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									                                                                                                                                                                                                            Sector : Glass
Long Term Investment Call                                 Hindusthan National Glass & Industries Ltd.
                                                                                                                                                                                     CMP : 212 Rating : Buy Target : 351
07-Mar-11                                   Initiating Coverage
 Hindusthan National Glass and Industries Ltd (HNG) is the leader of container glass market in India, with 55% share. The
 Company has pan India presence and its container glass portfolio ranges from 5ml to 3,200 ml in various colors, such as amber, flint
 and green. As of FY10, the Company has an installed capacity of 2825 TPD of Glass Bottles and Vials. It also has 47.5% stake in the
 float glass venture, HNG Float Glass Ltd, with an option to increase it. With sustained growth in user industry, we expect HNG's
 revenue to grow at 13% & 14% and Net Profit to grow at 9% & 11% in FY11E & FY12E respectively.

 Key Data                                                                                                                                     Investment Rationale:
 Face Value (INR)                                                                                                                      2      Company to ride on user industry growth: Container glass market is
 Shares Outstanding (Mn)                                                                                                            87        expected to grow at 10% - 12% per annum backed by a CAGR of ~ 10%, 16%,
 Market Cap (INR Mn)                                                                                                      18,708              15% and 14% in liquor, pharma, beverages and processed foods respectively.
 52 Week High/Low                                                                                                         279/191             We believe HNG with its pan India presence is well placed to exploit the user
 Average Quarterly Volume (Mn)                                                                                             13,330             industry growth.
 Bloomberg Code                                                                                  HNGI IN EQUITY
 Year End                                                                                                                 March               Expansion to capture growth opportunities: HNG has embarked upon an
                                                                                                                                              ambitious INR 25 bn expansion plan to cater to rising demand from user
                                                                                                                          (INR mn)
                                                                                                                                              industry. The management plans to increase the total capacity from 2825
 Key Financials                                        FY09         FY10 FY11E FY12E FY13E
                                                                                                                                              TPD in FY10 to 4,805 TPD by FY13, an increase of 70%. The greenfield plant at
 Net Sales                                    13,110 13,599 15,365 17,592 21,148
                                                                                                                                              Naidupeta is strategically placed in the highest liquor consuming state of
 Growth (%)                                            28.4                3.7         13.0                     14.5               20.2
 EBITDA                                           2,142           2,818               3,104                    4,308        5,668
                                                                                                                                              Andhra Pradesh, making company's growth prospects better.
 EBITDA margins (%)                                    16.3          20.7              20.2                     24.5               26.8
 Adj Net Profit                                   1,077           1,552               1,391                    1,685        2,339             Margin expansion on cost control: Power accounts for ~28% of total
 Net Profit margins (%)                                 8.1          11.1                9.0                     9.5               11.0       operating cost. HNG has shifted from Furnace Oil and LPG to Natural Gas in
 Adj. EPS                                              61.7            17.8             15.9                    19.3               27.5       Bahadurgarh & Neemrana plants and is in the process of shifting to Natural
                                                                                            gas in Rishra by Apr ‘11, Nashik by Sep ’11, Puducherry by Oct ‘12 , Rishikesh
  Key Ratio                                            FY09          FY10 FY11E FY12E FY13E by Jun ‘13; which will lead to a saving of ~INR 50 mn per plant per annum
  P/E (x)                                                3.4          11.9  13.3  11.0  7.7 thus improving the overall operating margins. Improvement in draw and
  DE (x)                                                 0.5           0.5   0.5   0.8  0.8 pack efficiencies, economies of scale in sourcing, production and customer
  ROCE (%)                                              11.2               14.3          12.5                    13.6               15.9      service will further add to margins.
  RONW (%)                                              11.5               14.9          11.8                    12.5               15.1
  P/BV (x)                                               0.4                1.8                 1.6                1.4               1.2      Raising stake in float glass business to be earning accretive: HNG Float
                                                                                                                                              Glass Ltd (HNGFL) captured 15-18% (clear float glass) market share in 6
                                                                                                                                              months and expects to more than break even at the net level in a full year's
  Share Holding Pattern (%)                                                                                                                   working in FY11. HNG has 47.5% stake in the float glass venture. Rising stake
  Promoters                                                                                                                         70.0      in HNG Float Glass would be EPS accretive for HNG.
  FII                                                                                                                                7.3
  DII                                                                                                                                0.4      Valuation :
  Others                                                                                                                            22.4      At the CMP the stock trades at 11x and 8x its FY12 and FY13 earnings
                                                                                                                                              respectively, which is at a premium to its peers. However, the premium is
                                                                                                                                              justified given the market leadership position (~55% in container glass) and
  Relative Price Performance
                                                                                                                                              low debt-equity ratio of 0.5x. The company also has 16.7% of the equity is in
  340                HNG                    NSE Nifty
                                                                                                                                              the form of treasury stock (14.6m shares, valued at ~INR 3.14 bn at the CMP),
  300
                                                                                                                                              which can be used to fund capex.

