Hanung Toy - A play on Toys and Home Furnishing

Hanung Toys & Textiles (HTTL) is in the business of manufacturing and exporting soft toys and home furnishings. Currently, the company has three manufacturing units in Noida SEZ with a capacity of 137 Lacs pieces per annum of stuff toys and 12.5 Lacs pieces per annum of home furnishings.

The company mainly exports to Europe, US, Latin America and Middle East. But now, considering the growing retail sector, it is increasing its focus in the domestic market and has launched its stuff toy brands 'Play-n-Pets' and 'Muskan' and home furnishing brand 'Splash'.

The company is also expanding in home textile segment by setting up a new integrated weaving – processing – made ups production facility in Uttranchal State with total capital outlay of Rs. 175.18 crs. The project is to be funded by an equal amount of equity and debt and expected to be operational by April 2007. The new facility will gain from tax exemptions and cheaper power.

At the current market price of Rs. 107.05, stock is currently trading at a PE of 10.4x FY07E, 4.3x FY08E and 3.4x FY09E earnings. Due to HTTL's presence in stuffed toys (which currently fetches 60% of its profit), there is no comparable listed company. However, Alok Industries and Welspun India, which are much larger and integrated players in home textiles, trade at a TTM PE of around 7.0x and 10.3x, respectively. We recommend a BUY on the stock for 12 months price target of Rs 165 (54% upside) which discounts FY08E earnings by 6.6x and FY09E earnings by 5.3x.