Owned to the extent of 70 per cent by Hitachi Japan, the Consumer White Goods manufacturer Hitachi Home and Life Solutions has produced a solid set of financials for the year ending March 2007. Revenues have risen 25 per cent to Rs 365 crore (Rs 292 crore), and after tax profits risen 30 per cent to Rs 19.3 crore (Rs 14.8 crore), turning in an EPS of Rs 8.42 (Rs 6.47) for FY07.

With a product offering that includes Airconditioners (Room, Window, Split, Tower, Concealed Split, Ductable Ceiling, Cassette A/Cs and specific cooling solutions, Variable Refrigerated Volume systems, Chillers for large airconditioning applications), all Steel 3 Door Refrigerators specifically built for India and once a week lifestyle fully automatic washing machines, Hitachi has ensured that seasonality in earnings has been virtually eliminated.

India Centric Focus

Hitachi Home & Life Solutions manufacturing facility at Kadi is among the seven Hitachi room air conditioner facilities worldwide. The Indian plant also exports Hitachi room air conditioners to the SAARC, Middle East and other tropical countries in addition to catering to the Indian market.

With a total installed capacity of 250,000 units a year and turnover of over Rs. 3600 million, Hitachi Home & Life Solutions (India) is amongst the top airconditioning companies in India. It has a nationwide sales, distribution and service network. It has 14 Branches, 250 Sales and Service Dealers, more than 800 Showroom Dealers and 350 Service Points.

Overview

Hitachi Home & Life Solutions Limited (HHIL) is a niche player in the Indian air conditioner industry with technology based and innovative products, which command a price premium of 25-40 per cent in certain segments.

HHIL is valued at 12.4 times its FY07 earnings, which is highly attractive considering that the corporate is likely to maintain growth rates in excess of 20 to 25 per cent over the next few years.

Background

HHIL manufactures and trades ‘Hitachi’ brand of Air-conditioners in India and the tropical markets outside India. The company manufactures room and packaged type air conditioners (AC). Higher capacity chillers, along with specialty and higher end air conditioning systems are imported from other Hitachi facilities world wide and are sold, installed and serviced in India by the company. Hitachi of Japan holds 69.9% in the company and provides technical collaboration for the products.

Investment Positives

Demand for air conditioners in India - set to rise: Indian air conditioning industry (including room and central) is expected to be about Rs 5000 crore. Changes in lifestyles, increase in disposable incomes, recognition of AC as a necessity rather than a luxury product, government focus on increasing power generation capacity, hotter summers are the key demand drivers for room air conditioners.

The demand for central and packaged air conditioners has received a boost from commercial establishments such as showrooms, restaurants, banks, hospitals, theatres, shopping malls and boutiques. Overall, the Indian air conditioning industry is one of the fastest growing AC industry in the world growing expected to grow over 20-25% rate over the next few years.

HHIL – a niche player

HHIL has been sharp to spot opportunities and introduce innovative products such as ATOM (smallest split AC in the market) and Quadircool (world’s most silent window AC).

In the Ductable split category, HHLI has grown more than 40 per cent in the current year.

This is on the back of the indigenously developed MICROCOOL with its key benefits of lower electricity consumption, compressor run hour tracking, run time equalization and flexibility for air-conditioning spaces.

Business reorganization in Hitachi group

Globally, Hitachi Air Conditioning Systems Co. Ltd and Hitachi Home & Life Solutions, Inc. (parent company of HHIL) have been merged with an aim of developing and strengthening their ‘lifestyle zone solutions business”. This merged company will extend support for lifestyle infrastructures in the home, office, stores and other locations with a particular focus on comprehensive air conditioning among others.

The merged entity will strengthen over all business by providing strong product line-up and cutting procurement and sales expenses by centralizing purchase and sales functions. The entity will use its bases in countries such as China, India and Russia to expand its global sales network.

Hitachi groups’ focus on the BRIC countries would work in favor of HHIL in terms of transfer of technology, lower raw material costs due to central purchasing, innovative distribution techniques and export opportunities.