  260                                                                                                                                         Considering the user industry growth prospects and company's expansion,
                                                                                                                                              we initiate coverage on the stock with a BUY rating and a price target of INR
  220
                                                                                                                                              351, implying an upside of 66%.
  180
        Mar-10

                 Apr-10

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                                                                                                                 Jan-11

                                                                                                                          Feb-11

                                                                                                                                     Mar-11




 Source: Unicon Research
                                                                    Unicon Wealth Management
                                                                    www.uniconindia.in                                                                                           Ashish Tiwari | atiwari5@uniconindia.in
                                                                                                                                                                                Shivani Tandon | standon@uniconindia.in
                           Hindusthan National Glass & Industries Ltd.




    CONTENTS
    Particulars                                                                                                                                                         Page

    Background ...............................................................................................................................................................3

    Management Profile .................................................................................................................................................5

    Industry Overview ....................................................................................................................................................6

    Investment Rationale ................................................................................................................................................8

    Concerns ..................................................................................................................................................................11

    Financial Analysis ....................................................................................................................................................11

    Valuation & Outlook ...............................................................................................................................................12

    Financial Statements ...............................................................................................................................................13




                                   Unicon Wealth Management
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                          Hindusthan National Glass & Industries Ltd.



                                                                                     BACKGROUND
                                              Hindusthan National Glass and Industries Ltd (HNG) incorporated in the year 1952, is the
                                              leader in container glass market, with 55% market share. The HNG group has led the consoli-
                                              dation in the container glass industry. It acquired units from players like Owens Brockway
                                              and L&T and has been successful in turning around these loss-making entities by strong
                                              control over raw materials, power & fuel, selling, manpower and administration costs. Post
                                              the acquisition of Neemrana unit of Haryana Sheet Glass in 2007, as of March 31, 2010 the
                                              company has 6 plants with an installed capacity of 2825 TPD of Glass Bottles; giving it a pan
                                              India presence. HNG's container glass portfolio ranges from 5ml to 3,200 ml in various
                                              colors, such as amber, flint and green.



                                                                                  HNG’S MILESTONES

                                                                                                                        2010

                                                                                                                      Start-up of
                                                                                                                     production at
                                                                                                                      HNG Float
                                                                                                       2007          Glass in Halol

                                                                                                    Acquisition of
                                                                                                         the
                                                                                                     Neemrana
                                                                                        2005           unit of
                                                                                                      Haryana
                                                                                                     Sheet Glass
                                                                                  Acquisition of
                                                                                  the Glass Unit
                                                                                    of Larsen
                                                                    2002           &Toubro at
                                                                                      Nashik
                                                                 Acquisition of
                                                                    Owens
                                                                   Brockway
                                                  1970           India Limited
                                                                   (plants at
                                                                   Rishikesh,
                                               Formation of
                                                                  Puducherry
                                               GEIL (HNG’s
                                                                   and Pune)
                                                Engineering
                                  1964         Subsidiary) in
                                               collaboration
                                Start-up of    with Wheaton
                               second plant
                                     at
                 1952          Bahadurgarh


              Foundation
             Stone laid for
              first plant at
                  Rishra


    Source: Company




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                             Hindusthan National Glass & Industries Ltd.



                                                    HNG also has 47.5% stake in the float glass venture, HNG Float Glass Ltd (HNGFL), with an
                                                    option to increase it. HNGFL commissioned a single line with capacity of 600 TPD in February,
                                                    2010 using state of the art technology. The Company strengthened its viability through timely
                                                    cost-effective installation: commissioning the plant in only 21 months against the industry
                                                    benchmark of 36 months. Besides, the Company commissioned 600 TPD capacity for a capi-
                                                    tal cost of INR 5.5 bn, way below the industry benchmark of INR 8 bn for equivalent capacity
                                                    due to efficient procurement and superior technology mix. This competitiveness will be
                                                    further emphasised when the Company commissions the next 1,000 TPD for an estimated
                                                    cost of INR 6 bn, reducing its capital cost per tonne. The per unit fuel consumption is also
                                                    favorably comparable with the prevailing industry benchmark. HNGFL reported revenues
                                                    of ~INR 300 mn from only 59 days of production in FY10.

