Hindware Home Run With Brand Extensions

HINDWARE HOME INNOVATIONS LTD (HHIL) has expanded, diversified and innovated widely since listing on December 26, 2019. Within four years of its new avatar, HHIL, formerly known as Somany Home Innovation Ltd. (SHIL), clocked total income of ₹2,025 crore in FY23, 135.7% growth from FY22. HHIL was formed after parent AGI Greenpac Ltd. (formerly Hindustan Sanitaryware And Industries Ltd [HSIL] decided to go for a demerger in August 2019 to separate asset light businesses from manufacturing. AGI Greenpac crafted two new entities — SHIL (now HHIL) to focus on retail and marketing and distribution of consumer products; Brilloca Ltd., a subsidiary of SHIL which was later renamed Hindware Ltd., for marketing and distribution of building products; while keeping asset-heavy manufacturing facilities and packaging division with itself. In March 2022, HHIL acquired building manufacturing facilities from AGI Greenpac in a slump sale for around ₹700 crore to become a fully integrated building products player. All these companies come under Somany Impresa Group.

Over the years, HHIL has extended ‘Hindware’ brand from sanitaryware business, with an addressable market of ₹6,000 crore, to multi-segment consumer products, with an addressable market of ₹65,000 crore. Competing with players such as Cera, Jaguar, Kohler India and Parryware, it commands a leading position in sanitaryware, while its plastic pipes and fittings brand, Truflo, continues to be among the fastest-growing in its segment. In consumer appliances, the company offers chimneys, cooking range, air coolers, water purifiers and ceiling/pedestal fans. It operates a furniture retail business under Evok. It has also formed a joint venture with French Groupe Atlantic for manufacturing, marketing and distributing water heaters.

Group Chairman Sandip Somany says the company has been growing in multiple segments such as consumer products, ceramic, faucets & showers and pipes. "Even though it’s a new business for us, we are among the top two in faucets and kitchen chimneys and among the top five in air-coolers and water heaters," he says. "We have been developing products which suit customers and ease their lives," says Somany, who has more than 34 years of experience in ceramic and glass industries.

Hindware has a strong presence in metros as well as smaller towns through 35,000-plus retail outlets, 3,100-plus distributor partners and 700-plus modern retail outlets. The company has two manufacturing plants for sanitaryware, one dedicated to faucets, two for pipes (with an additional one under way in Roorkee), and one for water heaters in India.

Growth Drivers

In FY23, the company reported consolidated revenue from operations of ₹2,873 crore, growth of 25.3% from previous year. Consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) rose 41% to ₹246 crore, while margins expanded by 96 basis points (bps) to 8.58%. However, consolidated profit after tax (PAT) declined 71% to ₹57 crore as lower volumes and higher input costs impacted profitability of consumer products business. Segment-wise, building products division contributed 81% to revenue while consumer products and retail contributed 17% and 2%, respectively.

In first half of current fiscal (H1 FY24), net revenues dipped 4% to ₹1,334 crore, while PAT fell 15% to ₹23.7 crore compared to the same period last year, dented by weakness in consumer products division amid subdued demand. EBITDA increased 16% to ₹132 crore and margins rose 170 bps to 9.9%. The contribution of the building products segment increased to 85.2% while that of consumer products shrunk to 13.8%. The share of retail business halved to 1% compared to FY23. In building products, revenues from bathware rose 2% to ₹758.2 crore. Revenue from consumer appliances dipped 21% to ₹201.5 crore amid muted demand and higher interest rates.

Managing Debt

Debt remains a concern, though. Last fiscal, total debt increased from ₹116 crore in FY22 to ₹711 crore in FY23. In first half of the fiscal, borrowings increased further to ₹835 crore due to acquisition of the manufacturing facilities of building products, and investments in opening display centres. The company also delayed its guidance for debt repayment of ₹100 crore per annum by six months. "Consolidated debt increased slightly over March because of low trend sales and some inventory accumulation, which we feel should get liquidated next year. We are making substantial investments to expand distribution and open display centres anticipating future growth," says group CFO Sandeep Sikka. "If we don’t invest in additional facilities, profits will go towards reduction of debt. But we are investing in pipes because of high demand and so internal accruals, instead of debt reduction, are going there. The debt reduction plan is still there but may take another six months," he says.

Going Ahead

In the face of a challenging macro environment, where many players are encountering headwinds, the management remains optimistic, expecting topline in sanitaryware & faucets to grow by 1.25-1.5x, better than the industry, and margins by 200 bps, over next two-three years. It expects strong growth in plastic pipes and is adding capacities. Though demand in consumer segment has been muted, the company expects some recovery in H2 FY24.

The company, for its pipes business, is investing ₹180 crore in a greenfield plant in Roorkee, Uttarakhand. The initial capacity will be 12,500 metric tonnes (mt). It is adding one more machine at its Hyderabad plant with a capacity of 5,000–7,000 mt. It will be operational in December. With this, its overall capacity is likely to rise to 58,000 mt per annum (this does not include capacity of Roorkee plant).

Analysts see HHIL’s medium to long-term growth prospects positively, citing competitive advantages amid strong brand recall, separate distribution channels across segments, innovation-led product basket and strategic partnerships with trade allies and suppliers. "HHIL is set to witness strong demand over the next two years owing to industry tailwinds and leadership in sanitaryware & faucets coupled with growing market share in plastic pipes," says Udit Gajiwala, lead analyst at YES Securities. Gajiwala expects revenue, EBITDA and PAT to grow 11%, 30%, and 70%, respectively, over FY23-FY25. Revenues from bathware are pegged to grow at 14% CAGR while plastic pipe volumes are expected to grow at 13% CAGR.

Analysts at Sharekhan estimate that HHIL’s consolidated net earnings will grow at 54% CAGR over FY23-FY25E led by 12% CAGR in revenue and 400 bps expansion in operating profit margins.

Another brokerage Nuvama also expects HHIL to deliver strong growth, citing product innovation, timely ramp-up of pipe capacity and positive demand outlook. However, the agency has trimmed PAT estimates for FY24 and FY25 by 17% and 14%, respectively, amid lower-than-expected numbers in H1 FY24. It expects bathware segment to clock 13% (earlier 16%) revenue CAGR over FY23-25 with EBITDA margin of 16.5% (earlier 16%) by FY25 due to improved product mix, higher realisation and in-house production. The consumer appliance business is projected to report 10% revenue CAGR over FY23-25 to reach ₹605 crore by FY25, with EBITDA margin of 5%, due to rising scale, improved product mix, stronger focus on brand building and product innovation.

Capacity expansion and brand building will be the key to meeting these targets.