Piramal Glass Ltd-Company Report by icestar

VIEWS: 11 PAGES: 16

									                                                                                                                                                                 Sector : Glass
Long Term Investment Call
                                            Piramal Glass Ltd.                                                                           CMP : 92 Rating : Buy Target : 143
26-Dec-11                          Company Report
 Piramal Glass Ltd (PGL) has a multi product industrial profile and is a global leader in delivering world-class packaging solutions.
 It is a manufacturer of glass containers for the Cosmetics & Perfumery (C&P), Pharmaceutical and Specialty Food & Beverages
 (SF&B) industries. PGL has its manufacturing facilities in India, US and Sri Lanka with 11 furnaces having a total installed capacity
 of 1145 TPD (tonnes per day).

  Key Data                                                                                      Investment Rationale:
  Year End                                                                            Mar       Focus on high-margin C&P business to drive revenues: PGL believes the
  Face Value (INR)                                                                      10      market share in the C&P premium segment can grow to 7-8% over the next two
  BSE Code                                                           PIRAMGLAS                  years from current levels of ~3%. PGL currently has a global leadership position
  Reuters Code                                                            PRML.BO
                                                                                                in the colour cosmetic (Nail polish bottles) segment with a 50% market share.
                                                                                                We believe that as the contribution of the C&P segment to the revenue increases
  Bloomberg Code                                                              PIRA IN
                                                                                                and with the share of the premium segment within the C&P segment also
  Shares Outstanding (Mn)                                                            804.4
                                                                                                increasing rapidly, will drive growth and improve margins going forward.
  Market Cap (INR Mn)                                                                7,465
  52 Week High/Low                                                               156/79
                                                                                                Significant cost advantages Labour Arbitrage: In countries like US, which
  BSE Sensex / CNX Nifty                                                15970 / 4779
                                                                                                accounts for 37% of the global C&P premium segment, 80% of the C&P
  1-Year Average Volume ('000)                                                          78
                                                                                                requirement is imported. The total cost of production in India, where
                                                                                     (INR mn)
                                                                                                manpower is among the cheapest in the world is ~60% of the global costs and is
  Key Financials                           FY10          FY11 FY12E FY13E
                                                                                                less than half of that in France and almost half of that in the US. This gives PGL
  Revenue                                11,039 12,185 13,080 15,383
                                                                                                to have a significant cost advantage over its global peers.
  Operating Profit                         1,822         2,851         2,995         3,769
  Operating Profit (%)                      16.5          23.4          22.9          24.5
                                                                                                Capacity expansion to meet the future demand: For FY12 and FY13, the
  Net Profit                                 32          1,033         1,038         1,543
                                                                                                company has a planned capex of INR 2600 mn, with INR 1000 mn assigned to a
  Net Profit (%)                             0.3           8.5           7.9          10.0
                                                                                                Greenfield expansion of 160 TPD for the C&P segment to the at Jambusar. This
  Book Value                                  30                38        49            67
                                                                                                project is scheduled to be operational by March 2012. The remaining INR 1600
                                                                                                mn will be spent on realignment of 4 existing furnaces which will increase the
  Key Ratio                                FY10          FY11 FY12E FY13E
                                                                                                capacity by ~50-60 TPD and will increase the total capacity by ~210 TPD.
  P/E (x)                                  168.0            8.0          8.0           5.2
  P/BV (x)                                   3.1            2.5          1.9           1.4      Stronger balance sheet to support growth: PGL had a debt of INR 9200 mn (as
  RONW (%)                                   1.3          34.2          26.3          28.7      per FY11 Consol. balance sheet) and debt/equity of 3:1. In H1FY12 the
  ROCE (%)                                   8.8          16.3          15.6          20.1      debt/equity ratio was reduced to 2.5:1 from 3.4:1 in H1FY11. The debt service
                                                                                                cover improved to 3.2 in H1FY12 as compared to 3.4 in H1FY12. PGL has been
  Share Holding Pattern                                                                         able to restructure its debt by going into to relatively lower interest rate of 7.5%
  Promoters                                                                           72.3      foreign currency loan from peak rate of 13% to strength its cash flow. PGL
  FII                                                                                  0.6      follows an active hedging policy to its naked exposure which is currently to the
  FI/MF/Other Institutes                                                               3.4      tune of USD 12-14 mn.
  Others                                                                              23.7
                                                                                                Valuation:
  Relative Price Performance                                                                    At the CMP of ~INR 92, the stock trades at ~8.0x and 5.2x of its FY12E and FY13E
     160                 Piramal Glass           Nifty                                          earning respectively. The company has been steadily shifting its product mix
     140
                                                                                                from low margin commodity business to high yield specialized business of
     120
                                                                                                C&P. We expect the C&P contribution to company's revenue to increase from
     100
                                                                                                49% in FY11 to 56% in FY13E which is expected to boost EBITDA margins from
        80
                                                                                                23% in FY11 to 25% in FY13E. We have valued the company at ~8x of it FY13E
                                                                                                earnings which is at premium compared to other domestic peers, due to PGL's
        60
                                                                                                better margins profile and return ratios. We maintain our BUY rating on the
        40
             Dec   Jan   Feb Mar     Apr   May     Jun    Jul    Aug    Sep    Oct   Nov        stock with a target price of INR 143.
 Source: Bloomberg, Unicon Research

                                                   Unicon Research
                                                   www.unicon.in                                                                        Ashish Tiwari |atiwari5@unicon.in
                                                                                                                                        Rohan Shetty | rohan.shetty@unicon.in
                                  Piramal Glass Ltd.


