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SYNOPSIS

Hanung Toys and Textiles Ltd.

engages in the manufacture, supply,

and export of stuffed toys/ plush

toys and home furnishings in India

and internationally.

Company has acquired a controlling

stake in M/s Cody Direct Corp, a

company incorporated under the US

laws.

During the quarter ended, the

robust growth of revenue is

increased by 31.73% Rs.2825.26

million.

The top line and bottom line of the

company are expected to grow at a

CAGR of 27% and 35% over 2009 to

2012E respectively.

Hanung Toys & Textiles has bagged

an export order worth $250 million

and the order is scheduled to be

completed by December 2012.

Years Net sales EBITDA Net Profit EPS P/E

FY 10 8369.0 1635.9 901.2 35.78 5.98

FY 11E 11175.1 2267.7 1264.2 50.19 4.27

FY 12E 13186.7 2711.0 1576.9 62.61 3.42

Stock Data:

Sector: Stationary

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 414.30/172.00

Volume (2 wk. Avg.) 170000

BSE Code 532770

Market Cap (Rs.In mn) 5392.7

Share Holding Pattern

1 Year Comparative Graph

Hanung Toys BSE SENSEX

C.M.P: Rs. 214.10 Target Price: Rs. 246.00 Date: April 16th 2011 BUY

HANUNG TOYS & TEXTILES LTD

Result Update: Q3 FY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Hanung toys 214.10 5392.7 48.45 4.42 1.38 20.00

Archies Ltd 43.35 1464.4 2.97 14.60 1.69 20.0

Cosco India 56.00 233.0 2.21 25.34 1.23 0.00

Camlin Ltd 75.55 4613.4 2.32 32.56 7.39 50.0

Company Profile

Hanung Toys & Textiles (HTTL) was set up in the year 1990 in collaboration with a

South Korean Company. It is a name to be reckoned internationally in the field of

Soft Toys and Home Furnishings. In India, it has the distinction of being the leading

manufacturer and exporter of Soft Toys and one of the leading manufacturers and

exporters of Home Furnishings.

The company is the licensee of Walt Disney characters for soft toys in the country.

HTTL's pioneering efforts on the shaped cushions have revolutionized the market,

both domestic and international.

It complies with international quality standards like EN-71, ASTM and BS 5852. They

have also been awarded the ISO 9001-2000 for quality management systems to

manufacture, supply and export of Soft Toys and Home Furnishings.

They are the niche market holders in the Soft Toys and children's furnishings

because of their excellent service, quality and the most competitive and consumer-

friendly prices which has resulted in their continued presence in the markets of USA,

Europe and other developed countries. Their professionally-managed design and

development team has developed more than 4,000 designs. Thorough study of the

changing market trends, their creative and innovative ideas lead to the development

of new designs everyday.

The company owns ‘Play-n-Pets’ and ‘Muskan’ brands in stuffed toys and ‘Splash’ in

home furnishings. They are already catering to more than 100 distributors for the

stuffed toys under the brand ‘Play-n-Pets’ and ‘Muskan’ across the country, including

multi-brand outlets like Lifestyle, Shopper’s Stop, Westside, Big Bazar (Pantaloon

group), Pyramid, Globus, Landmark and all other leading stores. Their ‘Splash’ range

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of Home Furnishings is available at 600 stores across the country. . These brand

names associated with Hanung are among the leading contenders for the highest

market share.

Awards/Achievements:

• IKEA Best Delivery Security Award 1994

• Licensed Manufacturer of Walt Disney soft toys in India

• 1st Position, Excellent Performance in Export: SSI & Export Promotion, Govt. of

U.P. (consequent 4 years : 1999 -2004

• 1st Position, U.P. State Export Award (consequent 3 years : 1999- 2003)

• Toys Exporter of the year 1997 : The Toys Association of India

• Merit Awards: Ministry of Commerce

Product Range:

• Bedding - Adult Bedding, Kids Bedding

• Decorative pillows - Back to school, Embellished Elegence, Textures n basics

• Shaped Pillows - Aquatic life, Butterflies, Calestial, Christmas, Flowers

• Flooring,

• Sheeting and Duvets,

• Soft Toys,

• Throws n Cushions,

• Windows.