    HNG’s Manufacturing Facilities
    Rishra                       Bahadurgarh               Rishikesh                 Puducherry            Nashik                Neemrana
    (West Bengal)                (Haryana)                 (Uttarakhand)             (Union Territory)     (Maharashtra)         (Rajasthan)
    Installed capacity:          Installed capacity: 655   Installed capacity: 425   Installed capacity:   Installed capacity:   Installed capacity:
    805 TPD                      TPD                       TPD                       370 TPD               390 TPD               180 TPD
    Three furnaces               Three furnaces            Two furnaces              One furnace           One furnace           One furnace

                                                                                     Fully automated
                                                           Furnace II used for
    * Automated batch- 14 manufacturing                                              batch-mixing facility 4 manufacturing       3 manufacturing
                                                           Green glass
    mixing facility    lines                                                         *IS / AIS             lines                 lines
                                                           manufacture
                                                                                     manufacturing lines

    On-site bottle                                                                                         On-site bottle
                                 On-site bottle printing Off-site printing           On-site printing
    printing facility                                                                                      printing facility
                                 facility with three     facility three              facility with three
    with four                                                                                              with three
                                 decorating lines        decoration lines            decorating lines
    decorating lines                                                                                       decorating lines

    Amber, flint and                                                                 Sand beneficiation
                                 Amber and flint glass Green, flint and                                                          Manufactures flint
    green glass                                                                      plant, foundry and    Flint glass
                                 manufacturer          Georgia green                                                             and amber glass
    manufacturer                                                                     mould workshop

                                 Foundry and mould
    On-site mould                workshop energy feed                                On-line automatic   Mould workshop
    repair shop and              through captive                                     OI / SGCC / B & S   for product design
    design facility              power generating                                    inspection machines and manufacture
                                 facilities

                                                                                     On-site modern
                                                                                     finished goods
                                                                                     warehouse
                                                                                     Automatic
                                                                                     palletisers for
                                                                                     packing
    Source:Company, Unicon Research




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                              Hindusthan National Glass & Industries Ltd.



                                                                                        MANAGEMENT PROFILE
                                                    Mr. Chandra Kumar Somany, the Chairman of HNG is the visionary who laid the foundation
                                                    of Hindusthan National Glass & Industries Ltd. He is supported by a strong and professional
                                                    team with rich experience. The educational and professional qualifications of key management
                                                    personnel are as follows


    Key Person                                     Designation                                         Background

                                                                   The Chairman of HNG, he provides policy guidelines for the management and
    Mr. Chandra Kumar Somany                  Chairman             administration. He holds an F.B.I.M. (London) Degree and a Degree in Glass Plant
                                                                   Instrumentation from Honeywell Brown, Minneapolis , U.S.A


                                                                   A Commerce graduate and diploma holder in Diesel Engineering. With an
                                              Vice Chairman &
    Mr. Sanjay Somany                                              experience of around 29+ years, he is very well versed in Glass Manufacturing
                                              Managing Director
                                                                   Technology and actively involved in the management & administration of HNG.


                                                                   A Commerce Graduate, with around 25 years of enriched experience. He has
                                              Vice Chairman &
    Mr. Mukul Somany                                               contributed significantly in the progress (inorganic growth) of HNG. He has
                                              Managing Director
                                                                   successfully re-engineered business processes across 6 units of HNG.


                                                                   A fellow member of the Institute of Chartered Accountants of India and the
                                                                   Institute of Company Secretaries of India and a qualified Cost Accountant from the
    Mr. Jagdish Prasad Kasera                 Senior President     Institute of Cost and Works Accountants of India. He possesses around 40+ years of
                                                                   experience. Joined HNG in January 1998, and has contributed to the Company's
                                                                   growth by playing a pivotal role in its mergers and acquisitions.


                                                                   A qualified Chartered Accountant and a Company Secretary, with around 20+ years
                                                                   of experience in finance - comprising capital issues, mergers, acquisitions, banking,
    Mr. Laxmi Narayan Mandhana                Senior VP & CFO      project activities, business evaluations and monitoring. He is handling the financial
                                                                   and corporate functions. In addition to his rich experience in asset financing, he is
                                                                   an expert in corporate finance, taxation and accounts.

    Source:Company, Unicon Research




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    Hindusthan National Glass & Industries Ltd.



                                                                 INDUSTRY OVERVIEW
                       Container Glass :

                       Indian Container glass Market is estimated at INR 30 billion accounting for 12% of packaging
                       industry and is expected to grow at 10% - 12% per annum going forward. Glass bottles are
                       preferred as compared to other packaging materials because of its non reactive nature
                       (increases shelf life of products), re-usability and cost effectiveness. The industry is a regional
                       play given the fact that it is unviable to sell beyond particular distance as freight cost is
                       critical and glass is prone to damages during transportation. Demand is driven by the growth
                       in the user industry i.e. liquor, beer, pharmaceuticals, cosmetics, perfumery, food and
                       beverages.


