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Hanung Toys & Textiles – Time to Play

April 23, 2008

HDFC Sec recommends a BUY on Hanung Toys & Textiles from a 6 months perspective.There is a lot of outsourcing opportunities due to lower labour cost in India & companies like HTTL, which are aggressively ramping up capacities, would be able to cater to the growing demand. HTTL’s new Home Furnishings facility at Roorkee with an installed capacity of 35 mn meters of fabrics processing p.a. is expected to contribute 47% to the total revenues by FY09, thus becoming a major growth driver.

The new soft toys unit at Noida in SEZ with an installed capacity of 6.3 mn pieces p.a. has begun its commercial production from April 2008. In April 2008, HTTL entered into MoU with a Chinese soft toys manufacturer to buy out 100 per cent stake in the company.This inorganic move could strengthen HTTL’s international presence, improve its overall soft toys market share & provide ample scope for margin expansion going forward.

HTTL’s constant efforts to capture the retail presence & leveraging its brand equity through strategic alliances with companies like Star India & Percept Pictures would enable it to capture a better market share domestically.

At CMP of Rs. 238, HTTL trades at 11.4xFY08E & 8.3xFY09E EPS. The scrip has the potential to trade at 10xFY09E EPS [Rs 29]. Hence HDFC Sec recommends the investors to buy this stock at current levels and add it on dips to Rs.210 with a 6-9 months price target of Rs. 288.

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