    CONTENTS

    Particulars                                                                                                                                                            Page

    Company Background ..............................................................................................................................................3

    Milestones ....................................................................................................................................................................4

    Industry Overview ......................................................................................................................................................5

    Business Overview ......................................................................................................................................................8

    Investment Rationale ................................................................................................................................................10

    Concerns ....................................................................................................................................................................13

    Peer Comparison ......................................................................................................................................................13

    Valuation & Outlook ................................................................................................................................................13

    Financial Statements ................................................................................................................................................14




                                        Unicon Research
2
                                        www.unicon.in
                                   Piramal Glass Ltd.

                                                                                                               COMPANY BACKGROUND
                                                        Piramal Glass Ltd (PGL) has a multi product industrial profile and is a global leader in
                                                        delivering world-class packaging solutions. It is a manufacturer of glass containers for
                                                        the Cosmetics & Perfumery (C&P), Pharmaceutical and Specialty Food & Beverages
                                                        (SF&B) industries. PGL has its manufacturing facilities in India, US and Sri Lanka with
                                                        11 furnaces having a total installed capacity of 1145 TPD. International operations
                                                        contributed to 74% of FY11 revenues. PGL commands ~3-4% market share in world
                                                        premium C&P segment and ~50% market share in colour cosmetics C&P segment. It
                                                        controls ~35% market share in domestic pharmaceutical segment and ~91% market
                                                        share in SF&B segment in Sri Lanka. The Company has offices in 10 countries and a
                                                        distribution network in 44 countries. PGL is also the largest producer of nail-polish
                                                        bottles globally.



Segment wise breakup                                        Segment Contribution & Growth

                                                                             Pharma         SF&B         C&P
                                                                                                                                                                   1218         Segment-wise CAGR
                                                            1200
              SF&B                                                                                                                               1104                           (From FY 05 to FY 11
                                                                                                                                     1008                                       annualized)
               23%                                          1000                                                      %
                                                                                                             R   : 24
                                                                                                          AG                                                         49%               35%
                                                                                                     es C
                                                                800                               Sal                     779        36%
                                                                                                                                                     44%

                                            C&P                                                         701

                                            49%                 600                                                       45%
                                                                                        493              43%                         24%
                                                                                                                                                     26%             23%               30%
                                                                400          336        39%
                                                                                                         18%              18%
         Pharma                                                              30%            18%
          28%                                                   200          17%                                                     39%                             28%               11%
                                                                                                         39%              37%                        31%
                                                                             54%        44%
                                                                   0
                                                                            FY05       FY06             FY07            FY08        FY09         FY10              FY11
Source: Company, Unicon Research                            Source: Company, Unicon Research



Market Overview
      End
                      Bottle Price                                          Market                                       Market Size
    Product                                                                                                                                                                            ROCE
                       1000 Pcs                                            Segment                                Total market : US $ 2.3 bn
     Price

                                                                       >                                                                                                               25 - 30 %
                                                                            nt




                                                                                  Select     >>                                  $ 1016 (44%)                                    >
      $ 60           $ 330 - $ 1000 +
                                                                             e




                                                                                                                                                                           nt




                                                                                 Perfumes
                                                                          gm




                                                                                                                                                                          e
                                                                                                                                                                       gm
                                                                       Se




                                                                                                                                                                     Se
                                                                   um




                                                                                                                                                                 um




                         $ 160 - $ 330                      >
                                                                 mi




                                                                           Mass Perfumes                >>                                                                 >           20 - 25 %
      $ 15                                                                                                                       $ 616 (27%)
                                                                                                                                                               mi
                                                                P re




                                                                            & Skin Care
                                                                                                                                                              P re




                          $ 85 - $ 160            >
                                                                       Low Mass Perfumes                         >>
                                                      nt




      $8                                                                                                                         $ 500 (22%)                   >                       15 - 20 %
                                                        e




                                                                                                                                                         nt
                                                     gm




                                                                                                                                                      e
                                                                                                                                                   gm
                                                  Se




                                                                                                                                                Se
                                               ss




                                                                                                                                     $ 155
                                             Ma




                                                                                                                                                ss




                                                                       Color Cosmetics                                      >>                       >                                 15 - 20 %
                                                                                                                                             Ma




      $ 1.5                 $ 20 - $ 40 >                                                                                            (7%)



Source: Company, Unicon Research

                                         Unicon Research
3
                                         www.unicon.in
                                   Piramal Glass Ltd.

                                                                             MILESTONES
                                                                                                                                                    2010

                                                                                                                                                PGL turnaournds
                                                                                                                                                 after three years
                                                                                                                                                  of consecutive
                                                                                                                                2008                   losses

                                                                                                                             Kojan merges
                                                                                                                              into Gujarat
                                                                                                                            Glass Ltd., which
                                                                                                           2005               gets relisted
                                                                                                                                 as PGL
                                                                                                         Acquires a part
                                                                                                       of The Glass Group
                                                                                                       (erstwhile Wheaton
                                                                                           2003          Glass) and marks
                                                                                                            entry into
                                                                                      NPIL demerges       premium C&P
                                                                                      its 54% holding        market
                                                                                     to Kojam Finvest
                                                                     1999            which gets listed


                                                                 Acquires Ceylon
                                                                 Glass Company
                                                                  Ltd., Sri Lanka,
                                                   1998          And marks entry
                                                                    into SF&B
                                                 Demerges as         segment
                                                subsidiary, PE
                                                investors buy
                                  1990            45% in the
                                               demerged entity
                              Merges with
                             group company
                             Nicolas Piramal
            1984                India Ltd.
                               (NPIL) and
       Gujarat Glass           becomes its
       acquired by               division
      Piramal Group
    Source: Company, Unicon Research




                                         Unicon Research
4
                                         www.unicon.in
    Piramal Glass Ltd.

