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Equitorials recommend BUY on Hitachi Home & Life Solution

March 26, 2012

Equitorials recommend BUY on Hitachi Home & Life Solution

Positioning into mass premium segment – Hitachi Home and Life Solutions (HHLS) that primarily caters to the premium segment, is now entering tier-II and tier-III cities with low-priced products. The company has launched new range of window and split AC “KAZE” as low price product. This will help the company gain market share in the Room Air conditioners segment in the near future. The company has set a target to capture 10% market share in terms of sales volume, compared to the current market share of 7%.

 Rural markets offer a big opportunity – Rural consumer durables market is growing by 30% currently, while it is expected to grow by 45% in FY12. Rural markets are expected to post much faster growth than urban markets in medium term led by increased rural Income, increased distribution reach of companies, and customized products for rural consumers. The industry is expected to grow at a compounded annual growth rate (CAGR) of 18% till 2014-15.

 Outlook & Valuation – The AC industry is expected to grow at 15-20% over 3-5 years, while we expect HHLS to register a CAGR of 14% over FY2011-13E. The decline in EBITDA in FY11 over FY10 was mainly because of the rise in raw material prices (mainly copper). We expect EBITDA margins to improve to 6.1% in FY13E. The forecasted PAT shows decrease of 32% in FY12E mainly due to decline in sales because of climatic change, short summer season and longer winter season. The PAT is expected to rise by 50% in FY13.  At current valuations the stock is trading at 9.8x FY2013E EPS. We have arrived at Target Price of Rs142. Hence, we recommend BUY on the stock.

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