Hindustan Sanitaryware Industries Ltd (HSIL) is the largest manufacturer of sanitaryware (40% market share) and the second largest manufacturer (22% market share) of glass containers in India. With increased awareness for improving sanitation coverage coupled with current low penetration and changing lifestyles of people, the sanitaryware industry is poised to witness steady traction. HSIL, with its recently expanded capacity in sanitaryware and strong brand recall is well placed to benefit from the robust growth expected in the industry. Moreover, no further expansion in the low-RoCE glassware division is likely to improve the return ratios going forward. We initiate coverage on HSIL and recommend Buy with a target price of Rs117 valuing the business on SOTP basis for FY2015E.

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