                                                    INDUSTRY OVERVIEW
                  Indian Glass Packaging

                  The Indian Packaging Industry is a USD 14 bn industry and has been growing at ~15%
                  over the last few years. The industry is expected to accelerate further due to increasing
                  urbanization, growing middle class and expansion in modern retail. The Indian glass
                  container market stood at ~ USD 1 bn in FY10 and grew by ~12% YoY. The industry has
                  significant entry barriers due to the capital intensive nature of the business. The
                  industry has strong economic drivers for end-user segments (liquor and beer,
                  pharmaceuticals, food, cosmetics, etc.)

                  The liquor and beer industries are the main users of container glass with ~70%
                  contribution, followed by pharmaceuticals ~10%, food products ~10%, beverages ~6%
                  and cosmetics ~4%.

                        •   The Indian Made Foreign Liquor (IMFL) segment has been registering a strong
                            12% CAGR over the past four years. The alcohol consumption has increased in
                            the recent past due to growing inclination towards social drinking and higher
                            disposable income. This in turn is expected to drive container glass demand.

                        •   The Indian pharmaceuticals industry is expected to grow to ~USD 37 bn by
                            2013 from the levels of USD 17 bn in 2008. Glass bottles and molded vials
                            represent a significant share of packaging medium for cough syrups, tonics,
                            pediatric suspensions, dry powder and liquid injectibles. Moreover, tubular
                            vials and ampoules are finding an extensive acceptance by pharmaceutical
                            companies for their product packaging.

                        •   In India, currently 10-12% of all food and beverages are packed in container
                            glasses, vis-à-vis 40-50% in developed economies. India’s retail food sector is
                            expected to grow to ~USD 150 bn by 2025 (from the levels of USD 70 bn in 2008).
                            The fruit-drinks category is growing at 25% annually, one of the fastest in the
                            beverages market. Even sports and energy drinks, with low penetration in
                            India, are expected to grow in the coming years. Attractive packaging besides
                            innovative advertising and celebrity endorsements has gained importance in
                            products marketing.We believe this growth will drive the demand for
                            processed food packaging, especially container glass as it is considered non
                            reactive and food-grade.

                  We believe growth in India’s retail food sector will drive the demand for processed
                  food packaging, especially container glass as it is considered non reactive and food-
                  grade.




      Unicon Research
5
      www.unicon.in
    Piramal Glass Ltd.
                 India’s per capita consumption of container glass, at 1.4 per kg, is far lower than the
                 global average, indicating an immense growth potential.



                 World Glass Container per capita consumption (kg)

                         South korea                                                                89.0
                              France                                                         63.9
                                Italy                                                 52.5
                            Germany                                                  50.5
                               Spain                                                 50.3
                             Ireland                                          38.8
                      Czech Republic                                         36.5
                              Austria                                       35.6
                              Poland                                    30.3
                                  UK                                   27.5
                               USA                                     27.5
                            Hungary                                22.5
                             Mexico                              19.5
                           Argentina                            18.8
                               Chile                         14.4
                        Phillippines                    10.6
                            Belgium                     10.5
                               Japan                    10.2
                               Greece                  9.5
                                China               5.9
                               Turkey             5.5
                               Brazil            4.8
                               India          1.4
                           Indonesia          1.2
                 Source: Company, Unicon Research




      Unicon Research
6
      www.unicon.in
                                     Piramal Glass Ltd.
                                                             Global Glass Packaging

                                                             The World Packaging Organization estimates the global packaging industry to have
                                                             revenues of USD 425 bn, with a ten year historical CAGR growth of ~3.1% and is
                                                             expected to grow to USD 597 bn by 2014. The industry is projected to grow at ~3.5%
                                                             CAGR in the next five years mainly driven by growth in emerging markets.


    Geography                                                                                  End User


                           5%                                                                              13%
                                                                  Europe
                                                                                                                                         Liquor
                                              34%                                                  9%
           27%
                                                                  Asia, Oceana, Africa & ME                                              Beer

                                                                                                                            52%          Food
                                                                  North America                  11%
                                                                                                                                         Pharma
                                                                                                                                         Others
                                                                  South & Central America
                                                                                                        15%
                            34%


    Source: Owens-Illinois, Inc. - Investor Presentation, March 2010



                                                              The global glass packaging market size is estimated to be at USD 30 bn. With C&P
                                                             segment having a size of USD 2.3 bn, Pharmaceuticals having a market size of USD
                                                             2 bn and SF&B having a size of USD 1.3 bn.

    Global Glass Packaging Market Size

                                                                             Glass Packaging
                                                                                 $ 30 bn




                                                Moulded Glass                                             Tubular Glass
                                                 Packaging                                                 Packaging
                                                   $ 28 bn                                                   $ 2 bn




                                                                                   Food &
                                                                                  Beverages
                                                                                  $ 24.1 bn



           Cosmetics &                                                         Specialty Food
                                              Pharmaceuticals                                             Addressable niche “high value glass” market
            Perfumery                                                           & Beverages
                                                  $ 2.0 bn                                                   Market size ~ 20% of overall market
             $ 2.3 bn                                                             $ 1.3 bn


                  Addressable niche global markets

     Sources: Industry reports, Market size in FY 08-09/ CY-08


                                            Unicon Research
7
                                            www.unicon.in
    Piramal Glass Ltd.

                                                     BUSINESS OVERVIEW
                 PGL currently commands 5.8% market share in the ~ USD 2.3 bn Cosmetic &
                 Perfumery (C&P) segment which has significant entry barriers like high quality
                 and skill requirements. PGL is the latest global entrant into this segment and has
                 grown by CAGR of 19% over the last 3 years. PGL also holds the distinction of being
                 the only major player in this segment from Asia and hence has a significant cost
                 advantage over its peers in the segment due to the comparatively low cost of
                 manufacturing glass in India compared to other developed markets.


