HIL Limited August 2024 Concall Highlights: Reimagined HIL & Strategic Growth Initiatives
HIL Limited reported a solid start to FY25, with consolidated revenue growing by 9% year-on-year to Rs. 1,107 crore in Q1. This positive performance was driven by strong volume growth across most product segments, despite a challenging market environment characterized by sluggish demand, heightened competition, and unfavorable price trends. The company showcased a notable shift in its revenue mix, strategically moving away from Roofing towards other segments like Pipes and Fittings, which delivered a standout performance during the quarter.
a. Financial Performance:
HIL's Q1 FY25 revenue clocked in at Rs. 1,107 crore, representing a robust 9% growth compared to Rs. 1,016 crore in the same period last year. EBITDA for the quarter came in at Rs. 74 crore, down from Rs. 91 crore in Q1 FY24, primarily due to strategic investments in future growth drivers, including manpower expansion and technology upgrades. Profit before tax reached Rs. 21 crore, impacted by the exclusion of exceptional income from the sale of assets recorded in the prior year's quarter.
The company's debt at the consolidated level stood at Rs. 569 crore, including the loan for Crestia acquisition. The debt-to-equity ratio remained healthy at 0.45 as of June 30, 2024, demonstrating the company's financial stability.
Segment-wise Performance Highlights:
- Pipes and Fittings: This segment delivered a breakthrough quarter, exceeding Rs. 150 crore in revenue for the first time, representing a remarkable 78% year-on-year growth. This success was fueled by a 103% volume surge, significantly outpacing industry growth. Management highlighted the retail segment’s 37% growth and B2B project segment’s 70% growth, even excluding the impact of the Crestia acquisition.
- Construction Chemicals: The segment achieved a 35% year-on-year revenue growth, with the Tiling segment leading the charge with a 100% increase. Management also highlighted the onboarding of Manish Khandelwal as the new head of this segment, bringing in over 20 years of experience.
- Roofing Solutions: Despite a sluggish market, the segment maintained its number one position with a 25% market share and recorded its highest Q1 sales, achieving a strong price premium over competitors. However, revenue growth was more modest at 0.7% year-on-year, and margins remained flat due to aggressive price competition.
- Building Solutions: The segment recorded robust volume growth but a flat revenue performance at Rs. 135 crore due to a softer price environment. Management emphasized its customer base expansion, servicing over 1,500 projects during the quarter.
- Parador: Parador experienced a 7% revenue and 12.5% volume growth, capturing market share amidst a 5-10% market decline across key geographies. This positive momentum continued for the third straight quarter, driven by Germany, Nordic, Spain, and new focus markets like North America and the Middle East.
b. Operational Updates:
HIL highlighted several key operational developments during the quarter:
- Strategic Shift in Product Mix: The company emphasized its strategic shift away from Roofing, showcasing a nearly 5% swing in the overall revenue mix towards other segments, with Pipes and Fittings taking center stage.
- Digitalization Initiatives: HIL emphasized its ongoing digital transformation journey, including upgrades to core enterprise systems, implementation of data analytics, and the development of platforms for customer engagement and optimized operations. The digital marketing engine showed positive results, driving revenue growth in Building Solutions and Roofing.
- Manufacturing Excellence: The company launched a focused initiative to enhance productivity, efficiency, and quality across its operations.
- Team Strengthening: HIL invested in leadership and frontline teams, both in India and at Parador, to enhance agility and empower teams in achieving their respective market objectives.
- Innovation & New Product Launches: The company unveiled several new product launches in various segments, including UltraCool roofs, new roofing accessories, Silent Pipes, and over 160 new SKUs at Parador, showcasing its commitment to product innovation and premiumization.
c. Management Insights:
Management provided insightful commentary on the company's performance, strategy, and outlook:
- Akshat Seth (Managing Director & CEO): "This is a quarter where we continued our momentum towards a 'Reimagined HIL' in line with the strategic plan that we have shared with you over the last few quarters." He also emphasized the company's strategic focus on achieving long-term ambitions through strategic investments and highlighted the importance of tracking contribution margins as a key indicator of product-specific profitability.
