current Assets Total Current Assets Total Assets

Long-term loans and advances 38.3

Cash Flow Statement

Particulars PBT Depreciation Interest (Net) Direct Taxes Paid Change in WC 2011A 118.2 55.4 36.4 (40.1) (17.5) 2012A 147.9 65.1 42.0 (54.1) (29.6) 171.1 (669.8) (498.7) 24.6 (645.2) 445.4 (42.0) (23.0) 145.2 525.6 51.5 21.9 73.5

Figures in Cr.
2013E 159.3 75.8 69.3 (55.7) 10.6 259.2 (164.0) 95.2 0.0 (164.0) (41.7) (69.3) (24.5) 57.1 (78.4) 16.8 73.5 90.3 2014E 209.0 87.5 65.8 (73.1) (117.5) 171.6 (99.0) 72.6 (99.0) (36.8) (65.8) (26.0) 57.1 (71.5) 1.1 90.3 91.4

Important Ratios:
A Growth (%) 2011A 2012A 2013E 2014E

CF from operating activities 152.5 (Inc.) / Dec. Capex Free Cash Flow (Inc.) / Dec. in Investment CF from invstg. activities Issue of Shares Change in Debt Interest Paid Dividend Other Adjustment (Net) CF from financing activites Net Change in cash Opening Balance Closing Balance (106.4) 46.0 (24.0) (130.4) 150.0 (87.0) (36.4) (19.2) (32.2) (24.8) (2.8) 24.7 21.9

Net Sales 36.2 EBITDA 55.5 PBT 107.8 PAT 63.7 Cash Profit 36.2 (B) Measures of Performance Operating Profit Margin (%) 18.8 Gross Profit Margin (%) 15.8 Total Tax Rate (%) 33.7 Net Profit Margin (%) 7.1 (C) Measures of Financial Status Debt / Equity (x) 0.5 Net Debt / Equity (x) 0.4 Debtors Period (days) 54.6 Creditors Period (days) 35.2 Inventory Period (days) 91.3 (D) Measures of Investment EPS (Rs) 11.8 Book Value (Rs) 101.7 Earning Yield 9.6 ROA (%) 5.7 Return on Net Worth (%) 11.6 Return on Cap. Employed (%) 12.1 Iinterest Coverage (x) 4.2 (E) Measures of Valuation P/E (x) 10.4 M. Cap to Sales (x) 0.7 EV/Sales (x) 1.0
EV/EBDITA (x) 5.5

33.5 21.1 25.1 19.7 18.8 17.1 14.6 36.6 6.4 0.8 0.7 50.9 31.2 79.5 14.2 146.5 11.5 5.1 11.4 9.7 4.5 8.7 0.6 1.0
6.1

18.9 19.1 7.7 10.7 13.1 17.1 13.5 35.0 6.0 0.7 0.6 55.0 35.0 80.0 15.7 165.8 12.7 4.4 10.0 10.9 3.3 7.8 0.5 0.8
4.9

15.7 19.1 31.2 31.2 24.5 17.6 14.7 35.0 6.7 0.6 0.5 60.0 33.0 85.0 20.6 190.4 16.7 5.4 11.5 12.0 4.2 6.0 0.4 0.7
4.0

Source: SBICAP Securities Research

SBICAP Securities Limited

November 22, 2012 11

HSIL Ltd.

