Friday, March 25, 2011

Hipolin Ltd –Residual brand recall play

Opportunity Background :
1970: started manufacturing detergent powder on a small scale, for supplying the domestic market
1994/95: Public issue  issue @ Rs.50 per share
1998: added dental hygienic products and comsetics to product range ( for exports-contract manufacturing)
Primary industry:Detergents
Network :700 agents and distributors nationally with large concentration in Gujarat followed by Maharashtra.

Exports : to Russia, Ukraine, UAE and Africa.

Manufacturing facilities : 40,000 Sq.Mt. (9.89 ACRES) plant involed exclusively in the manufacture of detergents (lowfoam powders for indistrial use and high- foam formulations for domestic consumption), with built up area of 5900 Sq. Mt

Plant location : In close proximity to Tata Motors-Nano plant in Sanand, Gujarat.

Products : Hipolin Gold Powder, Hipolin Power Hipolin Liquid, Hipolin Super Blue Cake, Hipolin Yellow Powder, Hipolin Toothbrush, Hipolin Toothpaste, Hipolin Salt

Production capacity : 14,000 tonnes / annum

Market positioning: marginal

Detergent Market in India: Approx 12,000 cr and growing 10% annually

Over the years, Hipolin has been unable to withstand the onslaught of not only MNC’s but also domestic  players like Ghadi & Nirma. Some of the key issues it has faced are:
1)      Lack of aggressive & professional management
2)      Single manufacturing location- makes it unviable to service distant markets like West Bengal, UP & Bihar where the brand enjoys a good recall
3)      Unability to absorb rise in input costs at the same selling price to maintain market share due to weak balance sheet.
4)      In the current year ( 9months ended 2010), sales have decreased by about 25% and the company has made a loss of 0.47 cr

Paid up equity capital : Rs.3.13 cr
Debt: Rs.3.59 cr
Market price : Rs.33
Market cap: 10 cr
EV: 13.59 cr
1)      Traditionally strong regional influences play out in the Detergent market in India. Hipolin has a good brand appeal in a particular region. Even today the brand has residual recall. A larger FMCG company that can leverage on the recall and increase its footprint in a particular region will be able to benefit from acquiring it.
2)      Sanand plant ( approx 9.9 acres), which is located in very close proximity to the Tata Nano factory
3)      Out of the last 10 years, the company has paid dividend for 8 years
4)      Promoters have been buying in small lots from the open market
Though  Hipolin is not a traditional value play, the value it hold in terms of the residual brand value of Hipolin and land at Sanand is conservatively speaking about thrice its current EV. Will the monetization happen ? if so, when? There are no ready correct answers to these question currently.

Nothwithstanding the above,Hipolin Ltd is an interesting company largely from a brand value perpsective.
High risk, high return play.
At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments.

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