Hitachi Home & Life Solutions (India): Buy

The stock of consumer durable maker, Hitachi Home & Life Solutions (India), is available at a price-to-earnings ratio of 14 times (trailing earnings) after a price correction of over 40 per cent in the last five months. We see this price correction as an overreaction from the market to the company's results that were below expectations in the last two quarters. The stock looks a good investment at the current market price of Rs 178.

In the last quarter, Hitachi's profit was dented (down by over 90 per cent, year-on-year) by a 42 per cent jump in staff costs and marketing expenditure. Both were a function of Hitachi's entry into new air-conditioner segments and geographies in recent times. Staff costs increased as the company recruited and trained people for its 33 new service centres and 18 new sales offices. Hitachi's marketing and ad budget rose on its launch of ‘i-clean' and introduction of ‘Kaze' in metro cities. Like other consumer companies, Hitachi too operates on margins of 5-7 per cent only at the net level; front-ended expenses thus strain margins and profitability. Due to the recent performance, the company's 18 per cent sales growth in the nine months ended December 2010 saw its net profits declining by 45 per cent, year-on-year.

NIRAJ KUMAR

PGDM 2ND SEM