Hindoostan Mills Limited - BSE

28 September 2012
CMP: Rs.360
Industry: Textiles & Machinery
BSE Group/Index: Group ‘T’
Promoters
Chandrahas Thackersey & family
Year of incorporation
1873
Corporate office
215-219, 2nd Floor,
Sir Vithaldas Chambers
Mumbai – 400001
Maharashtra, India
Company website
www.hindoostan.com
Write to us at:
equityresearch@outlookindia.com
Initiative of the BSE Investors’ Protection Fund
Key Data (as on 28 Sep’12)
Hindoostan Mills Limited
BSE 509895 ISIN INE832D0100
Face Value (Rs.) 10 Mkt Cap (Rs.mn) 597.5
Current P/E - Current P/BV 0.6
52 week high-low (Rs.) 526.6-240.0 30 day avg trading vol (nos.) 504
Equity capital (Rs.mn) 16.64 Net worth (Rs.mn) 898.2
Company Business
Hindoostan Mills Limited (‘HML’) is primarily engaged in the manufacture and sale of
textile fabrics. The company, which is promoted by the Thackersay family, offers its
products under the TF, Cholee, and Everfresh brand names.
It currently has an installed capacity to produce 13 mn meters of cloth and 2880 metric
tonnes of yarn annually in its textile plant at Karad, Maharashtra. The company also has a
machinery unit in Ambernath which produces textile related equipment like calendar
bowls/liquid extraction rollers.
Peer group analysis
FY12,
Rs in million
Hindoostan
Mills
Textile-Fabric Textile-Machinery
Morarjee
Textiles
Super Sales
Limited
Indian Card Clothing
Company
Total Income 1,050 2,908 1,409 763
EBIDTA 25 440 92 218
EBIDTA margin 2% 15% 7% 29%
PAT (19) 31 (142) 112
PAT margin (2%) 1% (10%) 15%
EPS (11.1) 0.3 (46.0) 24.7
Cash accruals 24 164 37 165
BV/share 549.5 11.7 212.9 191.0
Debt/EBIDTA (x) 0.4 4.8 10.4 0.3
Debt/Equity (x) 0.0 2.2 1.5 0.1
ROANW neg 3% neg 13%
ROACE neg 10% neg 12%
P/E neg 11.4 neg 4.7
P/BV 0.6 0.4 0.9 0.6
Source: Moneycontrol, Company
Increasing raw materials costs and lack of operating efficiency have dented the financial
performance for HML in FY12. The margins of the company, which have declined rapidly
in the last three years, are significantly lower as compared to some of its industry peers.
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Business capacities and production Share Price Performance
Business Capacity Annual
Cloth 13,000,000 meters
Calendar Bowls 400 nos.
Yarn 2880 metric tonnes
Production Annual
Cloth 12,799,000 meters
Calendar Bowls 351 nos.
Yarn 2669 metric tonnes
figures for FY11
Top Public Shareholders with >1% shareholding
Sl. No. Name of the Shareholder
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No. of Shares held
(thousands)
Hindoostan Mills Limited
Shares as % of
Total No. of Shares
1 CZAR Realty Pvt Ltd 35.3 2.1
2 Harsha Hitesh Jhaveri 20.0 1.2
3 Hiren Naresh Kara 65.4 3.9
4 Hitesh Ramji Jhaveri 22.7 1.4
5 Naresh Ranjitsinh Kara 32.2 1.9
6 National Insurance Company Ltd 30.0 1.8
7 Yogesh Uttamlal Mehta 20.2 1.2
Total 225.9 13.6
Change in Shareholding Pattern (%)
Year Promoters DII FII Others
Jun-12 51.6% 1.9% - 46.5%
Mar-12 51.6% 1.9% - 46.5%
Dec-11 51.6% 1.9% - 46.5%
Sep-11 51.6% 1.9% - 46.5%
Mar-11 63.8% 4.3% - 32.0%
Mar-10 69.1% 3.6% - 27.3%
Mar-09 69.1% 3.6% - 27.3%
Mar-08 69.1% 3.6% - 27.3%
10%
0%
-10%
-20%
-30%
-40%
-23%
*2 yr = October 2010 to September 2012
Shareholding Pattern (%)
46.51%
-32%
1.93%
4%
2 YR 1 YR
HML BSE Small Cap
51.56%
Promoters DII FII Others
1%
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Debt free company
Shift in consumer preferences
Increased competition in exports
Volatility in raw material prices and
availability
Key contributor to economy
Fragmented industry structure
Roll manufacturing business
Government intervention
Key strengths
Hindoostan Mills Limited
Due to the prevailing high interest rate environment, most of the debt-laden textile
companies have faced downward pressure on their margins due to increased interest
expenses. However, HML has not availed of any loans from banks in the last few years.