Divisions:

• The Soft Toys Division - Established in 1990, it has a production capacity of

20,000 pieces per shift and a work force of 900 people. The production capacity

is one of the highest in the sector and responsible for the huge market share

that HTTL has in Soft Toys and shaped pillows.

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• The Processing Division – The division is in operation since 2003 has a

production capacity of 20,000 meters per day and a workforce of 260 people. It

is equipped with the latest machinery and with the capacity to process up to

120 inches wide fabric in bleaching, dyeing and 16 colour printing.

• The Furnishing Division - Set up in 2002, it is located in the Hosiery Complex

of Noida and has a production capacity of 3,000 sets per shift and a work force

of 450 people. The factory has the latest state-of-the-art machinery and has

created the hallmark of quality products in Home Furnishings.

Investment Highlights

Q3 FY11 Results Update

Hanung Toys reported a phenomenal rise in standalone net profit for the quarter

ended Dec 2010. During the quarter, the profit of the company increased 35.05%

to Rs 311.68 million from Rs 230.79 million in the same quarter last year. Net

sales for the quarter rose 31.73% to Rs 2825.26 million, while total income for the

quarter rose 31.37% to Rs 2872.46 million, when compared with the prior year

period. It reported earnings of Rs 12.37 a share during the quarter, registering

31.37% rise over prior year period.

Quarterly Results - Standalone (Rs in mn)

As At Dec-10 Dec-09 %change

Net sales 2825.26 2144.79 31.73

PAT 311.68 230.79 35.05

Basic EPS 12.37 9.16 35.05

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Acquisition of controlling stake

Company has acquired a controlling stake in M/s Cody Direct Corp, a company

incorporated under the US laws. Cody Direct is an 18 years Home Furnishing

Marketing and Distribution. Cody Direct has 55 Avenue showrooms in New York.

The acquisition completely synergies with Hanung’s business and its growth

strategies. Hanung has long desired to enter the US market in an aggressive and

cutting edge manner.

Break up of Expenditure

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Segment wise Revenue

Particulars Q3 FY11 Q3 FY10

Textiles 1703.5 1291.14

Toys 1121.78 853.65

Total 2825.28 2144.79

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 6376.09 8369.00 11175.19 13186.72