Sanitary ware

Name Alpesh Porwal Rajesh Gupta

Designation SVP & Head (Retail) Research Analyst

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SBI Capit al Markets Limited (SBICAP) is a f ull-service, integrated Investment Banking co mpany and its who lly ow ned subsidiary SBICAP Securities L td is a Sto ck Broking Compan y having membersh ips on BSE an d NSE. SBICAP is also an und erwrit er of securities. ("SBICAP and SBICAP Securit ies Lt d. are collectively referred to as SBICAP Gro up") SBICAP has Invest ment Banking , Advisory and ot her business relationship s wit h a significant p ercent age of the compan ies co vered by our Research G roup. Our research prof ession als p rovide important inputs into our In vestm ent Banking and ot her business select ion processes. Recipien ts of this report should assu me that SBICAP Group is seeking or may seek or will seek Invest ment Banking , advisory, project fin ance o r oth er businesses and may receive commission, b rokerage, f ees or other comp ensation fro m the company or compan ies th at are the subject of t his material/ rep ort. SBICAP grou p and its of ficers, directors and employees, including the analysts and others invo lved in the preparatio n or issuance of this m aterial and their depen dants, may on the date of th is rep ort or from , time to time have "lo ng" or "short" po sition s in, act as principal in , and buy o r sell the securities o r derivatives thereof o f comp anies mentioned h erein . Our sales people, dealers, traders and other profession als may provide oral or writt en market com mentary or t radin g strategies to o ur clients t hat reflect opin ion th at are cont rary t o the opinions expressed herein, and our prop rietary trad ing and investin g businesses may make investm ent decisions that are inco nsisten t with the recommen dations expressed herein. SBICAP Group may have earlier issued or may issue in future reports on t he com panies covered herein with recomm endations/ inf ormation inconsistent o r diff erent from those made in this repo rt. In reviewing this d ocument, yo u shou ld be aware that any o r all of the foregoing, among other thin gs, might give rise to potent ial con flicts of in terest . SBICAP Group may rely on in formation b arriers, such as "Chinese Walls" to cont rol th e flow of in formation contain ed in one or more areas within SBICAP Group in to oth er areas, units, groups or af filiat es of SBICAP Gro up. This repo rt is for information p urposes only and this d ocument/mat erial should not be con strued as an offer to sell o r the solicitatio n of an off er to buy, p urchase or subscribe to any securities, and neither t his do cumen t nor anything co ntained herein sh all fo rm th e basis of o r be relied upon in co nnection wit h any contract or comm itment whatsoever. This docu ment d oes no t solicit any act ion based on the material cont ained herein. It is fo r the general inf ormation of the clients of SBICAP Group. Thou gh disseminated t o clients simultaneously, not all client s may receive this rep ort at the same tim e. SBICAP Group w ill no t treat recipient s as client s by virtue of th eir receivin g this repo rt. It does not constit ute a perso nal recommendatio n or t ake into account the p articu lar in vestm ent ob jectives, fin ancial situations, or n eeds o f ind ividual clients. Similarly, this d ocumen t does not have regard to th e specific invest ment object ives, finan cial situation/circumst ances and t he particular needs of any specific person who ma y receive this docum ent. The securities discussed in this report may n ot be suitab le fo r all the in vesto rs. Th e securities described herein may not b e elig ible for sale in all jurisdict ions o r to all categories of invest ors. The co untries in w hich the co mpanies ment ioned in th is rep ort are org anized may h ave restrictions on investments, voting rights or d ealing s in securit ies by nation als of other coun tries. The approp riaten ess o f a particular in vestment or strat egy will dep end o n an invest or's individ ual circumstances and object ives. Perso ns who may receive this docum ent sho uld co nsider and independently evaluate whether it is suit able for his/ her/their part icular circu mstan ces an d, if necessary, seek p rofessional/finan cial advice. Any such p erson shall be responsible for condu cting his/h er/their ow n investigat ion and analysis of th e info rmation con tained or referred to in this docu ment and of evalu ating the m erits and risks involved in the securit ies fo rming the sub ject m atter of this document. The p rice and value of the investm ents referred to in this docu ment/material and the income from them m ay go down as well as u p, and investors may realize losses on any investments. Past perf ormance is not a guide for fu ture performance. Futu re ret urns are no t guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forw ard-lo oking statem ents are no t pred iction s and may b e subject to chan ge wit hout n otice. SBICAP Gro up does not provide tax advises to its clients, and all investo rs are stron gly advised t o consult regarding any potential invest ment. SBICAP Grou p and its affiliates accept no liabilit ies fo r any loss or dam age o f any kind arisin g out of the use of this repo rt. F oreign currency den ominat ed securities are subject to fluct uatio ns in exchange rates th at co uld have an adverse eff ect o n the value or price of or income derived fro m the investment. In ad ditio n, investors in securit ies such as ADRs, t he value of which are influenced b y foreign cu rrencies ef fectively assume curren cy risk. Certain transaction s including those involving f utures, opt ions, and ot her derivat ives as well as non -investment grade securities give rise t o sub stantial risk and are n ot su itable for all in vestors. Please ensure that you have read and understood the curren t risk disclosure docum ents before entering int o any derivative transactio ns. This repo rt/document has b een prepared by th e SBICAP Group based up on in format ion available to t he pu blic and sou rces, believed to be reliable. Tho ugh ut most care has been taken to ensure its accuracy, no representatio n or warran ty, express or im plied is made that it is accurate or co mplete. SBICAP G roup h as reviewed the report and, in so far as it includ es current or historical inf ormation, it is believed to be reliable, althoug h its accuracy an d comp leten ess cannot b e guaranteed. SBICAP Group endeavo rs to update on a reaso nable basis the information d iscussed in this document/ mat erial, but regulatory, compliance or oth er reasons m ay prevent us fro m doing so. The o pinio ns exp ressed in t his do cument /material are sub ject to change without notice and have n o obligatio n to t ell the clien ts when opinions or inf ormat ion in this report chan ge. This report or recommen dation s or in format ion co ntained herein do/do es not const itute o r purp ort to constitute investment advice in publicly accessible media and should n ot be reprodu ced, t ransmitted or published by the recipient. T he rep ort is for the use and consum ption of th e recipient only. This publication may n ot be distributed to th e public used by the pu blic m edia w ithou t the express writ ten con sent o f SBICAP Gro up. T his report o r any portio n hereof may not be printed, sold or distribut ed without the written consent of SBICAP Group . Neit her t his do cument nor any co py of it may be taken or transm itted into t he Un ited State ( to U.S.Persons), Canada, or Japan or distribut ed, directly or indirectly, in the United Stat es or Canad a or d istrib uted or red istrib uted in Jap an or to any resid ent thereof. Law may rest rict the distribu tion o f this docu ment in other jurisdict ions, and persons into whose possession t his d ocumen t comes shou ld in form t hemselves ab out, and ob serve, any such restrictions. Neither SBICAP Gro up nor its d irect ors, employees, ag ents or rep resent atives shall be liable for any dam ages w hether direct or indirect, in ciden tal, special or co nsequ ential inclu ding lost revenue o r lost profits th at may arise from or in connection with t he use of t he inf ormation.

12 November 22, 2012

SBICAP Securities Limited