                       Glass Container Market (by region)                  Glass Container Capacity (by region)



                                                            South                                               South
                                                                                   North
                                                             29%                                                 28%
                             North                                                 34%
                             40%




                                                          West                           East                 West
                                           East           21%                            13%                  25%
                                           10%

                       Source: Company, Unicon Research                    Source: Company, Unicon Research


                       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 moulded vials represent a significant
                                  share of packaging medium for cough syrups, tonics, paediatric suspensions, dry
                                  powder and liquid injectables. 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 expected to grow
                                  to ~USD 150 bn by 2025 (from the levels of USD 70 bn in 2008) and the fruit-drinks
                                  category is growing at 25% annually. Even sports and energy drinks, with low
                                  penetration in India, are expected to grow in the coming years. We believe this
                                  growth will drive the demand for processed food packaging, especially container
                                  glass as it is considered non reactive and food-grade. Attractive packaging besides
                                  innovative advertising and celebrity endorsements has gained importance in
                                  products marketing.

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    Hindusthan National Glass & Industries Ltd.


                      World Glass Container per capitaconsuption(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


                      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.

                      Float Glass :

                      The float glass industry is nascent in India with a per capita consumption of 0.78 kg as against
                      China where it is 10.12 kg, ASEAN 8.4 - 11 kg, Europe 12.5 kg and U.S 12 kg. Float glass has
                      emerged as the preferred flat glass product. It accounts for 90% of total flat glass consumption
                      with a CAGR of ~12% in demand driven by automobiles and construction sectors. The usage
                      of glass in housing as well as commercial buildings is on the rise due to increasing focus on
                      design and time conservation. India's total installed capacity for float glass has been estimated
                      at 4,700 TPD. The country has eight float glass lines compared with 196 in China. In 2009-10,
                      imports were estimated at 104000 MT, largely from China and Indonesia. Given the high
                      capital cost of commissioning fresh capacity, capacity introductions are generally only at
                      specific junctures when entire plants go on stream. Imports generally happen in the interim
                      when demand occasionally exceeds supply; thereafter, the local material proves to be more
                      competitive than imports, capturing market share. To support indigenous manufacture, the
                      government imposed an anti-dumping duty of USD 130 per tonne. The float glass industry is
                      currently dominated by players like Saint Gobain, Modi Guardian and Asahi. Float glass
                      demand is expected to increase at a CAGR of ~12-15% in the coming 3-5 years.




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    Hindusthan National Glass & Industries Ltd.



                                                              INVESTMENT RATIONALE
                           Expansion to capture growth opportunities: HNG has embarked upon an ambitious
                           INR 25 bn expansion plan to cater to rising demand from user industry. The management
                           plans to increase the total capacity from 2825 TPD in FY10 to 4,805 TPD by FY13 and
                           further to ~5975 TPD by 2015. The greenfield plant at Naidupeta with installed capacity of
                           650 TPD is strategically placed in the highest liquor consuming state of Andhra Pradesh
                           to service the high growth South Indian market, making growth prospects better. This
                           expansion to meet the growing industry demand would further strengthen its leadership
                           position. The company further plans to put up 650 TPD brown field plant at Nashik and
                           management intends to bring the total installed capacity to 4500 TPD in the next 2-3
                           years.

                           HNG has also identified 3 areas for investment in global container glass manufacturing.
                           In two of these regions the company is in an advanced stage of conducting due diligence.
                           The acquisition size could vary between INR 2 - 5 bn. The company is targeting a location
                           where in the production cost is either less than or similar to HNG's production cost. HNG
                           has a successful track record of domestic acquisitions in the past and the international
                           acquisition is expected to further strengthen its international presence.

                           Margin expansion on cost control: Power accounts for ~28% of total operating cost.
                           HNG has shifted from Furnace Oil and LPG to Natural Gas in Bahadurgarh & Neemrana
                           plants and is in the process of shifting to Natural gas in Rishra by Apr ‘11, Nashik by Sep
                           ’11, Puducherry by Oct ‘12 , Rishikesh by Jun ‘13. The cost saving on account of shift to
                           natural gas is ~INR 40 mn to INR 50 mn per annum per plant, which will lead to
                           improvement in operating margins. The Greenfield projects of HNG are expected to
                           commence operations with Natural Gas. Improvement in draw and pack efficiencies,
                           economies of scale in sourcing, production and customer service will further add to
                           margins.

