ENAM has the following Recommendation on Hanung Toys & Textiles Ltd,
Hanung Toys and Textile (Hanung), India’s largest manufacturer & exporter of Stuffed Toys, is a leading player in the mid‐high end home textile segment.
Order book of Rs 18 bn (2.2x FY10 revenue) in Toys & Home Furnishing provides higher revenue visibility. Growth strategy: (1) Capacity expansion for toys and textile processing (2) Increase domestic revenue share via brands and imports of high‐end toys and (3) pursue inorganic opportunities in both segments.
Minimal impact of global slowdown on profitability. Earnings grew by 48% CAGR during FY07‐FY10A. EBITDA margin has remained constant at 18‐19% over the last 5 years .Strong customer base, geographical/product diversification and growing domestic market enabled organic revenue growth of 44% CAGR in the last 3 years. Well entrenched domestic brands in toys – ‘Play‐n‐Pets’ and ‘Muskan’ and home furnishing –‘Splash’. Strong design capabilities with 40 designers and library of over 4,500 designs. Manufacturing facilities located in SEZ and fiscal benefit zones provide excise and income tax relief (effective tax rate at 6%)
Earnings is expected to grow by 33% CAGR over FY10‐12E. ROE is expected to be maintained at avg. 26%. At P/E valuations of 5x FY11E and 4xFY12E, the stock trades at a significant discount to its peers. Our 1‐yr Target Price of Rs 320 (Upside 32%) is based on a target P/E multiple of 7x FY11E
