Wednesday, July 23, 2008


Hitachi Home and Life Solutions (India), previously known as Amtrex Appliances is a leading manufacturer of window and split air conditioners.

The demand for its products is extremely strong considering the growing Indian middle class with its disposable income and the recent tendency to buy premium brands. In this context Hitachi's wide range of energy efficient products would place it at a considerable advantage in relation to its competitors. Its parentage and technological advancement should make it a product of choice among discerning consumers.

Hitachi also makes commercial and industrial air conditioners ranging from floor standing AC's, microprocessor controlled AC's, AC's for factory use and AC's for intelligent building cooling. With malls and modern residential complexes coming up at a rapid pace, this segment should witness high growth in the coming years. Hitachi also manufactures refrigerators and washing machines.


For the year ended March 08, Hitachi clocked a turnover of Rs.446 cr and a PAT of Rs. 42 cr, giving an EPS of 18.40. PAT for the March 08 quarter was Rs.11.6 cr, a 100% growth over the March 07 quarter. The market price of the stock is Rs.145 as on date, giving it a PE ratio of 7.8. This appears undervalued considering the brand equity the company enjoys and the premium pricing its products command in the market.

The market capitalisation of the company is Rs.332 cr and the M Cap to sales ratio is 0.75. As against this Blue Star, operating in a similar segment has a PE ratio of 19 and a M Cap of Rs.3304 cr, with sales at Rs.2221 cr. The M Cap to Sales ratio for Blue Star is 1.5. Although Blue Star is more active in the commercial and industrial segment, Hitachi has taken steps to enter this market aggressively. The valuation gap between the two is wide, and Hitachi holds the potential to narrow down this gap.

Major risks are that Copper is a major input for air conditioner manufacturers and rising Copper prices could impact margins. Hitachi's products are priced higher than its competitors and in a recession consumers could downgrade to lower priced offerings.



Ninad Kunder said...

Hi Mahendra

Hitachi for sure is worth a look as a stock. It would be interesting to read the balance sheet to get a flavour of the managements thinking process.

The comparison with Blue Star might not be appropriate because in the large tonnage segment along with the marketing skills, a certain element of engineering skills is required in project execution. So Bluestar will always command a slightly higher premium.



Mahendra Naik said...

Hi Ninad,

Your're absolutely right in saying that Blue Star will command a premium because of its Engg skills and better knowledge of Indian conditions. However a couple of points to be noted are that hitachi is positioning itself to get into the commercial and industrial segment and secondly it is growing from a lower base so the potential for growth is greater if they can get their act together(and that is a big if).


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