                 C&P market share
                                                     Others         Gerresheimer
                                                      13%                8%
                                                                                   Vitro
                              Piramal Glass
                                                                                    8%
                                   6%



                            Bormiolli Rocco                                                Zignago Brosse
                                 6%                                                             11%



                                      Pochet
                                       10%                                                 Bormiolli Luigi
                                                                                                6%



                                                     SGD                  Heinz
                                                     16%                   16%
                 Source: Company, Unicon Research



                 The C&P segment constitutes the mass segment and the premium segment. These
                 segments are further divided as follows:

                 Mass Segment

                        •     Colour Cosmetics: - This segment constitutes of nail polish bottles whose
                              price ranges from USD 20-40 per 1000 bottles. The growth in the segment is
                              driven by the emerging economies particularly China and Brazil. This
                              market is very fragmented and regionalized and requires new designs,
                              particularly in the mass market.

                        •     Low Mass Perfumes: - This segment constitutes of perfume bottles with an
                              end prices in the range of USD 8 and are primarily sold in emerging
                              economies. The price range in the segment is USD 85-160 per 1000 bottles.
                              The market is fragmented and characterised by frequent new product
                              launches and short production runs. Customers in this segment prefer
                              integrated packaging (Caps, Cartons etc.). Low mass perfumes are the easiest
                              to produce in terms of quality and have higher manufacturing efficiencies.
                              Competition in this space is driven by regional players in China and Poland.



      Unicon Research
8
      www.unicon.in
                                  Piramal Glass Ltd.
                                                           Premium Segment

                                                                      •     MNC Mass Segment: - Perfumes and Skincare products with an end price
                                                                            in the range of USD 15 and produced primarily for developed economies.
                                                                            The price range in the segment is USD 160-330 per 1000 bottles. This market
                                                                            is characterised by higher quality products with stringent plant audits
                                                                            before business development. This segment has a product development
                                                                            cycle of around 6-8 months and long production runs. Customers are mainly
                                                                            from developed economies in West Europe and North America.

                                                                      •     Perfumes Select Segment: - This segment comprises of high end perfumes
                                                                            with an end price greater than USD 60 produced mainly in France and
                                                                            USA. The price range of the segment is USD 330-1000+ per 1000 bottles. The
                                                                            segment has an extremely high entry barrier due to the specific skill
                                                                            required. A concentrated customer base of 20 customers constitutes around
                                                                            80% of the market. The suppliers in this segment are mainly based in the
                                                                            EU and USA. The segment has a product development cycle of 12-18 months
                                                                            and customers conduct extensive periodic audits of the manufacturing
                                                                            plants. Bottle decoration accounts for ~40% of bottle cost due high labour
                                                                            intensity in decoration and quality sorting.



    Market Overview
       End
                       Bottle Price                                        Market                           Market Size
     Product                                                                                                                                                  Market
                        1000 Pcs                                          Segment                    Total market : US $ 2.3 bn
      Price

                                                                      >                                                                                       France
                                                                           nt




                                                                                 Select    >>                  $ 1016 (44%)                               >
       $ 60          $ 330 - $ 1000 +
                                                                            e




                                                                                                                                                              & USA
                                                                                                                                                    nt
                                                                                Perfumes
                                                                         gm




                                                                                                                                                      e
                                                                                                                                                   gm
                                                                      Se




                                                                                                                                                Se
                                                                  um




                                                                                                                                              um




                         $ 160 - $ 330                     >                                                                                                  West Europe,
                                                                mi




                                                                          Mass Perfumes         >>                                                  >
       $ 15                                                                                                    $ 616 (27%)
                                                                                                                                          mi
                                                               P re




                                                                           & Skin Care                                                                        North America
                                                                                                                                         P re




                                                                                                                                                              & Latin America

                          $ 85 - $ 160           >
                                                                      Low Mass Perfumes              >>
                                                     nt




       $8                                                                                                      $ 500 (22%)                >                   Middle East, CIS
                                                       e




                                                                                                                                    nt
                                                    gm




                                                                                                                                    e




                                                                                                                                                              Turkey, SE Asia,
                                                                                                                                 gm
                                                 Se




                                                                                                                                                              India.
                                                                                                                              Se
                                              ss




                                                                                                                   $ 155
                                            Ma




                                                                                                                           ss




                                                                      Color Cosmetics                     >>                    >
                                                                                                                           Ma




       $ 1.5               $ 20 - $ 40 >                                                                           (7%)
                                                                                                                                                              Across Globe




                                                       Premium constitutes about 71% of overall C&P market

    Source: Company, Unicon Research




                                         Unicon Research
9
                                         www.unicon.in
                         Piramal Glass Ltd.

                                                                                    INVESTMENT RATIONALE
                                          Focus on high-margin C&P business to drive revenues

C&P is a high value business commanding PGL has 5.8% market share in USD 2.3 bn global C&P segment. The company has
better realization & higher operating margin attained a global leadership position in the colour cosmetics and low mass perfumes
                                             segments with 50% and 10% market share respectively. The company has adopted a
                                             long term strategy which focuses on increasing the market share in the high margin
                                             premium segment which has a better ROCE as compared to the mass segment. The
                                             company has shown a steady increase in revenue contribution of premium segment to
                                             the total C&P revenue over the last few years. PGL currently has a market share of 3-
                                             4% in the premium segment; the management believes that the company is well
                                             positioned to grow its market share to 7-8% over the next two years, which in-turn
                                             would contribute to revenue and margin growth. We believe that the contribution of
                                             the C&P segment to the total revenue will increase to ~ 53% and 56% in FY12E and
                                             FY13E respectively. With the change in the product mix in the C&P segment and its
                                             growing contribution to the overall business will drive margins and revenue going
                                             forward.