                           Shift to natural gas in manufacturing process across all 6 plants
                           Plant Location                                  Status
                           Bahadurgarh                                     Already in place
                           Neemrana                                        Commenced in September, 2010
                           Rishra                                          By April, 2011
                           Nashik                                          By Septmeber, 2011
                           Puducherry                                      By October, 2012
                           Rishikesh                                       By June, 2013
                           Source: Company, Unicon Research

                           In addition, the company, in a bid to improve its production efficiency has introduced the
                           cutting-edge Narrow Neck Press and Blow (NNPB) technology in the Bahadurgarh plant
                           during FY10 and expects to extend this to Rishra in FY11, and two other plants by 2012-13.
                           The NNPB technology reduces the bottle weight by 15-35%, translating into lower raw
                           material, energy & transportation costs, delivers superior glass strength and quality
                           due to uniform glass distribution, thus resulting in better margins. The company is
                           planning to extend this technology to all its plants going forward.

                           Other initiatives taken by the company to control costs are as follows

                                •     HNG possesses fleet of ~100 trucks to accelerate distribution, reducing its
                                      dependence on other transportation modes and also helps in controlling
                                      transportation cost.
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                            •     The company has an established network for sourcing key inputs like silica sand,
                                  cullet, etc. It has used its material sourcing expertise and established vendor base
                                  to reduce input costs. The pilot project of Sand processing at Bankura is fully
                                  operational. Sourcing amber sand for Rishra unit from Bankura has reduced the
                                  cost of sand for that unit by 40%. HNG is planning to follow a similar strategy for its
                                  other units.

                            •     HNG is entering into a 50:50 JV (investment of ~INR 600 mn) with Belgium based
                                  OMCO International NV for manufacturing Moulds & Moulds accessories. The JV
                                  operations are expected to commence in Puducherry in FY11 with expansion planned
                                  in Bahadurgarh. The JV will first fully meet the in-house requirement of HNGIL and
                                  then look to export surplus production.

                            •     Plant automation (auto inspection machines), and reduction in manpower have
                                  helped contol of personnel cost.

                            •     Sourcing of equipment from subsidiary, Glass Equipment India Ltd has resulted in
                                  lower capital cost.

                            •     Increase in proportion of cullet (broken glass) in batch mix from 55% in FY07 to
                                  current levels of ~90% has resulted in lower power and fuel cost.


                       Pan India presence gives an edge over competition: The Glass industry is a regional play
                       given the fact that it is unviable to sell beyond particular distance as freight cost is critical
                       and glass is prone to damages during transportation.

                       HNG’s Plant Locations




                                                                      Rishikesh
                                                Bahadurgarh
                                                                   Delhi

                                               Neemrana


                                                                                       Kolkata

                                                                                          Rishra


                                                          Nashik
                                                                                         Plant Locations
                                                    Mumbai           Hyderabad
                                                                                         Marketing Office
                                                                           Naidupeta
                                                              Bengaluru                  Upcoming Mega Projects

                                                                   Puducherry

                                                                   Chennai




                       Source: Company, Unicon Research




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                        HNG, having pan India presence with its plants present across regions, is better placed to
                        service clients ‘Just in Time’ and lowers the overall cost to customers. It also helps in
                        comprehensive coverage of customers across India. The Greenfield plant at Andhra Pradesh
                        is strategically placed to service the high growth South Indian markets, gives it an added
                        advantage.

                        Float Glass business: HNG Float Glass Ltd (HNGFL) set up a 600 TPD float glass unit at Halol
                        in Gujarat, marking its entry into the float glass segment in India. The plant achieved the best
                        industry productivity norms during FY10 in a short span. The company captured 27% market
                        share in 6 months with a wide distribution network of 758 agents spread across India. HNGFL
                        expects to more than break even at the net level in a full year’s working in FY11. The man-
                        agement is targeting a revenue of ~INR 3700 mn and a PAT of ~INR 150 mn for the year. It is
                        forward integrating into high end architectural glass, which would also boost margins. The
                        company has lined up a capacity addition of 1000 TPD with an investment of ~7.50 bn to
                        service the demand in float glass industry. HNG has 47.5% stake in the float glass venture.
                        Rising stake in HNG Float Glass would be EPS accretive for HNG on consolidated level.


