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Thursday, September 28, 2006

Hanung Toys and Textiles

Hanung Toys and Textiles (HTTL) manufactures and exports stuff toys and home furnishings. Incorporated in 1993 as a stuff toy manufacturer in technical collaboration with a South Korean company, it began to independently manufacture stuff toys five years later. In 2002, HTTL entered home furnishings and textile processing.

Presently, HTTL has capacity of produce 1,10,00,000 pieces per annum of stuff toys and 12,50,000 pieces pa of home furnishings. The company mainly exports to Europe, the US, Latin America and Middle East. But now 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.

HTTL is to set up an integrated home textile unit with a total cost of Rs 153.44 crore, which includes 72 airjet looms with superior quality wider width weaving capacity of 21,000 meters per day and processing capacity of 1,05,000 meters per day in addition to the existing processing capacity of 60,000 meters per day. The company also plans to part substitute its existing working capital requirement of around Rs 15 crore. The expansion is to be funded with a term loan of Rs 90 crore under the TUF (Technology Upgradation Fund) scheme and the balance through an IPO.


  • HTTL is the largest player in the organised market of stuffed toys and its co-branding initiatives with Walt Disney Company and Percept Picture Company (for Hanuman) can fuel growth in the domestic market due to the retailing boom in India.
  • The project is to be located in Uttaranchal, where the company enjoys various tax benefits.


  • The inventory-holding period is around 150-180 days, which is considered to be very high. This is attributed to the fact that the raw material (in case of stuff toys) is imported and the company has to maintain finished goods stock for its buyers. Moreover, of the total expansion of Rs 168 crore, around Rs 48 crore will be used for meeting existing and future working capital requirement. Even though net profit in FY 2006 was Rs 12.98 crore, cash flow from operating activities was a negative Rs 2.07 crore.
  • The capacity utilisation in the home furnishing sector has been 12%, 26% and 53% in FY 2004, FY 2005 and FY 2006, respectively, which is considered to be significantly low.
  • Post expansion, processing facilities will meet only 12% of its fabric requirement in-house as HTTL has a 21,000-meter per day weaving capacity and 1,65,000-meter per day processing capacity.
  • Chinese competition is a key threat to its business.


HTTL has allotted shares to Bennett Coleman and Company (BCCL) at Rs 150 in February 2006. The current offer price band is Rs 85-95.

The FY 2006 financials do not include financials of two group companies Hanung Furnishings and Hanung Processors for the period April- October 2005. However, the financials for the first quarter ended June 2006 includes the financials of both companies that have been merged with the flagship company. Because of these, financials are not comparable.

The first quarter of FY 2006 gives an annualised EPS of Rs 7.7. Considering this EPS, PE will be 11 to 12 times on post-issue equity. Due to HTTL’s presence in stuffed toys (which 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 9 and 17 times, respectively.