Piramal Glass Ltd


BSE: 532949 | NSE: PIRGLASS | ISIN: INE748E01018 
Market Cap: [Rs.Cr.] 895 | Face Value: [Rs.] 10
Industry: Glass & Glass Products

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Management Discussions

MANAGEMENT DISCUSSION AND ANALYSIS

Business Overview:

Piramal Glass Limited (PGL) is a manufacturer of glass containers for the Cosmetics& Perfumery, Pharmaceuticals and Specialty Food & Beverage industries. PGLmanufactures a wide range of glass bottles and jars, in sizes ranging from 2 ml to 2.5liters. PGL has manufacturing facilities in India, USA and Sri Lanka.

Market Overview:

Market Size

Cosmetics & Perfumery Global market size is estimated to be US$ 2.3– US$ 2.5 billion, growing at 3-5%

Pharmaceutical Global market size is estimated to be US$ 2.0 - US$ 2.3billion, growing at 3-5%

Specialty Food & Beverages is estimated to be US$ 1.3 - US$ 1.5 billion,growing at 5%-7%

Cosmetics & Perfumery Business:

The glass containers manufactured in Cosmetics & Perfumery are used to fill nailpolish, perfumes, skin care creams, foundations, attars, etc. The main raw materials forglass manufacturing are semi snow quartz, soda ash, lime stone powder.

This market is broadly classified into five segments depending on the end bottle price.

Select Clubbed as Premium Segment
MNC - Mass
Low Mass
Skin Care Clubbed as Mass Segment
Nail Polish or Colour Cosmetics

PGL enjoys a global market share of ~ 6% and is the only significant player from Asiawith presence in the Premium segment.

Pharmaceuticals Business:

It caters to the requirements of Pharmaceutical Industry for packaging like moldedvials for injectibles and bottles for syrups, droppers and infusions In the Indian market,PGL enjoys a leadership position with about 35% market share.

Specialty Food and Beverages Business:

The uniquely designed and colored glass containers are used to fill boutique wine andhigh-end liquor products.

Growth Drivers

Cosmetics & Perfumery (C&P)

The Cosmetics and Perfumery Division of Piramal Glass caters to international marqueecustomers like LVMH, Yves Rocher, YSL, Coty, Unilever, Revlon, L’Oreal, P&G,Elizabeth Arden, Estee Lauder etc. apart from specialized localized manufacturers likeDumak LLC, Erkul Kozmetic, Compagnie De Diffussion, Niasi, Expak, Baralan International,Estico Ltd., Revolline Ltd. These customers use the glass bottles and jars for productslike nail polish, make-up foundations, perfumes, skin care creams etc. Traditionally, theC&P glass bottles market has been dominated by European players like SGD, Pochet,Gerresheimer, Heinz, Zignago, Bormiolli Rocco and Bormiolli Luigi. Most of these playershave been in existence for more than a hundred years.

This industry is characterized by capital as well as manual intensity (althoughmanufacturing is highly automated, operations like forming, sorting and decorations areskill based and manual intensive).

PGL is the youngest player in this segment. It entered into this segment in 2000 withforay into nail polish market, and later low mass perfumes. Within a few years ofentering, PGL became a dominant player in the nail polish glass bottle market globally.Today PGL dominates this segment. It more than makes 1 out of every 2 nail polish bottlesmanufactured globally (PGL manufactured 1.85 billion pieces in FY12)

In 2007, after achieving leadership position in Nail Polish and Mass Perfume markets,under a long term strategy initiative, PGL entered the Premium Segment of C&P andtoday this segment is the prime focus of the company. In terms of capacity Piramal Glasshas the second largest installed capacity globally (545 TPD) and currently enjoys a globalmarket share of ~ 6% (sales of RS 7,052 million). Investment in capacities, leveragingskills from our USA operations, leveraging skills of technical experts from Europe coupledwith focus on world class business processes through Manufacturing Excellence initiativehas helped PGL to attain this position

