Hanung - A serious toy?

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Dear Readers,

With out much introductory notes, I would like to talk about one of my favorite stocks. This post dedicated to unknown readers (other than my clients) who donated their own, from their gains on my previous recommendations. The company we going to discuss, is not comes under any established or conventional emerging sectors, but still I have good faith on this company, their business as well as on its able management.

In 1990, Ashok Kumar Bansal, a chartered accountant felt, he have tired of helping others to get rich, decided to strive something own with his own ideas. In search of a new "export item” he chosen two, liquid mosquito repellent and soft toys. Mr Bansal realized that the exports of the mosquito repellent would be restricted to Asia as “the lack of mosquitoes in the developed countries". That realistic thinking made the soft toys as the logical choice. It is important to mention that, there was no quota for soft toys at that time, since the category hardly existed in Indian market. (The vision)

With Rs 25 lakh borrowed from his father, Bansal set himself up in business. He has arranged a technical collaboration with Korea's Hanung Industrial Co. He also took up the Korean company's name for a simple, practical, but clever reason. "India was not associated with quality products then," he states. "We were seen more as a Korean company than Indian. That helped in getting orders." (Survival Technique)

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Company Snapshot

BSE Code - 532770

Sector - Misc (Soft Toys & Home Furnishings)

CMP - 115.45(13/11/2009)

EPS - 24.57

PE - 4.70

BV - 121.29

FV - 10

52 Week L/H - 24.25/132.30

Buy Range - 85-110(Accumulate in every fall/SIP )

Ever High post 2000 - 300(Jan 2008)

Market Cap - 290.82

Chairman - Ashok Kumar Bansal

Promoter(s)’s holdings- 63.25%

HTTL is engaged in the manufacturing & exporting of stuff toys & home furnishing products. The business consists of soft toys manufacturing facility, home furnishing production facility and textile processing facility. The company is treated as largest producer and exporter of Soft Toys, Decorative Cushions and Room Furnishings in India. The company also launched a wide range of home furnishing with attractive colours, designs and fabrics. Hanung is the largest manufacturer and exporter of Non- Toxic, child safe stuffed toys in India.

HTTL has more than 100 distributors, more than 3,000 retail stores and multi brand outlets. The company has signed an export order tie-up with a leading US buyer for exporting home furnishing to the extent of USD 50 Million (about Rs 2,000 million) to be completed by December 2009. Further, the company has so far signed long term export contracts worth of $265 Million (about Rs 10,600 million). In April 2008, HTTL signed a MOU to acquire 100% stake in a Chinese soft toy manufacturing unit, having an annual installed capacity of 10mn pieces. This unit is said to have infrastructure to double Hanung's toy competency in the long run. It is expected that, this acquisition could further strengthen HTTL's international presence, improve its overall market share in the toys segment and will help to expand the overall margins.

HTTL continues to record sturdy order flows even in the midst of an uncertain export environment. Entering in long-term contracts with organized clients is not a common practice in the textile industry, as international retailers lean to alter their sources of supply based on fast changing fashion trends. HTTL has managed to enter into 2-3 year contracts with its clients. In milieu of concerns of a slowdown in the US imports, the long-term mode of such contracts provided greater visibility to Hanung's revenue flow. At present, HTTL has a healthy order build up of Rs. 1350 cr. of which Rs. 1060 cr. are long term orders, which are executable over a period of 2-3 years (be patient)

Recognitions

The ISO 9001-2000 certification

International Standards like EN-71, ASTM and BS-5665.

IKEA has certified as I-WAY and 4-SIP vendor.

Target Group USA’s approved vendors.

Wal-mart certified factory and their approved vendor.

JC Penny USA certified factory and their approved vendor.

CHF Industries USA client.

The Metro Group of Germany’s ‘Approved Manufacturing Practice Certificate'.

Lillian Vernon Corporation of USA’s 'Certificate of Appreciation'.

SPLASH, the brand for domestic furnishings, was started in 2004. Mr Bansal says. "What took the toys business 17 years to achieve, the furnishings business has given us in just three years" . In very short time, HTTL has managed to export 90% of its production of Home Furnishings to all major markets including, USA, Europe & Latin America.

Client Base

India

Lifestyle
Shopper’s Stop
Westside
Big Bazar (Pantaloon group)
Pyramid
Globus
Landmark.

USA

America Pacific
Springs Global
Britanica Home Fashions
CHF industries
Kojo Worldwide

Europe

Ikea Sweden
Debenhams UK
Wal-Mart ASDA UK
Metro Group Germany /Italy
Marko Group - Poland
Francodim France
Carpenter Sweden
Loja do Gato preto Portugal

Latin America

Sodimac Home Centre Chile

Right now, Hanung is preparing Christmas-themed toys and shaped cushions (Santa Claus, snowmen and reindeer) for Europe and North America. In India, on the other hand, while big cats are a perennial favorite, the current craze is cartoon and animation characters. The company has also discovered the potential of film merchandise, apart from becoming a licensee for Disney characters, the company tied up with Percept Picture Co to manufacture Hanuman toys based on the recent hit animation movie.

One of the biggest reasons for Hanung's success is its cost management strategy. It saves on raw material by entering into long-term contracts with suppliers. Its plants are located in tax-free and special economic zones, leading to substantial tax savings. "Competition is growing. But we hope to be a Rs 1,000 crore (Rs 10 billion) company by March 2010," says Bansal. (The sheer Confidence)

My View on the scrip

I am very much confident on this company and it is one of the “possible multibagger” scrip from my hot list due to following reasons:-

a) A company which have order book value is several multiples of it’s market Cap.

b) The consistent growth rate.

c) Monopoly in domestic market.

d) Attractive current valuation

e) The reputed high net worth foreign/domestic client base

f) The efficient, intellectual and visionary management like Ashok Kumar Bansal.

g) The company which most responsive to trends

Mr Ashok Kumar Bansal is an innovative and one of the intelligent entrepreneurs in our country. I strongly believe that he will keep additions and deletions with his business according to the changes of his surroundings as well as trends. The goodwill and reputation of the company/products in domestic and international market is really envious.

A bit personal and about the realaiability of their product, I have bought a Teddy Bear some seven years back for my son is still with us unharmed.... and his younger sister plays that....It is glad to have some shares of HTTL next time, while you buy a teddy bear for your kids from Hanung's range.. In my view, this scrip has all that vital characteristics to be a multibagger!.. minimum 4-5 times…Lets see....

It seems, Mr Ashok Kumar Bansal is fully aware about the following famous qoute of Charles Darwin:-

"It is not the strongest of the species that survives, nor the most intelligent, but the one who most responsive to change"

Comment please..........

Shabu Thachat

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