The debt-free status has been one of the key strengths of the company vis-à-vis its
peers and is expected to facilitate its recovery process.
Key concerns
While cotton fabric constituted 60% of the total textile production in the mid-90s, the
share has steadily come down over the last 15 years and by 2008-09, the share of
cotton fabrics had decreased to 48%. This is attributable to a shift in consumer
preferences and growing demand for non-cotton fabrics such as polyester, silk, wool
and khadi.
Textile exports from neighboring countries like China, Pakistan and Bangladesh have
stared posing a severe threat to Indian textile companies. The availability of low-cost
labour in these countries has negated the cost-advantage for Indian exporters, thereby
resulting in intense competition for access to the international markets.
The company uses cotton as one of its primary raw materials. Due to lack of local
availability, cotton prices have been extremely volatile in the last two years and
reached a peak price of Rs.65000 per candy (356 kg) towards the end of FY11 (up from
the average range of Rs.30000-40000). Any further adverse movements in rates would
further suppress the operating profits.
Further, there is also a limited availability of fine count cotton hard waste (a waste
product of spinning mills and a major raw material for the roll manufacturing division),
which may constrain the roll manufacturing/calendar bowl business of the company.
Industry overview
The Indian textile industry plays a major role in the economy and contributes 3% to the
GDP and 14% to the overall industrial production in the country. The industry is also
one of the largest exporters and India has set an export target of $40.5 bn (Rs.2106 bn)
for the fiscal year 2012-13.
The industry, which produced around 60,996 million sq meters of fabric in FY11, is
dominated by unorganized small scale units. The segment is highly fragmented and
there are more than 77,000 textile fabric manufacturers in the country.
Due to high barriers of entry and lack of technical know-how, the roll manufacturing
business in India continues to remain a niche segment. However, the end-users
(unorganized small scale fabric manufacturers) are extremely price sensitive, which
makes it difficult for companies to charge a high premium on their products.
Government policy
The textile industry is highly regulated with excess government intervention in export
policies of cotton (and other related products) with regards to pricing, quotas, and
other limitations/restrictions. Uncertainty and policy delays by the government
therefore have a huge impact on the strategic plans of the entire industry.
With the removal of trade barriers under the WTO, both the domestic and international
competition in textile products like cotton yarn and fabric have increased manifold. In
order to ensure that the local textile players are able to match international standards,
the Government had launched the Technology Upgradation Fund Scheme (TUFS) to
Technology Upgradation Fund (TUF)
provide capital at subsidized interest rates and longer repayment periods to textile
companies in order to become more cost effective and quality oriented. While the
scheme was due to expire in March 2012, the Government has expresses its intent to
include the TUFS under its 12
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Initiative of the BSE Investors’ Protection Fund
th five-year plan (2012-2017).

Foreign Direct Investment (FDI) policy
Efforts to boost roll manufacturing
business
Labour problems
Declining profitability
Quarterly results
Initiative of the BSE Investors’ Protection Fund
Hindoostan Mills Limited
Particulars (Rs in mn) Apr ‘12 to Jun ‘12 Apr ‘11 to Jun ‘11 % Change 1
Jan ’12 to Mar ‘12 % Change 2
Total income 313.1 231.7 35.1% 332.2 (5.7%)
Total expenditure 286.5 215.0 33.3% 305.0 (6.1%)
EBIDTA 26.6 16.7 59.3% 27.2 (2.2%)
PAT 12.0 7.5 60.0% 16.4 (26.8%)
EPS 7.2 4.5 60.0% 9.9 (27.3%)
1
compared to corresponding quarter in the previous year
2 sequential comparison
The government has approved 100% FDI in the textile sector under the automatic
route. The ministry of textiles has also set up a FDI Cell to attract foreign investments in
the textile sector. The role of the cell will be to assist foreign companies in finding out
potential joint venture partners in India and to provide support for co-ordination with
state governments.