PGL, is the fastest growing player in this segment, with a growth of 18.4% CAGR (5years) compared to market growth of 3-5% globally. The greenfield project coupled withrelining furnaces in C&P will help in catering to the growing demand and moving a stepcloser to the vision of "Top 3 flacconage manufacturers in the world"(greenfield project of 160 TPD in Jambusar and capacity up-gradation of existing furnacesfor Premium as well as converting 75 TPD from Pharma into C&P)

The drivers, for growth of PGL have been increased cost consciousness among westerncustomers coupled with boom in consumption of C&P in emerging economies due to growingyoung population, higher percentage of working women and increasing disposable income,resulting in a spurt in C&P sales in emerging economies, particularly the BRICcountries (Brazil, Russia, India and China), Middle East and Turkey (where mass marketmanufacturing is concentrated)

These factors have resulted in PGL getting recognized as a respectable glassmanufacturer from Asia, as an alternate supplier. Successful execution of initial projectsby PGL has helped PGL in gradually winning a higher percentage of the share of wallet fromexisting customers – which is the main area of future effort and focus, as most ofthe leading perfumery companies are already our customers.

Looking back, we can say that we were newcomers when we started manufacturing nailpolish in 2000. Since then, we have made rapid strides to become a leading nail polishplayer. This growth story is being replicated in the perfumery space. In short, PGL ispoised to become a leading global supplier of C&P glass bottles in the world, and isalready making rapid strides in that direction.

Pharmaceutical:

The Pharmaceutical glass container division manufactures amber bottles, amber and flintvials for liquid oral formulations, injectibles, etc. Products manufactured conform to US,Indian and European pharmacopeia in Type I, Type II and Type III formulations. PGL is aleading supplier of glass containers to both multinational and Indian pharmaceuticalcompanies like GlaxoSmithKline, Pfizer, Cipla, Abbott, Alembic, Ranbaxy, E-Merck, Aventis,Dabur , Himalaya drugs, Dr. Reddy’s Laboratories etc.

In FY-12, this segment continued to see competition in the form of replacement with PETespecially in the Oral formulations and amber glass bottles in the range of 60 ml to 100ml. PGL has focused on export markets, mainly USA, and currently 38% of PGL Pharmaceuticaldivision comprises of exports.

The high-end Borosilicate Glass (or Type-I Glass) market has been an attractive growthsegment for PGL, particularly for exports to USA as also"deemed exports" inIndia as more and more injectibles manufacturing facility in India receive US FDAapproval.

Specialty Food & Beverages:

The Specialty Food & Beverages division provides bottles for wine, liquor and foodwhich are often unique in design and decoration. This business is very freight intensiveand hence localized. Piramal Glass is catering to this segment from Sri Lanka and USA. PGLhas consciously grown in exports from Sri Lanka, earlier mainly to India, and today to FarEast and Australia. In Sri Lanka the strategy has been to migrate to more and more premiumcustomers. In USA, focus is on winning new customers and new brands in the SpecialityLiquor segment.

Since the US acquisition, we have gradually been able to increase our sales in thissegment through acquisition of new customers and retaining old ones. USA operations haveedge over its European competitors due to lower freight. PGL caters to global customerslike Diageo, Pernod Ricard, Cadbury Schweppes, UB Group, etc.