                                          Premium C&P Growth Trajectory
                                                             Premium         Mass
                                                 8000
                                                                                                                                       %
                                                                                                                                : 26
                                                 7000                                                                     GR                8-30
                                                                                                                                                %
                                                                                                                        CA           of 2
                                                                                                                                GR
                                                                                                                          m   CA
                                                 6000                                                                  miu
                                                                                                                 Pre                                46%
                                                 5000                                : 26
                                                                                         %
                                                                               GR
                                                                             CA                           45%
                                                 4000
                                                                                                   43%
                                                 3000                         38%           32%
                                                                       28%
                                                 2000                                                                                               54%
                                                             25%                                          55%
                                                                                            68%    57%
                                                 1000                  72%    62%
                                                             75%
                                                      0
                                                            FY06      FY07    FY08          FY09   FY10   FY11                                      FY13E
                                          Source: Company, Unicon Research




                              Unicon Research
 10
                              www.unicon.in
                                   Piramal Glass Ltd.
                                                    Significant cost advantages - Labour Arbitrage

                                                    Flacconage is a labour and skill intensive industry. Though the manufacturing of glass
                                                    itself is highly automated, critical functions such as quality control need large teams of
                                                    skilled professionals. In countries like US, which accounts for 37% of the global C&P
                                                    premium segment, 80% of the C&P requirement is imported thus giving significant
                                                    advantage to companies having manufacturing facilities in countries which have lower
                                                    labour costs. The total cost of production in India, where manpower is among the
                                                    cheapest in the world, is less than half of that in France and almost half of that in the US.
                                                    The project costs in India amount to ~60% of the global costs. PGL is able to produce
                                                    glass at significantly lower costs than its competitors in other parts of the world giving
                                                    the company a significant advantage over its peers. For FY11, global sales accounted
                                                    for 74% of the total sales. We believe that the global sales will increase further over the
                                                    next two years and contribute ~75% of the total sales.


     Sustainable Cost Advantage
                                                                                    120
     Cost                                               India     France
     Freight                                               6             1          100                                         Raw material
     Overheads                                            10           12                                                       Packing material
                                                                                     80
     Depreciation                                          7           12                                                       Energy
                                                                             Cost




     Mold cost                                             1             4           60                                         Labour
     Labour                                                4           53                                                       Mold cost
                                                                                     40
     Energy                                                8             8
                                                                                                                                Depreciation
     Packing material                                      4             4
                                                                                     20                                         Overheads
     Raw material                                          6             6
                                                                                                                                Freight
     Total                                                46          100             0
                                                                                             India            France
     Source: Company, Unicon Research



                                                    Capacity expansion to meet the future demand

                                                    Between FY12-FY13, the company has a planned capex of INR 2600 mn, with INR 1000
                                                    mn assigned to a Greenfield expansion of 160 TPD for the C&P segment to the at Jambusar.
                                                    This project is scheduled to be operational by March 2012. The remaining INR 1600 mn
                                                    will be spent on realignment of 4 existing furnaces which will increase the capacity by
                                                    ~50-60 TPD and will increase the total capacity by ~210 TPD. PGL has strategically
                                                    focussed on expanding its C&P furnace capacities as it has higher margins. We believe
                                                    that with the further capacity expansion will enable the company to capture higher
                                                    market share in the C&P segment.




                                        Unicon Research
11
                                        www.unicon.in
     Piramal Glass Ltd.
                   Strong client base

                   PGL derives 74% of its revenues from global sales. PGL's acquisition of Glass Group,
                   USA gave it access to 37 % of the global C&P premium segment. Today, PGL has expanded
                   its customer base to 17 of top 20 top customers which constitute ~80% of premium
                   market. These being premium brands have quite stringent eligibility criteria for its
                   vendors which include environmental norms, design norms, design history, etc. The
                   company has reputed brands like Coty, Elizabeth Arden, Estee Lauder, L'Oreal, Revlon,
                   Unilever, etc as its customers which enable PGL to maintain regular order flows due to
                   the nature of the business where clients do not regularly change their vendors. Moreover,
                   such reputed clients, help to form a quality client portfolio.



                   Stronger balance sheet to support growth

                   PGL had a debt of INR 9200 mn (as per FY11 Consol. balance sheet) and debt/equity of
                   3:1. In H1FY12 the debt/equity ratio was further reduced to 2.5:1 from 3.4:1 in H1FY11.
                   The debt service cover improved to 3.2 in H1FY12 as compared to 3.4 in H1FY12. PGL
                   has been able to restructure its debt by going into to relatively lower interest rate of
                   7.5% foreign currency loan from peak rate of 13% to strength its cash flow. The Indian
                   operations have foreign debt of USD 40 mn in form of PCFC and will have a minimal
                   impact on the P&L due to the receivables (Exports to the range of 60% of standalone
                   sales). Other foreign currency loan are in their respective currency (USA - USD 60mn &
                   Sri Lanka -USD 40 mn) which is only for the translation and has a natural hedge
                   because of the distribution of their foreign currency denominated assets and liabilities.
                   PGL follows an active hedging policy to its naked exposure which is currently to the
                   tune of USD 12-14 mn. Moreover, the company is also planning one time sale of 21 acres
                   of land in Sri Lanka in FY12 with an estimated value of ~ INR 300-400 mn will go
                   towards debt servicing. Given the strong cash flows from operations, we believe that
                   the debt equity ratio will improve to 1.6 in FY13E.




       Unicon Research
12
       www.unicon.in
     Piramal Glass Ltd.

                                                                 CONCERNS
                  Revenue concentration from few clients

                  80% of C&P revenues are generated from the top 20% C&P clients. Any order execution
                  delays or failure on the part of PGL to retain such clients can dent revenues of the
                  company.