                        Corporate Structure of HNG Group

                                                           Hindusthan National Glass &
                                                                 Industries Ltd




                                      100%                                 100%                                 47.4%

                          Glass Equipment (India) Ltd.        Quality Minerals Ltd        HNG Float Glass Ltd (HNGFL)
                                                                                                   (Associate Company)

                             Capital Goods & Spares           Mineral Supplier to Glass       Manufacturer of Float &
                            Supplier to Glass Industry                Industry                   Processed Glass

                        Note: HNGFL is proposed to be made a subsidiary
                        Source: Company


                        Strong Balance Sheet: We believe, HNG is well placed in terms of credit position and is
                        expected, not to have any funding issues in near term. The D/E ratio of 0.5 for FY10 would
                        help in additional fund raising. The company allotted 2.14 mn shares to HNG Trust and 1.37
                        mn shares to Ace Glass Trust during the scheme of amalgamation. Post split (from INR10
                        face value to INR 2 face value), the company has 17.5 mn shares. In June 2010, the company
                        sold 3.2% of its outstanding equity, which was part of its treasury stock, to private equity
                        investors. It currently has 14.6 mn shares (16.7% of paid up share capital), valued at INR 3.14
                        bn at the current market price. The company can fund its capex plans and undertake debt
                        reduction through further sale of treasury shares as and when required.




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                                                                         CONCERNS

                       Rise in power & fuel costs: Any increase in fuel costs may affect margins as they contribute
                       to ~30% of production cost. However, shifting to Natural Gas moderates this risk.

                       Substitute packaging options of glass such as pet bottles and aluminum cans are increasingly
                       being used in packaging which might eat into glass packaging market share thus affecting
                       HNG’s growth.


                       India Packaging Market (by Value)
                                                                          Lables
                                                                           3%        Caps & Closure
                                                                                          6%
                                                                 Glass
                                                                 12%

                                                                                     Others
                                                                                      14%

                                                     Rigid Plastics
                                                         18%                        Metal Cans
                                                                                       8%


                                                                             Printed Cartons
                                                             Flexible
                                                                                   17%
                                                            Packaging
                                                               22%


                       Source: Unicon Research




                                                              FINANCIAL ANALYSIS
                       Revenues grew at a CAGR of 35% from FY06-FY10. We expect the revenues to grow at a
                       CAGR of ~16% over FY10 – FY13E aided by addition of new capacities and furnace rebuilds.
                       The company has improved its EBITDA margin from ~17% in FY06 to ~21% in FY10 and expect
                       margins to further improve to ~24% by FY13E mainly due to cost saving from shifting to
                       Natural Gas. PAT has grown at a CAGR of 60% from FY06-10 and we expect the company to
                       demonstrate a CAGR growth of ~29% during FY10-FY13E .

                       Q3 FY11 Result Highlights

                            •     HNG’s standalone revenue registered a growth of 12% YoY at INR 4022 mn. The
                                  company’s operating profit at INR 748.10 mn, witnessed a 5% increase Y-o-Y, while
                                  EBITDA margin at 18.6% registered a decrease of 141 basis points on a Y-o-Y basis.

                            •     PAT at INR 314 mn witnessed a de-growth of 5% as compared to the same quarter in
                                  the previous year. PAT margin at 8% has decreased by 144 basis points Y-o-Y. EPS for
                                  the quarter stood at INR 3.59.

                            •     The company had increased the prices of its products by around 6-7% in Aug ‘10 and
                                  has announced a further hike of 10% across the board w.e.f. Feb ‘11.

                            •     Profits have been partially affected in this quarter by the persistent rise in power
                                  and fuel cost and soda ash prices. With its margins under pressure, the company
                                  said it is planning for another round of price hike this month to offset the rising input
                                  cost.



         Unicon Wealth Management
11
         www.uniconindia.in
     Hindusthan National Glass & Industries Ltd.



                                                        VALUATION & OUTLOOK
                       HNG's earnings are expected to grow at a CAGR of 19% from FY10-13, with the debottlenecking
                       of existing furnaces and commissioning of new units in 2012. The margins are also expected to
                       increase with the shift to the natural gas in it's Nashik and Pudducherry plants by CY 2012.

                       At the CMP the stock trades at 11x and 8x its FY12 and FY13 earnings respectively, where as
                       peers HSIL & Piramal Glass are trading at PE multiple of 8.3x & 5.4x and 6.7x & 4.7x for FY12E
                       and FY13E respectively, making HNG expensive. However, the premium is justified given the
                       market leadership position (~55% in container glass), low debt-equity ratio of 0.5x (FY10) as
                       compared to peers in the segments (HSIL - 1.1 & PGL - 2.4). The company also has 16.7% of the
                       equity is in the form of treasury stock (14.6m shares, valued at ~INR 3.14 bn at the CMP), which
                       can be used to fund capex. We have not built in any sale of treasury stock, which can also be
                       used to reduce debt. HNG plans to acquire the controlling stake in HNGFL (associate company);
                       which would be EPS accretive.