Other Income 154.58 157.52 183.52 205.54

Total Income 6530.67 8526.52 11358.70 13392.26

Expenditure -5351.00 -6890.55 -9090.99 -10681.25

Operating Profit 1179.67 1635.97 2267.71 2711.02

Interest -329.04 -495.81 -691.43 -774.41

Gross profit 850.63 1140.16 1576.28 1936.61

Depreciation -113.06 -172.21 -231.28 -259.03

Profit Before Tax 737.57 967.95 1345.00 1677.58

Tax -93.04 -66.69 -80.75 -100.65

Profit After Tax 644.53 901.26 1264.25 1576.92

Equity capital 251.88 251.88 251.88 251.88

Reserves 2803.26 3704.53 4968.78 6545.71

Face value 10.00 10.00 10.00 10.00

EPS 25.59 35.78 50.19 62.61

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11E

Description 3m 3m 3m 3m

Net sales 2464.86 2749.03 2825.26 3136.04

Other income 39.81 45.53 47.20 50.98

Total Income 2504.67 2794.56 2872.46 3187.01

Expenditure -2002.07 -2243.19 -2305.54 -2540.19

Operating profit 502.60 551.37 566.92 646.82

Interest -155.84 -174.64 -177.81 -183.14

Gross profit 346.76 376.73 389.11 463.68

Depreciation -53.94 -56.22 -58.23 -62.89

Profit Before Tax 292.82 320.51 330.88 400.79

Tax -19.90 -17.60 -19.20 -24.05

Profit After Tax 272.92 302.91 311.68 376.74

Equity capital 251.88 251.88 251.88 251.88

Face value 10.00 10.00 10.00 10.00

EPS 10.84 12.03 12.37 14.96

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Key Ratios

Particulars FY09 FY10 FY11E FY12E

No. of Shares(In Million) 25.19 25.19 25.19 25.188

EBITDA Margin (%) 18.50% 19.55% 20.29% 20.56%

PBT Margin (%) 11.57% 11.57% 12.04% 12.72%

PAT Margin (%) 10.11% 10.77% 11.31% 11.96%

P/E Ratio (x) 8.37 5.98 4.27 3.42

ROE (%) 21.10% 22.78% 24.22% 23.20%

ROCE (%) 18.83% 19.19% 22.80% 23.16%

Debt Equity Ratio 1.25 1.38 1.1 0.89

EV/EBITDA (x) 4.57 3.3 2.38 1.99

Book Value (Rs.) 121.29 157.08 207.27 269.87

P/BV 1.77 1.36 1.03 0.79

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Charts:

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Outlook and Conclusion

At the current market price of Rs.214.10, the stock is trading at 4.27 x FY11E

and 3.42 x FY12E respectively.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E

is seen at Rs.50.19 and Rs.62.61 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 27% and

35% over 2009 to 2012E respectively.

On the basis of EV/EBITDA, the stock trades at 2.38 x for FY11E and 1.99 x for

FY12E.

Price to Book Value of the stock is expected to be at 1.03 x and 0.79 x

respectively for FY11E and FY12E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.246.00 for Medium to Long term investment.

Industry Overview

Stationary Industry

Indian Stationery market can be divided into School Stationery, Office Stationery,

Paper products, and Computer Stationery. The growth of this Market is driven by

increased spend on educational sector by government, education standard getting

improved and opening new categories of education for specialization and concentration

on overall development of students. The office supplies segment is also growing

rapidly. Opening of new commercial offices having multi locational presence has

helped the organized players with scalability to serve across locations and offer diverse

range of products. All this has not only increased demand, but has shifted sales from

unorganised to organized sector with premium quality products. The dominance of

unorganised market in stationery segment has its impact on the profit pressure for

organised sector but due to introduction of VAT and increase tax compliance, we

expect a shift in sales from unorganized sector to organised sector.

Small and Medium Enterprises play a vital role for the growth of Indian economy by

contributing 45% of industrial output, 40% of exports, 42 million employments, create

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one million jobs every year and produce more than 8000 quality products for the

Indian and international markets. As a result, MSMEs are today exposed to greater

opportunities for expansion and diversification across the sectors. The emergence of

new technologies has a mixed impact on various industries. With new technology and

falling prices for computers, printers and software are reducing the cost of business

mail communication; on the other hand, focus on education by governments of

various developing countries has increased the demand of stationary and paper

products substantially.

Stationery Industry is a very heterogeneous group of business usually associated with

the Schools, Collages, and Office and plays a very crucial role in working of any

organization across the globe. It includes Paper stationery which comprises of a vast

collection of products like exercise books, note books, stitch, glued & tape pads, refill

pads, flap over pads, subject books, plastic cover books etc. The huge greeting card

market, autograph books, party invites etc, is also a part of this segment. Paper and

paper related products are tremendously gaining demand in the market. Out of which

paper stationery market over the years has gained immense popularity in the school

and office segment throughout the world. Revolution for these products has come to

birth from the past few years’ majorly in developing nations and it's having immense

value in terms of export and import. It is expected that Stationery industry has a

flourishing future in its coming years in India and over a period is estimated to grow at

10 to 15% p.a. To achieve this objective, one can actually see that how acceptance of

Internet technology has opened plethora of opportunities of sourcing the desired

supplier in any part of the world.

