Asbestos sheets are mundane products but fetch good revenues and margins for HIL
Another company with a non-fancy range of products that could gain from the growth of the Indian economy is Hyderabad Industries (HIL), a CK Birla company. HIL manufactures asbestos and non-asbestos cement roofing sheets, autoclave aerated concrete (AAC) blocks, aerocon panels, thermal insulation products, jointing, etc.
The company has gradually evolved from being a single-product company to manufacturing several products like AAC blocks, thermal insulation products and prefabricated building panels. It is the largest manufacturer of fibre cement sheets in India sold under the brand name of Charminar.
Roofing started out as an industrial product but the rapid spread of players, increased production and increased access points have turned it into a retail product. Roofing is another big opportunity for HIL with about 50% of India’s population still not living in concrete houses. To provide adequate shelter to the rural poor, Government of India has introduced programmes like Indira Awaas Yojana (63% higher allocation in FY10-11 compared with last year), Golden Jubilee Rural Housing Finance Scheme, Pradhan Mantri Adarsh Gram Yojana, Productive Housing in Rural Area and Rural Housing Fund.
These are expected to increase the demand for asbestos sheets. In early 2009, HIL set up a new factory of asbestos sheets in Balasore (Orissa) with a capacity of 125,000 tonnes. In July 2009, a new production line at Vijayawada with a capacity of 90,000 million tonnes per annum (mtpa) came up, taking the total capacity to 854,500mtpa.
AAC is one of the lightest forms of concrete and is used in the manufacture of mass-produced concrete blocks. Light bricks conserve sound and energy and resist fire. One big advantage is that large quantities of fly-ash from coal-based power plants can be used for making them. HIL currently has one AAC blocks manufacturing plant at Chennai with a capacity of 1.5 lakh cubic metres (expanded by 50,000 cubic metres in FY09-10). It also manufactures boards and panels used in housing for partitioning. HIL is one of the largest players in this segment with plants in Thimmapur (Andhra Pradesh) and Faridabad (Haryana).
While AAC contributes a small percentage to the company’s revenues, there is huge opportunity for this sector to grow. HIL is working on a project with the Andhra Pradesh government to make houses that could cost less than Rs1 lakh. HIL is currently working on a 40-house project and any breakthrough on this front could open up a large market.
Thermal insulation products are used in kilns, furnaces and boilers in the cement and power sector. HIL increased the production capacity at its Dharuhera plant to 6,000mtpa from 3,500mtpa in FY08-09, and again by 2,500mtpa in FY09-10. It also plans to set up another 3,000-mtpa plant in FY10-11 for a capex of about Rs25 crore-Rs30 crore. HIL’s factory in Hyderabad is situated on 70 acres of land in the prime area of Sanatnagar. The government policy to relocate all factories from that area could mean a big upside. Sales have grown at 19% and operating profit at 77% over the past five quarters. HIL operates on a healthy margin of 21%. Its market-cap is just 0.77 sales and 3 times its sales and operating profit, respectively, of the March 2010 quarter.
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