                       We have valued HNG which is engaged in container glass business on P/E basis. We have
                       assigned a multiple of 12x to its FY13 earnings which is at ~15% discount to the past 1 year
                       forward average PE of 14x. We have valued the float glass business of HNGFL at INR 21 per
                       share based on a P/BV multiple of 2x FY10 considering the other players in float glass space
                       are trading in the range ~4x - 4.5x, 1 year forward. Considering the user industry growth
                       prospects and company's expansion, we initiate coverage on the stock with an BUY rating and
                       a price target of INR 351, implying an upside of 66%.




          Unicon Wealth Management
12
          www.uniconindia.in
                         Hindusthan National Glass & Industries Ltd.



                                                               FINANCIAL STATEMENTS
                                                                       (INR Mn)                                                                 (INR Mn)
Profit & Loss                            FY09    FY10 FY11E FY12E FY13E           Balance Sheet                 FY09    FY10 FY11E FY12E FY13E
Total Revenue                            13110 13599 15365 17592 21148            SOURCES OF FUNDS
growth %                                   28      4     13      14       20      Share Capital                  175     175     175     175       175
Total operating expenditure              10968 10781 12261 13284 15480            Reserves & Surplus            9177 10253 11644 13330 15669
EBITDA                                    2142   2818   3104    4308    5668      Shareholder's Funds           9352 10428 11819 13504 15843
EBITDA Margin %                            16     21     20      24       27      Total Loans                   5073    5657    6277 10533 13471
Other Income                               217    345    150     150      150     Deferred Tax Liab./ (Asset)    418     697     697     697       697
Depreciation & Amortisation                747    861    990    1186    1247      Total Liabilities             14843 16782 18793 24734 30011
Interest                                   434    472    525     756    1080      APPLICATION OF FUNDS
PBT                                       1177   1830   1739    2515    3491      Gross Block                   13790 16615 18672 21960 22667
PBT Margin %                                9     13     11      14       17      Less: Accu. Depreciation       4725 5452 6442 7628 8874
Total Tax                                  100    279    348     830    1152      Net Block                     9065 11163 12230 14332 13793
% of PBT                                    8     15     20      33       33      Capital Work-in-Progress       820     275    2031    5293 10493
Reported PAT                              1077   1552   1391    1685    2339      Investments                   1046    1471    1471    1471      1471
growth %                                   -33    44    -10      21       39      Current Assets                6479    6603    5993    6870      8008
PAT Margin %                                8     11      9       9       11      Current Liabilities           2567    2730    2932    3232      3754
                                                                                  Net Current Assets            3912    3874    3061    3638      4255
                                                                                  Total Assets                  14843 16782 18793 24734 30011
                                                                       (INR Mn)
Cash Flow                                FY09    FY10 FY11E FY12E FY13E           Ratios                        FY09    FY10 FY11E FY12E FY13E
PBT                                       1177   1830   1739    2515    3491      Per Share Data (INR)
Depreciation                               747    861    990    1186    1247      Adj. EPS                       61.7    17.8    15.9    19.3     27.5
Interest                                   434    472    525     756    1080      Adj. Cash EPS                 104.5    27.6    27.3    32.9     41.8
Change in Working Capital                 -926     87    849    -576     -627     BookValue                     535.4   119.4   135.3   154.6    182.1
Other Exp/(Inc)                            194   -314   -498    -980 -1302
Cash Flow from Operations                 1627   2936   3606    2901    3889      Operating Ratios
Inc./ (Dec.) in Fixed Assets             -1780 -2530 -3813 -6551 -5907            Inventory (days)               60.1    56.3    54.1    55.7     56.2
Inc./ (Dec.) in Investments                  0 -1836       0       0        0     Debtors (days)                 63.3    59.1    53.4    50.2     50.0
Other Exp/(Inc)                           -131   1320    150     150      150     Creditors (days)               55.3    47.1    46.5    46.8     48.0
Cash Flow from Investments               -1911 -3046 -3663 -6401 -5757            Debt / Equity (x)               0.5     0.5     0.5     0.8       0.8
Free Cash Flow                            -284   -110    -58 -3499 -1868
Inc./(Dec.) in loans                       711    604     95    3500    1858      Returns (%)
Other Exp/(Inc)                           -481   -560      0       0        0     RONW                           11.5    14.9    11.8    12.5     15.1
Cash Flow from Financing                   230     43     95    3500    1858      ROCE                           11.2    14.3    12.5    13.6     15.9
Inc./(Dec.) in Cash                        -54    -67     37       0      -10
Opening Cash balances                      168    114     47      84       84     Valuation Ratios (x)
Closing Cash balance                       114     47     84      84       74     P/E (x)                         3.4    11.9    13.3    11.0       7.7
Source: Company, Unicon Research                                                  P/CashEPS (x)                   3.5     1.6     2.0     7.7       7.8
                                                                                  P/BV (x)                        0.4     1.8     1.6     1.4       1.2
                                                                                  EV/Total Sales (x)              0.7     1.8     1.6     1.6       1.5
                                                                                  EV/EBITDA (x)                   4.0     8.6     8.0     6.7       5.5




                                   Unicon Wealth Management
13
                                   www.uniconindia.in
                  Hindusthan National Glass & Industries Ltd.