The manufacturers of various countries including India, China, and Indonesia etc

have started building new product strategies, which helps in reducing their overall

cost without compromising on quality thus producing a good quality product at

competitive price. Indian art material market is divided into sub-segments like Paints,

Mediums and Accessories. Similarly it can be categorized as per the user profile where

on the top of the pyramid there is serious and high quality artist material patronised

by professionals.

The hobby material comes in the middle of the pyramid, which includes a very wide

range of products and is used by a wide spectrum of people of all ages, regardless of

the gender or education. The base is built up of the scholastic art material, including

products like crayons, pastels and other economically priced products patronized by a

huge population of schools and students. The market for art material in India is

growing at a very healthy rate. The Phenomenal rise in the recognition and

appreciation of Indian art at home and abroad, has given impetus to the fine art

material market. The artists are now in position and mood to use better and more

expensive inputs to create the work of global standards.

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Falling under the category of Small and Medium Enterprises in majorly most of the

countries, this sector has lot to offer in terms of employment, tax revenues, it can be

an important source of new innovative products, extensive local knowledge of

resources, and can be a major service provider to the larger organizations. However,

this sector like other sectors have certain bottlenecks which hinder the growth of this

sector like Burdensome regulatory frameworks, Lack of tax incentives and subsidies,

Absence of investor-friendly environment, Lack of access to finance, Lack of capacity-

building programs and inadequate provision of vocational training etc.

Toys Industry

India, is one of the oldest civilizations in the world. Its rich traditions embedded in the

very core of common Indian man, and its large cultural diversity are well known

worldwide. The Indian toy industry, as old as this nation itself, has been nurtured and

enriched under this intellectually rich background. Indian toys, which are

manufactured all over the country reflect the Indian cultural diversity in the range of

items manufactured. Play, with emphasis on safety and learning, are the core

foundations for the toy industry in India.

India manufactures toys from diverse raw materials like, plastic, wood, rubber, metal,

textiles etc. This industry is predominantly confined to the sector of small scale

Industries and is spread all over the country meeting the local needs of different

cultural parts of India.

The chief organized centers for toy manufacturing are National Capital Region and

Mumbai. Manufacturing of toys in India, in general, is labour intensive and utilizes

the Indian skills of master craftsmanship and creative designing. The Indian toy

industry, fueled by the vast domestic market, has now turned its attention to global

markets and is fast gearing up to meet international demands.

The strong points of Indian toy industry are skilled workforce, diverse range, focus on

innovation and creativity, and emphasis on learning and education. Indian

manufacturers are catering to both large and small volume requirements and are

exporting to few of the most developed nations in the world. The main markets for

Indian toys are USA, U.K. and Germany.

Sports Goods Export Promotion Council (SGEPC), a Government of India sponsored

organisation looks after the promotion of exports of Indian toys from India.

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The Toys and Games market is valued at INR 40 bn in 2010 and is expected to grow

rapidly in the future. The perception towards toys and games as a necessity for all

round development of child will drive the market.

Textile Industry

The Indian textile industry contributes about 14 per cent to industrial production, 4

per cent to the country's gross domestic product (GDP) and 17 per cent to the

country’s export earnings, according to the Annual Report 2009-10 of the Ministry of

Textiles.

It provides direct employment to over 35 million people and is the second largest

provider of employment after agriculture.

According to the Ministry of Textiles, the cumulative production of cloth during

April’09-March’10 has increased by 8.3 per cent as compared to the corresponding

period of the previous year.

Moreover, total textile exports have increased to US$ 18.6 billion during April’09-

January’10, from US$ 17.7 billion during the corresponding period of the previous

year, registering an increase of 4.95 per cent in rupee terms. Further, the share of

textile exports in total exports has increased to 12.36 per cent during April’09-

January’10, according to the Ministry of Textiles.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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