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Hindware Sanitaryware Posted A Strong Set Of Earnings

Hindware Sanitaryware posted a strong set of earnings Thursday and even though earnings before interest, taxes, depreciation and amortization (EBITDA) was negative, company CFO Sandeep Sikka said this was because of the company's foray into electrical products. "We have [started] selling water heaters, air purifiers and water purifiers," he told CNBC-TV18 in an interview. "Net that off, building products sales growth is around 17 percent and EBIT growth is around 19 percent." Sikka also discussed the company's merger with subsidiary Hindware Home Retail Private Ltd (HHRPL) and what it means for the firm. Below is the verbatim transcript of Sandeep Sikka’s interview to Prashant Nair and Ekta Batra. Prashant: I will get on the numbers in a bit but one thing which people need clarity on is the scheme of amalgamation with the group company Hindware Home Retail Private Ltd (HHRPL) which the board has approved. This company has some accumulated losses and after merger the entity will get some tax benefit. Could you just outline what the changes are going to be on the profit & loss (P&L) account? A: Hindustan Sanitaryware & Industries Limited (HSIL) had a subsidiary called Hindware Home Retail Private Limited which is called as HHRPL and this was operating primarily through the retail sector, having around 14 stores in India and primarily selling furniture. However, HSIL is a building product and a packaging product company. So the management thought that in order to synergise the operations of furniture business which also forms part of building products -- otherwise, we should demerge the retail business out of HHRPL and invest the same with HSIL. Definitely there will be some synergies from the operational merger of both of them and also we will be able to utilise partly the benefits of the merger on account of taxation and other factors as we move forward. Prashant: What is the accumulated loss in this company? A: They have accumulated loss of around Rs 94 crore as on April 1, 2015. Ekta: How much of a tax benefit do you envisage once the merger takes place and goes through successfully? A: Once the merger takes place, over the next one-one-and-a-half years we should be able to have a cash benefit of around Rs 40 crore out of it. Ekta: When you are talking about operational synergies, what kind of operational synergies do you see. So, for example will there be any cost reduction that you will undertake in this retail arm and what will be the consolidated margin benefit that we could see on the P&L, say a year from now? A: This operation of retail right now is in a subsidiary company and once the merger is done there will be definitely a management synergy wherein we will be able to give them all kind of support, whether the operational support, financial support and we feel that business which is making losses should turnaround, maybe next 24-36 months with an increased level of sales and also cost efficiencies. Prashant: Just one clarification. The subsidiary was a 100 percent subsidiary of the company, right? A: Yes, it is a wholly owned subsidiary. Prashant: In the building product segment your margins are down. Could you just outline what happened there and what is the outlook? A: We have consolidated our position strategically in the market and when we see the sales of building products; it is one of the highest growth numbers. However, the earnings before interest, taxes (EBIT) number look slightly down at 12 percent although the building product growth (BPD) is at around 23 percent. The company is right now incubating a new consumer products business within building products, wherein we are selling water heaters, air purifiers and water purifiers. However, if we net that off, the BPD apple-to-apple sales growth is around 17 percent and EBIT growth is around 19 percent. Ekta: What was your volume growth in your building product segment, what is your guidance on the same and in terms of your consumer electrical business, which is the geysers, water heaters, etc that you just alluded to, how much of a loss did you make and when do you expect to turn into the black? A: On the building product side right now we are the leader on the sanitaryware market side and we sell other products like faucets and other wellness. So, giving a figure in volume may not be the right context but as we move forward we see that we should be able to maintain around 15-17 percent growth on the overall although the market is growing at around 10-12 percent. And when we see how much is the number of consumer products, we had a sale of around 21 percent included in the building products and the EBIT level expense which we call as investment or development of new distribution channel which go to market, is around Rs 2.55 crore.

Read more at: http://www.moneycontrol.com/news/results-boardroom/ebit-upadjusted-basis-will-outgrow-indfy17-hindware_7252981.html?utm_source=ref_article

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