Hanung Toys and Textiles: a Growth Story

[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. Both will be removed from the site in the future.]

Hanung Toys and Textiles (BSE: 532770) is a leading manufacturer and exporter of Soft Toys and Home Furnishings in India. It complies with international quality standards like EN-71, ASTM and BS 5852. Its professionally managed design and development team has developed more than 4000 designs. Although it is a small cap stock, it has a market presence in the United States, Europe and other developed countries. The production department of the company has three factories located in the high-profile industrial township of NOIDA, within driving distance from the capital city, Delhi. A large share of the company’s revenues comes from its home furnishing division.

The company has a good growth story. Its five-year average sales growth rate is 38% and its five-year EPS growth rate is 25%. Its sales rose 24.41% to Rs 13.95 billion in the year ended March 2012 as against Rs 11.22 billion during the previous year ended March 2011. But net profit declined 3.65% to Rs 1.15 billion in the year ended March 2012 as against Rs 1.20 billion during the previous year ended March 2011.

For the last quarter ending December 2012 net profit of the company rose 57.52% to Rs 333.0 million as against Rs 211.4 million during the previous quarter ended December 2011. Sales rose 28.06% to Rs 4.4279 billion in the quarter ended December 2012 as against Rs 3.4578 billion during the previous quarter ended December 2011.

Last month the company issued  1,390,850 new equity shares at Rs 169.32, a price considerably higher than it’s market price.  Before this issue the promoters held 68.75% stake in the company. This suggests a high degree of confidence in the company’s growth prospects . The company annual pays Rs 2 dividend yielding 1.53%.

The size of the global toy market is estimated to be at 84 billion U.S. dollars in 2012. Due to increasing consumerism and a growing population the Indian toy market grows constantly. The industry is growing at a compounded annual growth rate (CAGR) of about 20 per cent, the study said. The size of India’s toy industry may touch Rs 130 billion by 2015 compared with Rs 75 billion at present.

The domestic toy industry is highly fragmented, unorganized and is predominantly dominated by micro, small and medium-scale manufacturers. In India there are more than 800 toy manufacturers, exporters and suppliers makes. The industry employs about 25 lakh people both in the organized and unorganized sector. About 70 per cent of the toy market in India is unorganized, the study said.

The Indian toy industry caters to about 40 million kids in the age group of 12 years across the country. But domestically manufactured toys account for only 15 per cent of the market and the rest of the market is flooded with imported toys from countries like China, Korea, Malaysia, the UK and the US.

In a recently report published by Reportlinker “Indian Home Furnishing Market Forecast & Opportunities, 2018” it analyze the home furnishing industry in India. According to it, with the increasing textile industry in the country, the furnishing market will continue to flourish. The home furnishing market is anticipated to witness demand from retail industry. By 2018, home furnishing market in India is expected to grow at CAGR of 8%by value to reach USD5.29Billion.

The stock is trading at Rs 131 which is middle of its 52 week range of Rs 99 and 180 and market cap of Rs 3.47 billion. Its trailing twelve months EPS is Rs 53.72. At the current market price the stock trading at PE 2.45 compare to industry average of 13.98 (source: moneycontrol). The stock is trading at half of its book value of Rs 246 a share. With such a growth rates the company deserve a higher P/E ratio, and as such, a higher valuation.