                  Currency Risk

                  PGL is subject to risks from fluctuations in the currency as exports contribute
                  substantially to its revenues.




                                                                PEER COMPARISON
                   Domestic Peers
                                         Price    Market Cap       EPS             P/E             P/B          EV / EBITDA
                   Company
                                         (INR)       (mn)       FY12    FY13    FY12    FY13    FY12    FY13    FY12    FY13
                   HSIL Ltd               125.0       8,250.0    17.0    22.8     7.3     5.4     1.0     0.9     5.3     4.0
                   HNG                    144.9      12,655.4    19.1    28.5     7.6     5.1     0.9     0.8     4.5     2.9
                   Piramal Glass           92.0       7,464.5    11.5    17.8     8.0     5.2     1.9     1.4     5.8     5.7


                   International Peers
                                         Price    Market Cap       EPS             P/E             P/B          EV / EBITDA
                   Company
                                         (EUR)       (mn)       CY11 CY12 CY11 CY12 CY11 CY12 CY11 CY12
                   Zignago Vetro SpA        4.5         360.0     0.4     0.5    10.3     9.7     4.5     2.8     5.6     5.3
                   Gerresheimer AG         32.1       1,007.5     2.3     2.6    13.9    12.5     1.9     1.7     6.5     6.0
                   SGD                     28.9      15,480.4     3.3     3.5     8.7     8.2     0.8     0.8     5.0     4.9




                                                      VALUATION & OUTLOOK
                  At the CMP of ~INR 92, the stock trades at ~8.0x and 5.2x of its FY12E and FY13E earning
                  respectively. The company has been steadily shifting its product mix from low margin
                  commodity business to high yield specialized business of C&P. We expect the C&P
                  contribution to company's revenue to increase from 49% in FY11 to 56% in FY13E
                  which is expected to boost EBITDA margins from 23% in FY11 to 25% in FY13E. The
                  company's increasing focus on C&P business, significant cost advantage over its com-
                  petitors in other parts of the world would able PGL to increase its market share in C&P
                  specially premium segment.

                  Most of the domestic peers are trading at a one year forward multiple of 3.6x-5.6x but
                  are not exactly comparable given the difference in product mix and target markets.
                  Globally glass companies which have similar product mix are commanding an aver-
                  age P/E multiple of 10.1x. We have valued the company at ~8x of it FY13E earnings
                  which is at premium compared to other domestic peers, due to PGL's better margins
                  profile and return ratios. We maintain our BUY rating on the stock with a target price
                  of INR 143.

       Unicon Research
13
       www.unicon.in
                                  Piramal Glass Ltd.

                                                                    FINANCIAL STATEMENTS
     Profit & Loss                                FY09    FY10 FY11E FY12E FY13E         Balance Sheet                      FY09 FY10 FY11E FY12E FY13E
     Total Re ve nue                             10,088 11,039    12,185 13,080 15,383   SOURCES OF FUNDS
     growth %                                     29.6     9.4      10.4    7.3   17.6   Share Capital                       180    804    804    804    804
     Total ope rating e xpe nditure               9,348   9,218    9,333 10,085 11,614   Re se rve s & Surplus               254 1,595 2,216 3,143 4,577
     EBITDA                                        740    1,822    2,851   2,995 3,769   Shareholder's Funds                 434 2,399 3,020 3,948 5,381
     EBITDA Margin %                                7.3   16.5      23.4   22.9   24.5   Total Loans                       13,571 9,824 9,200 9,600 8,541
     Othe r Income                                 209     221       215    226   237    De fe rre d Tax Liab./ (Asse t)      93    113    143    143    143
     Depre ciation & Amortisation                  892     907     1,069   1,107 1,205   Total Liabilities                 14,544 12,713 12,862 14,300 14,784
     Inte re st                                   1,314   1,049      720    818   744    APPLICATION OF FUNDS
     PBT                                         -1,258     87     1,277   1,297 2,058   Gross Block                       14,052 13,673 15,174 16,441 17,974
     PBT Margin %                                 -12.5    0.8      10.5    9.9   13.4   Less: Accu. De pre ciation         4,489 5,252 6,580 7,686 8,891
     Total Tax                                     -186     54       244    259   514    Net Block                          9,562 8,421 8,595 8,755 9,084
     % of PBT                                      14.8   62.6      19.1   20.0   25.0   Capital Work-in-Progress            148    141    402 1,277     352
     Reported PAT                                -1,072     32     1,033   1,038 1,543   Investments                           1      1      1      1      1
     growth %                                    -572.7   N.A.    3095.7    0.4   48.7   Curre nt Asse ts                   6,429 5,873 6,349 6,822 8,183
     PAT Margin %                                 -10.6    0.3       8.5    7.9   10.0   Curre nt Liabilitie s              1,033 1,070 1,326 1,397 1,677
     Adjusted PAT                                -1,118     44       930    928 1,433    Net Current Assets                 4,834 4,150 3,865 4,267 5,348
     Adjusted PAT Margin %                        -11.1    0.4       7.6    7.1    9.3   Total Assets                      14,544 12,713 12,862 14,300 14,784