Company fundamentals
In a major thrust to increase its capacity of textile machinery units, the company is
currently in the process of developing an additional roll manufacturing unit at Karad,
Maharashtra. HML is also stepping up on its efforts to boost the production and export
of its calendar bowls (liquid extraction rollers) by entering into a technical collaboration
with Voith GmbH, Germany, who is one of the leading manufacturers of textile-based
machinery worldwide. The collaboration is expected to provide technical know-how to
HML and help produce better quality products at a premium price.
Further, in order to reduce its dependence on the textile segment, SML is also exploring
opportunities to foray into roll manufacturing for the steel and automotive industries.
The textile industry is highly labour intensive and management of human resources
therefore becomes an extremely critical issue for determining overall performance of
the company. HML’s relations with its employees have been strained over the last few
years and the company continued to have labour unrest at the factory in FY12. This has
resulted in several disruptions over the course of the year, especially in the last quarter.
Such labour problems in the future may further affect the company’s growth and
expansion plans.
Key financial indicators
The FY12 income of HML fell marginally to Rs.1050 mn (from Rs.1065 mn) on account
of a slowdown in the domestic and international markets. Material costs however,
went up by 21% due to a sharp rise in the prices of key raw materials. As a result,
EBIDTA margins were down to 2% from 11% and the company reported a net loss of
Rs.18 mn for the year.
Q1FY13 performance
The first quarter of FY13 has witnessed a slowdown in revenue growth as compared to Q4FY12. However, expenses have also come
down in line with the revenues which have resulted in a marginal impact on profitability. The y-o-y performance has been
significantly better, and most key financials have registered healthy growth rates during this period.
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4,000.0
3,500.0
3,000.0
2,500.0
2,000.0
1,500.0
1,000.0
500.0
-
15.0%
10.0%
5.0%
-
(5.0%)
3,477.1
Book value per share Key ratios
3.1% 3.1%
Profitability ratios Leverage ratios
Initiative of the BSE Investors’ Protection Fund
Hindoostan Mills Limited
Segment-wise contribution to total revenue Geography-wise contribution to total revenue
6.7%
Inner ring represents FY11 data
Outer ring represents FY12 data
13.4% 14.2%
FY10 FY11 FY12
(2.0%) (1.6%)
7.8%
92.2%
ROAE ROACE
93.3%
566.4 549.5
FY10 FY11 FY12
Textile
Machinery
0.4
0.3
0.2
0.1
-
200.0
150.0
100.0
50.0
-
(50.0)
4.3%
5.3%
172.9
50.0
94.7%
95.7%
Inner ring represents FY11 data
Outer ring represents FY12 data
- - 0.0
FY10 FY11 FY12
Debt to EBITDA Debt to Equity
47.7
(11.1)
10.0 5.0
FY10 FY11 FY12
EPS DPS
India
0.4
Rest of World
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Initiative of the BSE Investors’ Protection Fund
Hindoostan Mills Limited
Financials
P&L (Rs. mn) FY10 FY11 FY12 Balance Sheet (Rs. mn) FY10 FY11 FY12
Total income 89 1,065 1,050 Share Capital 7 17 17
EBIDTA 21 118 25 Reserves & Surplus 236 926 898
EBIDTA margin 23% 11% 2% Net worth 243 943 914
Depreciation 5 20 42 Borrowings - - 9
EBIT 16 98 (18) Other liabilities 39 161 163
Interest 1 - 1 Total liabilities 282 1,103 1,087
PBT 15 98 (19) Net fixed assets 43 312 544
Tax 3 19 - Other non-current assets 60 5 5
PAT 12 79 (19) Loans and Advances 17 175 145
PAT Margin 14% 7% (2%) Current Assets 161 612 393
Valuation ratios FY10 FY11 FY12
Total assets 282 1,103 1,087
P/E 0.26 1.38 neg Cash Flow (Rs.mn) FY10 FY11 FY12
P/BV 0.01 0.12 0.63 PBT 15 98 (19)
CF from Operation 21 (136) 14
CF from Investment 39 176 (137)
CF from Financing (20) (4) (8)
Inc/(dec) Cash (0) 142 (130)
Closing Balance 8 149 19
Disclaimer
The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate
or complete and it should not be relied on as such. Our company shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to
be and must not alone be taken as the basis for any investment decision. The user assumes the entire risk of any use made of this information.
Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation which may affect
their investment in the securities of companies referred to in this document (including the merits and risks involved). The discussions or views
expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information.
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