- Ajay Kapadia (CFO): Highlighted the company's steady performance amid a challenging environment and the positive trend in volume growth across major segments. He elaborated on the company's focus on operating cost management and maintaining a healthy cash flow.
d. Strategic Initiatives and Future Plans:
HIL outlined its strategic initiatives and future plans, aiming to drive growth and profitability:
- Expansion into B2G Segment: The acquisition of Crestia opened significant opportunities in the B2G segment for Pipes and Fittings. The company expects to leverage this acquisition to capitalize on government initiatives like Jal Jeevan Mission and AMRUT 2.0.
- HDPE Focus: The company highlighted HDPE as a crucial growth driver in the B2G segment and intends to expand its capacity in this area.
- Parador Growth: The company plans to continue its volume-led growth strategy in Parador, while also focusing on optimizing cost structures and strategically managing prices in select segments. The expansion of Parador's presence into China is part of its global growth strategy.
- Roofing Margin Improvement: Management acknowledged the current margin pressure in the Roofing segment but expressed confidence in regaining the historical 18-20% margin through a combination of price support and raw material availability stabilization.
- Innovation and Product Development: HIL highlighted the importance of innovation and new product development to drive long-term growth and achieve a higher product mix.
- Operational Efficiency and Cost Management: The company is actively focused on improving operational efficiencies across the board, particularly in areas like sourcing, cost management, and working capital optimization.
e. Q&A Session Highlights:
- AAC Blocks: Management highlighted that while fly ash is a key raw material, it's not the sole component, and its price varies by location. They indicated an opportunity to improve margins in the AAC block segment by 500-600 basis points through adjustments to material composition and reduced conversion and logistics costs.
- Parador Margins: Management explained the reasons for the Q-o-Q compression in Parador EBITDA margins, including a one-time wage provision and changes in product and channel mix. They reassured investors that contribution margins are improving and that these investments are strategically aligned to drive future growth.
- Parador Revenue Growth: Management clarified that the recent growth in Parador revenue is sustainable and not driven by one-off factors. They acknowledged the challenging external market environment but stated their expectation for continued revenue growth.
- Roofing Margins: Management discussed the factors affecting Roofing margins, including fiber cost stability, competition, and seasonal demand patterns. They highlighted the potential for margin improvement in the future with increased volume and price growth.
- B2G Segment Impact from Elections: Management quantified the impact of the elections on the B2G segment, estimating a 70% decline in revenue during the pre-election period. They are hopeful that increased budgetary allocation for schemes like Jal Jeevan Mission will lead to a significant revenue bounce-back in the coming quarters.
- Parador's Volume Performance: Management acknowledged that Parador's volume performance in Europe has been largely flat in the last few years, despite a challenging market environment. They emphasized the importance of maintaining a steady position in this context and the strategy of offsetting volume losses through price increases.
- Putty Segment Competition: Management recognized the heightened competition in the Putty segment but highlighted the company's focus on contribution margin improvements through cost management and synergies with the Construction Chemicals segment.
- OPVC and Adjacent Opportunities: Management acknowledged the growing interest in OPVC and the potential opportunity for HIL. They are actively exploring options to acquire the necessary technology and become a relevant player in this segment. They also emphasized their continuous exploration of adjacent opportunities to leverage existing strengths and channel presence.
Key Takeaways & Outlook:
HIL's Q1 FY25 results demonstrate a strong start to the fiscal year, with revenue growth driven by volume gains and a strategic shift in the product mix. The company faces challenges from sluggish demand, competitive pressures, and price erosion in certain segments, but its management team has implemented strategic initiatives to address these headwinds. The company is focused on driving growth through operational efficiencies, innovation, and expansion into new market segments, particularly within the B2G space. Management expressed confidence in achieving its long-term goals, aiming for higher margins and a renewed focus on sustainable growth across its core businesses. While near-term challenges persist, the company's strategic investments and commitment to operational improvements provide a positive outlook for the remainder of the fiscal year.
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