                                                       RESEARCH RECOMMENDATION

       Date of                                                                                                             Recommended
                                 Company Name                   Report Type                  Sector       Recommendation                 Target
 Recommendation                                                                                                               Price
 28-Feb-11        Deepak Fertilisers & Petrochemicals Ltd.   Initiating Coverage Fertilisers                   Buy            152.0       202.0
 3-Feb-11         Ceat Ltd.                                  Investment Idea      Auto Ancillaries             Buy            109.0       149.0
 31-Jan-11        MIC Electronics Ltd.                       Initiating Coverage Led Display & Lighting        Buy             31.6        51.0
 12-Jan-11        Diamond Power & Infrastructure Ltd         Initiating Coverage Power                         Buy            193.0       257.0
 31-Dec-10        Hathway Cable & Datacom Ltd                Initiating Coverage 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        Sasken Communication Tech. Ltd             Investment Idea      IT                           Buy            168.0       226.0
 30-Nov-10        Banco Product                              Initiating Coverage Auto                          Buy             93.0       149.0
 30-Nov-10        Allcargo Global Logistics                  Investment Idea      Shipping & Logistics         Buy            155.0       233.0
 18-Nov-10        Jyoti Structure                            Investment Idea      Power                        Buy            137.0       171.0
 16-Nov-10        Pennar Industries                          Investment Idea      Steel                        Buy             49.0        63.0
 3-Nov-10         HSIL Ltd                                   Initiating Coverage Building Product              Buy            141.0       171.0
 27-Oct-10        IDBI Bank                                  Initiating Coverage Banking                       Buy            171.0       228.0
 26-Oct-10        MSP Steel and Power                        Initiating Coverage Steel                         Buy             72.0       114.0
 29-Sep-10        Nakoda Textiles                            Investment Idea      Textiles                     Buy             15.0        23.0
 16-Sep-10        Kajaria Ceramics                           Investment Idea      Ceramic Tiles                Buy             70.0        88.0
 15-Sep-10        Gokul Refoils                              Investment Idea      Food Processing           Accumulate         97.3       109.0
 14-Sep-10        Aqua Logistic                              Investment Idea      Logistic                     Hold            59.1        60.8
 31-Aug-10        Lakshmi Precision Screws                   Investment Idea      Fastner                   Accumulate         79.8        91.8
 27-Aug-10        BGR Energy System                          Initiating Coverage Power                         Buy            786.0      1020.0
 30-Jul-10        Patel Engineering                          Initiating Coverage Infrastructure                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 Coverage Healthcare                    Buy            243.0       293.0
 26-Jun-10        BGR Energy System 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      Steel Pipes                  Buy             85.0       102.0
 5-Jun-10         Usher Agro                                 Investment Idea      Food Processing              Buy             79.0       110.0
 10-May-10        Greaves Cotton                             Investment Idea      Construction                 Buy             67.0        82.0
 30-Apr-10        Indraprastha Gas Ltd                       Initiating Coverage Gas Distribution              Buy            233.0       290.0
 16-Apr-10        Heidelburg Cement                          Investment Idea      Cement                    Accumulate         59.0        60.0
 16-Apr-10        KEC International Ltd                      Investment Idea      Power Transmission        Accumulate        570.0       655.5
 16-Apr-10        Piramal Glass Ltd                          Investment Idea      Packaging                 Accumulate         97.0       111.6
 7-Apr-10         Setco Automative                           Investment Idea      Auto Ancillaries             Buy             90.0       135.0
 6-Apr-10         Den Networks                               Investment Idea      Media                     Accumulate        197.0       226.6
 5-Apr-10         Arshiya International                      Investment Idea      Logistic                     Buy            204.0       291.0
 22-Feb-10        Patni Computer                             Initiating Coverage IT                            Buy            475.0       590.0
 6-Feb-10         Shree Cement Ltd                           Initiating Coverage Cement                        Buy            1995.0     2470.0




                          Unicon Wealth Management
14
                          www.uniconindia.in
                       Hindusthan National Glass & Industries Ltd.


                                                Unicon Investment Ranking Methodology

                          Rating                Buy            Accumulate                Hold                Reduce               Sell

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




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                              Unicon Wealth Management
15
                              www.uniconindia.in

								
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