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SP Tulsian

Investment Advisor

12.00 AM Jan 3rd 2013

Hitachi Home

BSE ID : 523398     NSE ID : HITACHIHOM

RECOMMENDED PRICE 152.00

PEAK FROM RECO 921.00 505.92%

CURRENT PRICE 834.65 449.11%

Hitachi Home and Life Solutions (India), a 69.9% subsidiary of Hitachi Appliances Inc., Japan, manufactures and trades in the Hitachi brand of air conditioners, refrigerators and chillers in India. Given the technological backing from Japanese parent, forecasted good earnings for Q4F13, share at 152, is recommended for a buy with a twelve month target price of Rs. 225.

Hitachi Home & Life Solutions

Hitachi Home and Life Solutions (India), a 69.9% subsidiary of Hitachi Appliances Inc., Japan, manufactures and trades in the Hitachi brand of air conditioners, refrigerators and chillers in India.

The company's product portfolio comprises of room air-conditioners, commercial air-conditioners, variable refrigerant flow (VRF) systems, rooftops, chillers, and refrigerators. The air conditioner range is very exhaustive covering split air conditioners, window air conditioners, cassette air conditioners, Takumi series of Hitachi ductable air conditioners, self contained air conditioners, spacemaker and logicool range of air conditioners.

The company has manufacturing facility for air conditioners in Gujarat and Jammu, while its marketing operations are conducted through 18 branches and 34 service centres across India.

As of 30th September 2012, company has small equity of Rs. 22.96 crore, of which, the Japanese parent held 69.90% stake through 2 entities, while Bajaj Allianz Life Insurance held 3.88% stake. Balance shares are held by Indian public.

For FY12, company reported revenue of Rs. 798 crore, up 4% from FY11's Rs. 769 crore. However, it earned EBITDA of only Rs. 30 crore, less than half of Rs. 63 crore earned in FY11.

This fall in operating profits was mainly due to rising expenses under the heads of employee benefits (20% YoY from Rs. 44 crore to Rs. 53 crore), forex losses (from Nil to Rs. 5.5 crore), advertising and sales promotion (up 54% from Rs. 27 crore to Rs. 42 crore) leading to contraction of EBITDA margin from 8.2% in FY11 to 3.8% in FY12.

Thus, PAT for FY12 was merely Rs. 3.3 crore, nearly one-tenth of FY11's Rs. 29 crore, due to higher expenses. EPS for FY12 stood at Rs. 1.42 vis-a-vis Rs. 12.77 reported for FY11.

During H1FY13, company's revenues were Rs. 516 crore, while EBITDA was Rs. 31 crore, resulting in EBITDA margin of 6.0%. PAT was Rs. 14 crore and EPS was Rs. 61. Since the company is in seasonal business, the first and fourth quarters are the best quarters, being the summer months.

Hence, it will be prudent to note the financial results of quarter ended 30th June 2012. During Q1FY13, revenue for the company stood at Rs. 376 crore, with EBITDA Rs. 26 crore (6.9%) and PAT Rs. 14 crore. The net margins were a healthy 3.6% with Q1 EPS of Rs. 5.93.

Thus, Q1 of the current year was good, while Q2 was seasonally dull. Moreover, in July 2012, a major fire broke out in the company's Gujarat unit, resulting in loss of production.

In October 2012, the board has approved a rights issue to existing shareholders upto an amount of Rs. 60 crore. Further details are awaited on the same.

As of 30th September 2012, company's networth stood at Rs. 185 crore (BVPS Rs. 81) while it had total debt of Rs. 52 crore and cash and cash equivalents of Rs. 29 crore, resulting in net debt of Rs. 23 crore.

For FY13, it may be safe / conservative to assume revenue of Rs. 1,000 crore with PAT of about Rs. 34 crore (similar to FY11 levels), mainly due to expected strong Q4. This leads to EPS of about 15, which discounts the current share price of Rs. 152 by 10 times, which is very attractive given the industry the company is present in.

Given the technological backing from Japanese parent, forecasted good earnings for Q4F13, share at 152, is recommended for a buy with a twelve month target price of Rs. 225.

Disclosure: No holding in the stock

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