     Cash Flow                                    FY09    FY10 FY11E FY12E FY13E         Ratios                             FY09 FY10 FY11E FY12E FY13E
     PBT                                         -1,258     87     1,277   1,297 2,058   Per Share Data (INR)
     Depre ciation                                 892     907     1,069   1,107 1,205   Adj. EPS                           -62.2    0.6   11.6   11.5   17.8
     Inte re st                                   1314    1049       720    818   744    Adj. Cash EPS                      -10.0   11.7   26.1   26.7   34.2
     Change in Working Capital                     -465    260       228      0      0   BookValue                           24.1   29.8   37.5   49.1   66.9
     Othe r Exp/(Inc)
     Cash Flow from Operations                     -253   2,580    3,195   2,285 2,192   Operating Ratios
     Purchase of Fixe d Asse ts/WIP              -1,645   -244    -1,508 -2,142   -608   Inve ntory (days)                  103.3   84.1   75.0   78.0   82.8
     Sale of Fixe d Asse ts                          97     36         5      -      -   De btors (days)                     97.3   87.1   83.3   84.0   86.8
     Othe r Exp/(Inc)                                 -       -        -    226   237    Cre ditors (days)                   27.1   29.6   30.8   30.7   32.7
     Cash Flow from Investments                  -1,547   -208    -1,502 -1,916   -371   De bt / Equity (x)                  31.3    4.1    3.0    2.4    1.6
     (Re payme nt)/ Proce e ds From Borrowings    3,158 -3,150      -624    400 -1,059
     Proce eds from Right Issue                       -    625         -      -      -   Returns (%)
     Share Pre mium Re ce ive d                       -   1,232        -      -      -   RONW                              -247.2    1.3   34.2   26.3   28.7
     Inte re st Paid                             -1,322 -1,059      -703   -818   -744   ROCE                                 0.5    8.8   16.3   15.6   20.1
     Cash Flow from Financing                     1,832 -2,352    -1,420   -418 -1,803
     Inc./(De c.) in Cash                            32     21       272    -49     19   Valuation Ratios (x)
     Ope ning Cash balance s                         86    118        71    133     84   P/E (x)                             -1.5 168.0     8.0    8.0    5.2
     Closing Cash balance                          118      71       133     84   102    P/CashEPS (x)                       -9.2    7.9    3.5    3.5    2.7
 Source: Company, Unicon Research                                                        P/BV (x)                             3.8    3.1    2.5    1.9    1.4
                                                                                         EV/Total Sale s (x)                  1.5    1.5    1.6    1.4    1.3
                                                                                         EV/EBITDA (x)                       11.8   20.4    9.4    5.8    5.7




                                      Unicon Research
14
                                      www.unicon.in
                              Piramal Glass Ltd.

                                                            RESEARCH RECOMMENDATIONS
           Date of                                                                                                                  Recommended
                                        Company Name                   Report Type                    Sector       Recommendation                 Target
     Recommendation                                                                                                                    P rice
     24-S ep-11       Development Credit Bank Ltd.                  Initiating Co verage Banking                        Buy            46.0         64.0
     15-S ep-11       S upreme Infrastructure India Ltd.            Investment Idea       Construc tions                Buy            230.0       280.0
     30-Aug-11        Persistent S ystems Ltd.                      Initiating Co verage Informatio n Technology        Buy            309.0       381.0
     2-Aug-11         Tamil Nadu News Print Ltd.                    Initiating Co verage Paper & Paperboard             Buy            117.0       161.0
     18-Jul-11        KEC International Ltd.                        Initiating Co verage Power Transmissio n            Buy            79.0        104.0
     12-Jul-11        Visa S teel Ltd.                              Investment Idea       Metal                         Buy            59.0         75.0
     30-Jun-11        Tecpro S ystems Ltd.                          Investment Idea       Material Handling             Buy            250.0       300.0
     16-May-11        Camson Bio technolo gies Ltd.                 Investment Idea       Agri Biotech                  Buy            116.0       156.0
     4-May-11         Ganesh Polytex Ltd.                           Initiating Co verage Waste Recycling                Buy            62.0        102.0
     28-Apr-11        CES C Ltd.                                    Initiating Co verage Power                          Buy            311.0       411.0
     1-Apr-11         Unity Infraprojects Ltd.                      Investment Idea       Infrastruc ture               Buy            69.0         86.0
     31-Mar-11        Ro lta India Ltd.                             Investment Idea       IT / ITES                     Buy            139.0       191.0
     29-Mar-11        West Coast Paper Mills Ltd.                   Investment Idea       Paper & Paperboard            Buy            77.0         95.0
     7-Mar-11         Hindusthan National Glass & Industries Ltd.   Initiating Co verage Glass                          Buy            212.0       351.0
     28-Feb-11        Deepak Fertilisers & Petrochemicals Ltd.      Initiating Co verage Fertilisers                    Buy            152.0       202.0
     3-Feb-11         Ceat Ltd.                                     Investment Idea       Auto Anc illaries             Buy            109.0       149.0
     31-Jan-11        MIC Electro nics Ltd.                         Initiating Co verage Led Display & Lighting         Buy            31.6         51.0
     12-Jan-11        Diamond Power & Infrastructure Ltd.           Initiating Co verage Power                          Buy            193.0       257.0
     31-Dec-10        Hathway Cable & Datacom Ltd.                  Initiating Co verage Media                          Buy            164.0       227.0
     31-Dec-10        Jindal Poly Films Ltd.                        Investment Idea       Packaging                  Accumulate        525.0       620.0
     31-Dec-10        Allahabad Bank                                Investment Idea       Banking                       Buy            225.0       304.0
     22-Dec-10        S asken Communication Tech. Ltd.              Investment Idea       IT / ITES                     Buy            168.0       226.0
     30-Nov-10        Banco Product                                 Initiating Co verage Auto                           Buy            93.0        149.0
     30-Nov-10        Allcargo Global Logistics                     Investment Idea       S hipping & Logistics         Buy            155.0       233.0
     18-Nov-10        Jyoti S tructure                              Investment Idea       Power                         Buy            137.0       171.0
     16-Nov-10        Pennar Industries                             Investment Idea       S teel                        Buy            49.0         63.0
     3-No v-10        HS IL Ltd.                                    Initiating Co verage Building Product               Buy            141.0       171.0
     27-Oct-10        IDBI Bank                                     Initiating Co verage Banking                        Buy            171.0       228.0
     26-Oct-10        MS P S teel and Power                         Initiating Co verage S teel                         Buy            72.0        114.0
     29-S ep-10       Nakoda Textiles                               Investment Idea       Textiles                      Buy            15.0         23.0
     16-S ep-10       Kajaria Ceramics                              Investment Idea       Ceramic Tiles                 Buy            70.0         88.0
     15-S ep-10       Go kul Refo ils                               Investment Idea       Food Pro cessing           Accumulate        97.3        109.0
     14-S ep-10       Aqua Logistic                                 Investment Idea       Logistic                      Hold           59.1         60.8
     31-Aug-10        Lakshmi Precision S crews                     Investment Idea       Fastner                    Accumulate        79.8         91.8
     27-Aug-10        BGR Energy S ystem                            Initiating Co verage Power                          Buy            786.0      1020.0
     30-Jul-10        Patel Engineering                             Initiating Co verage Infrastruc ture                Buy            416.0       480.0
     26-Jul-10        KPR Mills Ltd.                                Investment Idea       Textiles                   Accumulate        156.0       181.0
     14-Jul-10        IDBI Bank                                     Investment Idea       Banking                    Accumulate        125.0       142.0
     9-Jul-10         Opto Circuit                                  Initiating Co verage Healthcare                     Buy            243.0       293.0
     26-Jun-10        BGR Energy S ystem Ltd.                       Investment Idea       Capital Goods              Accumulate        697.0       820.0
     23-Jun-10        Biocon Ltd.                                   Investment Idea       Pharmaceuticals               Buy            321.0       387.0
     19-Jun-10        Emmbi Polyarns                                Investment Idea       Packaging                     Buy            15.6         26.0
     18-Jun-10        Indian Bank                                   Investment Idea       Banking                       Buy            221.0       276.0
     17-Jun-10        Diamond Power & Infrastructure Ltd.           Investment Idea       Power Ancillary            Accumulate        196.0       226.0
     12-Jun-10        Man Industries                                Investment Idea       S teel Pipes                  Buy            85.0        102.0
     5-Jun-10         Usher Agro                                    Investment Idea       Food Pro cessing              Buy            79.0        110.0
     10-May-10        Greaves Co tton                               Investment Idea       Construc tion                 Buy            67.0         82.0
     30-Apr-10        Indraprastha Gas Ltd.                         Initiating Co verage Gas Distribution               Buy            233.0       290.0

