Stalwart Advisors

HSIL goes ex-demerger

HSIL has gone ex-demerger today with market valuing B2B segment viz. packaging and manufacturing assets, at roughly Rs 450 Cr. in market cap, against book value of Rs 1,500 Cr. We believe given the asset base as well as earning power based on the recent reported results, the value should be much higher. Although the stock may remain under pressure on account of exit from large institutions for whom the position size may be too small and irrelevant.

The shares in the de-merged entity, Somany Home Innovation, which will house consumer-facing businesses of sanitaryware and electrical appliances, should be allotted in about 1-2 months, post which it will be listed.

We like both business segments and intend to hold them based on the current assessment of potential business growth, management strategy, and valuations.

To know more about the demerger structure, please refer to ICR:
https://investor.stalwartvalue.com/stock_reports/2011?presentation_mode=on#/


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Exact weightage will depend on each subscriber’s risk appetite & comfort. However, as a thumb rule, any position size under 3% is little insignificant to move returns at portfolio level whereas beyond 10% it gets riskier from a concentration standpoint. Accordingly, low could indicate 3-4% weightage, medium 5-7% and high 8-10%.
Structural are those portfolio businesses where earnings are relatively stable (less volatility) and further are expected to rise in a steady fashion. Cyclicals are businesses which experience periods of upcycle followed by downcycle and have large variation in their reported earnings based on industry demand and supply. The mix between the two depends on available opportunities and respective valuation of the two pockets.