Strategy Summary

1. Continued focus on C&P segment and the growth in capacity and skill will helpthe company in growing both in Premium as well as Mass segment. The growth will also befuelled by continued efforts to transition some of the C&P production from the USAfacility to India

2. Improvement in product mix and geography mix for Pharmaceutical segment

3. In Sri Lanka and USA, focus on growth in Speciality bottles segment.

Performance summary :

RS in million
Particulars FY 2012 FY 2011
Sales and Profit: _
Net Sales 14,076.6 12407.4
EBIDTA 3,334.9 3060.7
PBT (after exceptional items) 1,395.3 1,277.3
PAT (after prior period items) 1,084.6 1,033.5
Margins:
EBIDTA % 23.7% 24.7%
PBT % (after exceptional items) 9.9% 10.3%
PAT % (after prior period items) 7.7% 8.3%
Growth:
Net Sales 13.5% 10.4%
EBIDTA 9.0% 39.0%
Net Profit 4.9% 3,099.7%

Results review summary:

Total Operating Income for the year ended 31 Mar 2012 grew by 13.5% to RS 14,076.6million compared to FY2011 Net sales of RS 12,407.4 million.

Earning before Interest, Depreciation, Tax and Amortizations (EBIDTA) for the year wasat RS 3,334,9 million, a growth of 9.0% over FY2011 EBIDTA of RS 3,060.7 million.

Net interest was at RS 881.2 million, as compared to RS 714.3 million in FY2011 Thetotal consolidated debt as on 31 March 2012 was RS 11,432.2 million,

Depreciation for the year ended was 1,058.4 million compared to RS 1,069.0 million inFY2011. Further, taxes were at RS 310.7 million, compared with RS 243.8 million in FY2011.

As a result, there was a Net Profit of RS 1,084.6 million, compared to RS 1,033.5million in FY2011.

Net sales analysis:

RS in million
Consolidated Sales break-up % Salience FY 2012 FY 2011 % Growth
Domestic Sales
Cosmetics & Perfumery 7.5% 1,030.4 901.0 14.4%
Pharmaceuticals 12.7% 1,744.8 956.5 (10.8%)
Specialty Food and Beverages 2.6% 360.6 278.8 29.3%
Sub-total – India 22.8% 3,135.8 3136.3 0.0%
Global Sales
Cosmetics & Perfumery 43.7% 6,021.2 5125.2 17.5%
Pharmaceuticals 10.7% 1,478.1 1461.7 1.1%
Specialty Food and Beverages 22.8% 3,142.8 2461.5 27.7%
Sub-total - Outside India 77.2% 10,642.2 9048.4 17.6%
Consolidated Total Sales 100.0% 13,778.0 12,184.7 13.1%

Notes:

Global Sales are Total Consolidated sales outside India.

% Salience is percentage of sales in the category to net sales

Profitability analysis:

RS in million
Consolidated Profits break up EBIDTA PAT
FY 2012 FY 2011 Growth % FY 2012 FY 2011 Growth %
Piramal Glass India Ltd 2,429.0 2,108.9 15% 782.7 685.9 14%
Piramal Glass USA Inc. 334.6 426.0 (21%) 57.6 118.6 (51%)
Piramal Glass (UK) Ltd. 8.0 3.3 144% 8.0 3.3 144%
Piramal Glass International Inc. 2.4 1.1 121% 1.9 0.9 116%
Piramal Glass Ceylon PLC 607.7 521.5 17% 289.2 237.2 22%
Piramal Glass Europe 23.4 1.6 1369% 15.4 0.9 1538%
Consolidated* 3,334.9 3,060.7 9% 958.7 930.2 3.1%

Notes:

*Consolidated is after adjustment of Minority Interest and Inter-company transactions.

Manufacturing facilities review:

Piramal Glass continues to focus on its strategy of developing a strong front end inWestern market while building a robust manufacturing base in low cost countries.

PGL Group’s current manufacturing facilities across different regions are asfollows:

Piramal Glass Limited (PGL):

PGL has production facilities at Jambusar and Kosamba in Gujarat, India. The Companyhas ISO 9001, ISO 14001 certification and OHSAS (Occupational Health, Safety AssessmentSeries) i.e. 18001 certification.

