HSIL is an established player in the sanitary ware business where it enjoys a good 40% market share. HSIL has been giving really good results for over two years now and is expected to continue this for the next couple of years as well. Recently, the company completed it’s brownfield expansions in AP and Rajasthan and these are likely to add in to the revenues from Q3 FY12 onwards. It is also going to increase the market share of HSIL further up from the current 40%. HSIL’s container glass expansion is as per schedule and would commence from start of FY13. They are also going to get gas supply soon for their Sananthnagar plant which would only further aid in improving revenues and profitability.

Fundamentally, the company is very sound with an ROE of close to 20% and ROCE close to 15%. HSIL has grown it’s profitability by 37.6% in FY10 and 79% in FY11 and is on it’s way to clock a 60-70% growth in FY12 and another 30-40% in FY13. The expected EPS for FY12 is close to 20 and expected EPS for FY13 is around 27. The stock is currently trading at a price of just 120 rupees which gives it a P/E of just 6 as per FY12 earnings estimate and a P/E of 4.4 as per FY13 earnings estimate. So clearly the stock is very under valued and thus posts a strong upside from current levels.

The stock might correct further if the bear market continues for a longer period of time and the stock is just going to get further attractive. One can take a buy on dip approach on this small cap gem stock and hold with a 1-2 year view, it could be a potential multibagger in making if you hold till the next bull run in the markets. This stock has the potential to touch 400 – 500 rupees in the next 18 – 24 months, provided markets move up.

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