Scripscan:-Hanung Toys and Textiles Ltd
Introduction: Hanung Toys & Textiles is engaged in the business of manufacturing and exporting of soft toys.It also manufactures and exports of home furnishings.The company is basically an export player deriving 75% of its revenues from overseas markets, mainly Europe & US.
I like it because:-
1)Hanung is the biggest organised soft toy manufacturer in India today and it hopes to be a 1000crs company by march 2010.The company ended doing 490crs in fy07-08.
2)Hardly input cost problems.The company saves on raw material by entering into long-term contracts with suppliers. Its plants are located in tax-free and special economic zones,leading to substantial tax savings.Forward hedging and interest swaps also help the company keep a lid on costs.Even the rise of the rupee isn't a cause for concern.
3)Over the next few years, the company is planning to expand its footprint across the country;it is already present in over 4,000 stores, including chains such as Kids Kemp, Lifestyle,Land Mark,Big Bazaar, Globus,Shoppers Stop, Westside, Piramyd, etc.The company is planning to set up 10000 retail outlets over the next two years.To capture the larger pie of the domestic market it has also formed strategic alliances with biggies like Star India & Percept Pictures company.
4)The size of domestic toy industry is around Rs.2000crs.The domestic toy industry is poised to grow at 35-38% p.a. over the next few years on account of rapidly growing Indian population and on higher disposable incomes.Players like hanyung with its large capacity and experience would benefit the most from it.
5)The company has taken number of initiatives to further grow its market share in the export market.A new and vibrant team has been put into place for Product design, Product development, Sales and Marketing.To have a good balance on the market development,its emphasis is on growing market share in the US, Europe and Asia-Pacific.The same is expected to catapult hanung toys into a different league.
6)Very recently in april itself the companys newly formed toy unit in noida Sez with an installed capacity of 63 lakh pieces p.a has started its production.Being on the SEZ area the company would avail tax benefits and the revenue share from the soft toy business would get a further boost.
7)The company has got the lucrative licence to manufacture soft toys resembling characters such as Mickey Mouse and Nemo.With growing exposure to Western cartoon characters,this could attract tremendous interest.The company has attempted to grow inorganically and has acquired 100% stake of a Chinese soft toys manufacturer.The same may just give a booster to the margins.
8)Hanung home furnishings business product range includes from sheets and comforters to pillows and sleeping bags.The company has recently set up a Home Furnishings facility at Roorkee with an installed capacity of 3.5crs meters of fabrics processing p.a.The made-ups capacity has been increased form 13 lakh sets to 66 lakh sets p.a.
9)The company is also integrating backwards into manufacturing
fabrics by setting up a 69 lakh meters of weaving capacity.The facility spreaded over 25 acres will enable it income
tax, excise & sales tax benefit and is expected to save income tax to the extent of Rs.8.5crs in FY09 thereby directly boosting the bottomline.The unit is expected to contribute around 45% to the total revenues of Hanung by FY09. In FY07, the home textiles division’s contribution was 46% of total revenues, which is expected to
increase to 58% in FY08 & 70% in FY09 post this expansion.
10)The company has got a robust order book position to the tune of 1300crs giving huge revenue visibility.The company has received numerous enquiries from client which can trasnform into major orders going forward.The companys Customers include likes of IKEA, Asda, and Metro.IKEA is a EURO 19.6 bn company and sells home furnishings & other housewares in about 270 stores in 35 countries.With Ikea looking to outsource most of its portfolio from india,Hanung fortunes may just change completely.Already it has bagged a single major order of 600crs from the former.Few more such orders could prove a world of good for the company and it shareholders.
Conclusion:-At present price of 243 the company is quoting at less than 8x fy09 earnings of 31rs.Considering the capacity expansion,increase in size,robust outlook and huge demand for both of its home furnishing and soft toys products,I assign a target of 370 giving 1 year forward multiple of 12x.A very solid and a safe bet.
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