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| BUY | |
| CMP | Rs 224 |
| Target Price | Rs 275 |
| Investment Period 6 Months | |
HHLS India is a subsidiary of Japan-based Hitachi Home & Life Solutions, Inc. The company operates in the air conditioner (AC) industry, which is expected to grow at a 15% CAGR over FY10–2015 due to its low penetration level of ~3% in the Indian market. We expect HHLS to witness an 18% CAGR in revenue over FY2010–12. The company's EBITDA margin is expected to improve by 300bp to 8.3% in FY2012 from 5.3% in FY2011, owing to a 3–4% increase in product prices across all categories and higher market penetration coupled with passing off of the increase in the price of its key raw material (copper). PAT will likely witness a sharp rebound from `19cr in FY2011E to `44cr in FY2012E on the back of margin improvement and increased operating leverage. Currently, at `224, the stock is trading at PE of 27.3x and 11.7x its FY2011E and FY2012E earnings, respectively. We recommend Buy on HHLS with a target price of `275, based on target E of 14x for FY2012E.
By: Angel Broking
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