195% growth in 12 months: Analysts see further upside in this global textile firm

Rising demand for Indian home textiles coupled with China plus one strategy are likely to kept the momentum upbeat for Himatsingka Seide, which is an integrated global textile major that designs, develops, manufactures and distributes home textile products in the US, Europe and Africa.

Amid the ongoing rally on Dalal Street, shares of the company have already jumped 195% or nearly 3 times, to Rs 185.80 in the past one year. On the other hand, the benchmark BSE Sensex has gained 48% during the same period.

Of late, the company’s FY2021 performance was affected by Covid-19 led lockdown resulting in a 4% decline in revenues and OPM falling sharply by 490 basis points to 12.8%. On the other hand, Himatsingka Seide posted revenue growth of 10% QoQ and 72% YoY for the quarter ended March 31.

However, brokerage firm Sharekhan believes that the smallcap may report over 29% growth in revenue at Rs 2,914 crore in FY22. It also projected that operating profit margin to grow by 540 basis points to 18.2% in the ongoing financial year.

Should you buy?

Sharekhan is bullish on Himatsingka Seide (HSL) with a potential upside of 28%-30%. It believes that return ratios are expected to improve to mid-to-high teens with return on equity and return on capital employed likely to stand at 18% and 14%, respectively.

As HSL has undertaken a major capex of Rs 1,300 crore in the past few years, the company is focusing on deleveraging its balance sheet. It has reduced debt by Rs 350-400 crore in FY2021 led by improved cash flows as its working capital position improved. Better operating performance and stable working capital management would result in cumulative operating cash flows of Rs 500-600 crore over the next two years, which will be used to further reduce debt. The company has scheduled debt repayment of Rs 250-260 crore per annum.

“We expect debt to reduce by Rs 300 crore every year for the next 2-3 years. Thus, strong operating performance and reduction in interest cost would help profit after tax to grow by 3.4 times over FY2020 PAT,” Sharekhan said.

The brokerage further added that HSL will be one of the key beneficiaries of the rising demand for Indian home textiles in export markets. Leveraging on its experience in the US and a vertically integrated business model, the company is focusing on strengthening its presence in Europe and Middle East (it has tied up with Disney to sell home textile products in Europe and Africa).

“With China plus one strategy, the global vendors are eyeing more suppliers (including India) to meet their demand, which will help domestic players in long run. Thus the strong growth prospects and the deleveraging balance sheet remains a key re-rating trigger for the stock,” Sharekhan said.

The management has also indicated that revenue in FY22E should be higher than 4QFY21 annualised revenue, implying revenue higher than Rs 2,980, 32% yoy growth.

Asian Markets Institutional Equities is also positive on HSL with a price target of Rs 208. “4QFY21 saw the highest ever quarterly revenue by the company and the management is confident of progressively improving it, with FY22E revenue expected to be broadly Rs 3000 crore, implying a 32% YoY growth. We are building in revenue of Rs 2900 crore for FY22E, with margins at 19%, lower than management’s guidance of 20%. As the large capex plan is over, going forward it would be limited to debottlenecking capex and some brownfield expansion, and focus would be on deleveraging balance sheet,” the brokerage said.

Key risks

Going with market watchers, any switch in customer order to new markets, increase in the raw material prices and unfavourable export policies by the government would act as a key risk to earnings estimates for Himatsingka Seide.