Furnace location and number Installed Capacity TPD * Type of glass containers manufactured
Jambusar (3)
1 255 TPD Soda Lime Amber – Pharmaceuticals
2 105 TPD Soda Lime Flint – Cosmetics & Perfumery,
3 160 TPD** Pharmaceuticals, Specialty Food & Beverages
Kosamba (6):
1 45 TPD Borosilicate Amber & Flint – Pharmaceuticals
2 40 TPD Soda Lime Flint–Pharmaceuticals/Nail polish
3 55 TPD
4 35 TPD Soda Lime Flint – Cosmetics & Perfumery, skincare
5 65 being upgraded to 95 TPD
6 100 TPD

* Tons per day

** 160 TPD operational from April 2012.

Piramal Glass USA Inc (PGI):

PGI has manufacturing facilities in USA. The installed capacity of the facility is asfollows:

Furnace location and number Installed Capacity TPD * Type of glass containers manufactured
Flat River (2)
1 100
Soda Lime Flint – all segments
2 95

* in US Tonnes

Piramal Glass Ceylon PLC (PGCP):

PGCP manufactures bottles in flint, amber and other colors with sizes ranging from 50ml. to 2,500 ml. It caters to liquor, food & beverage, and wine industry customers.

Furnace location and number Installed Capacity TPD * Type of glass containers manufactured
Horana (1) 250 Specialty Food & Beverages – Amber & Flint

Power & Energy:

Power and Energy costs increased by 25.7% to RS 2,368.7 million as compared to RS1,884.4 million in FY11. The increase has been in India and Sri Lanka, because of hike inprices of Natural Gas / Furnace Oil and Electricity. PGL India constituted a major portionof this increase.

Piramal Glass managed to offset a greater part of the price increase by better energymanagement as well as spot buying of gas, in addition to better product mix and pass-thruto customers through price increase.

Manpower:

The PGL Group seeks to recruit and retain quality industry professionals and providethem with a high performance environment. During the financial year, total consolidatedworkforce of PGL was 3,957 as compared to 3,257 in FY2011.

The workforce details are as follows:

Consolidated manpower break-up FY2012 FY2011 +/–
Piramal Glass Limited 3,022 2,324 698
Piramal Glass – USA, Inc. 510 520 (10)
Piramal Glass Europe SARL 2 1 1
Piramal Glass Ceylon PLC 423 412 11
Total 3,957 3,257 700

• Business risk factors:

Replacement threat:

Glass packaging for Pharmaceutical segment faces the risk of replacement by otherpackaging solutions such as plastic and other forms of packaging.

Capital intensive

The glass packaging needs significant capital expenditure in creating infrastructureand regular relining of Production furnaces.

Glass industry is Energy intensive

Exposure to exchange rate fluctuations :

With 75% of sales from global markets, any change in currency dynamics will have animpact on the margin.

Disclaimer:

Certain statements included above may be forward looking and would involve a number ofrisks, uncertainties and other factors that could cause actual results to differmaterially from those suggested by the forward-looking statements.

Annexure to MD&A: Financial Highlights (Consolidated)

Income Statement

RS in million
Year ended 31 March 2012 Year ended 31 March 2011 % Growth (De-growth)
Net Sales 13,778.0 12,184.6 13.1%
Investment Income 31.9 27.9 14.1%
Other Operating Revenue 266.8 194.9 36.9%
Total Operating Income 14,076.6 12,407.4 13.5%
EBIDTA 3,334.9 3,060.7 9.0%
EBIDTA as % to Total Income 23.7% 24.7%
Interest 881.2 714.3 23.4%
Depreciation 1,058.4 1,069.0 (1.0%)
Profit before Tax 1,395.3 1,277.3 9.2%
% of Total Income 9.9% 10.3%
Provision for Taxation- Current 243.7 214.5
- Mat Credit Entitlement 0.0 (205.4)
- Deferred 67.0 234.7
Profit After Tax 1,084.6 1,033.5 4.9,%
% of Total Income 7.7% 8.3%

Net Sales

During the year Net sales increased by 13.1% to RS 13,778.0 million as compared to RS12,184.6 million in FY 2011.