                                     Unicon Research
15
                                     www.unicon.in
                            Piramal Glass Ltd.
                                                Unicon Investment Ranking Methodology

                           Rating               Buy            Accumulate                Hold                Reduce               Sell

                      Return Range            >= 20%            10% to 20%           -10% to 10%          -10% to -20%          <= -20%




                                                               Disclaimer
 This document has been issued by Unicon Financial Intermediaries Pvt Ltd. (“UNICON”) for the information of its customers only. UNICON is governed
 by the Securities and Exchange Board of India. This document is not for public distribution and has been furnished to you solely for your information and
 must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these
 restrictions. The information and opinions contained herein have been compiled or arrived at based upon information obtained in good faith from public
 sources believed to be reliable. Such information has not been independently verified and no guarantee, representation or warranty, express or implied
 is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document has been
 produced independently of any company or companies mentioned herein, and forward looking statements; opinions and expectations contained herein
 are subject to change without notice. This document is for information purposes only and is provided on an “as is” basis. Descriptions of any company
 or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer, or
 solicitation of an offer, to buy or sell or subscribe to any securities or other financial instruments. We are not soliciting any action based on this document.
 UNICON, its associate and group companies its directors or employees do not take any responsibility, financial or otherwise, of the losses or the damages
 sustained due to the investments made or any action taken on basis of this document, including but not restricted to, fluctuation in the prices of the shares
 and bonds, reduction in the dividend or income, etc. This document is not directed to or intended for display, downloading, printing, reproducing or for
 distribution to or use by any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such
 distribution, publication, reproduction, availability or use would be contrary to law or regulation or would subject UNICON or its associates or group
 companies to any registration or licensing requirement within such jurisdiction. If this document is inadvertently sent or has reached any individual in such
 country, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any
 purpose without prior written approval of UNICON. This document is for the general information and does not take into account the particular investment
 objectives, financial situation or needs of any individual customer, and it does not constitute a personalised recommendation of any particular security or
 investment strategy. Before acting on any advice or recommendation in this document, a customer should consider whether it is suitable given the
 customer's particular circumstances and, if necessary, seek professional advice. Certain transactions, including those involving futures, options, and high
 yield securities, give rise to substantial risk and are not suitable for all investors. UNICON, its associates or group companies do not represent or endorse
 the accuracy or reliability of any of the information or content of the document and reliance upon it is at your own risk.

 UNICON, its associates or group companies, expressly disclaims any and all warranties, express or implied, including without limitation warranties of
 merchantability and fitness for a particular purpose with respect to the document and any information in it. UNICON, its associates or group companies,
 shall not be liable for any direct, indirect, incidental, punitive or consequential damages of any kind with respect to the document. No part of this
 publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying,
 recording, or otherwise, without the prior written permission of Unicon Financial Intermediaries Pvt Ltd.




 Address:
 Unicon Financial Intermediaries Pvt. Ltd.
 3rd Floor, VILCO Center, Opp Garware House,
 8, Subhash Road, Vile Parle (East), Mumbai - 400057.
 Ph: 022-33901234
 Email: research@unicon.in
 Visit us at www.unicon.in




                                    Unicon Research
16
                                    www.unicon.in

								
To top