The detailed analysis of it is discussed earlier in the report.

Other Operating Revenue

Other operating revenue was RS 266.8 million in FY2012 registering a growth of 36.9%.

Profit before Interest, Depreciation & Tax (EBIDTA) & Margin

EBIDTA grew by 9% to RS 3,334.9 million. EBIDTA as a % of total income was 23.7% in FY2012 as compared to 24.7% in FY 2011.

Interest

Net interest cost increased by 23.4 % to RS 881.2 million as compared to RS 714.3million in FY 2011.

Balance Sheet

RS in million
As at 31 March, 2012 As at 31 March, 2011
SOURCES OF FUNDS
Share Capital 809.2 804.3
Reserves & Surplus 2,731.8 2,215.6
Minority Interest 553.4 498.8
Loan Funds 11,432.2 9,199.9
Deferred Tax Liability (Net) 209.5 142.9
TOTAL 15,736.1 12,861.5
APPLICATION OF FUNDS
Fixed Assets 10,800.7 8,995.7
Investments 1.1 1.1
Net Working Capital 4,934.2 3,864.7
TOTAL 15,736.1 12,861.5
Key Ratios:
Particulars FY 2012 FY 2011
Debt Equity Ratio 2.8 : 1 2.6 : 1
Return on Capital Employed 15.9 15.6
Return on Net Worth (%) 28.5% 32.8%
Asset Turnover Ratio 1.4 1.4
Return on Capital Employed Calculation FY 2012 FY 2011
PBIT 2276.5 1991.6
Average Net Fixed Assets 9898.2 8970.3
Average Net Current Assets 4399.5 3815.7
Capital Employed 14297.7 12785.9
ROCE (%) 15.9 15.6
   

Peer Comparison

Company Market Cap
(Rs. in Cr.)
P/E (TTM)
(x)
P/BV (TTM)
(x)
EV/EBIDTA
(x)
ROE
(%)
ROCE
(%)
D/E
(x)
Asahi India Glas 1,469.54 0.00 4.83 12.63 0.0 0.0 12.31
Hind.Natl.Glass 1,266.58 0.00 1.41 28.16 -17.4 -1.3 2.41
Piramal Glass 894.86 31.78 1.87 8.16 1.0 6.5 1.63
La Opala RG 864.22 31.13 11.67 8.59 35.3 38.9 0.42
Shreno Ltd 433.52 0.00 5.09 0.00 4.8 8.0 0.50
Empire Inds. 335.22 11.66 3.35 6.34 38.6 27.6 0.66
Borosil Glass 307.02 8.54 0.49 6.72 2.7 3.5 0.00
Saint-Gob. Sekur 152.70 0.00 2.09 18.34 0.8 3.8 0.07
Haldyn Glass 70.75 3.96 0.74 1.77 25.5 33.7 0.13
Guj. Borosil 59.81 73.08 1.94 11.94 0.0 0.0 0.41
Banaras Beads 20.19 7.83 0.53 2.72 8.8 11.2 0.15
Victory Glass 15.61 0.00 0.56 0.00 2.8 10.6 1.26
Haryana Sheet 15.20 0.00 -0.13 295.77 0.0 0.0 0.00
Triveni Glass 14.97 2.60 -0.26 41.25 113.8 1.4 0.00
Sezal Glass 12.58 0.00 0.10 48.07 0.0 0.0 0.46

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Key Information

Key Executives:

Ajay G Piramal , Chairman  

Vinita Bali , Director  

Vimal Bhandari , Director  

Dharendra Chadha , Director  


Company Head Office / Quarters:
Piramal Tower,
Ganpatrao Kadam Marg,
Mumbai,
Maharashtra-400013
Phone : 91-022-30466969
Fax : 91-022-24908824
E-mail : complianceofficer.pgl@piramal.com
Web : http://www.piramalglass.com
Registrars:

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