Mr. Chunduru Srinivas, VP Strategy & Head-Investor Relations, Piramal glass, a B.E. (Mechanical), MBA in Finance & Marketing, holds a Post-Graduate Diploma in Advertisement and Post-Graduate in Statistics. Chunduru Srinivas is currently working as Vice President Strategy & Head- Investor Relations for Piramal glass. For a brief period prior to his current assignment with PGL, he has worked with Larsen & Toubro Ltd as EA to Member of the Board (EBG). His passion includes teaching and currently on academic advisory board of two of the top ranked Management schools in Mumbai.
Piramal Glass Ltd. (PGL, erstwhile Gujarat Glass Ltd.) is a leading global manufacturer of flacconage (glass containers) for pharmaceuticals, foods & beverages and cosmetics and perfumery industries. The Company had revenues of Rs10bn in FY09. PGL has a global footprint, with manufacturing facilities located in USA, Sri Lanka and India. The Company markets its products to more than 54 countries across the globe. The Company is also the largest producer of nail-polish bottles globally, with more than 30% market share. PGL is part of the Piramal Group, led by Ajay G. Piramal. It is one of India’s foremost business conglomerates. The Piramal Group has interests in a myriad of industries that encompass healthcare, drug discovery & research, diagnostics, glass and real estate. The Group’s turnover exceeded US$900mn in FY09.
Speaking with Jasmine Kohli of IIFL, Chunduru Srinivas says "News about Piramal Glass Ltd’s stake sale is completely baseless and unsubstantiated."
Please clarify on the stake sale news?
It is completely baseless and unsubstantiated. To give a perspective, in FY09 we had a loss of Rs1.04bn, which was essentially because of the aggressive expansion plans we had in the past. At that point of time our debt-equity was as high as 15:1 and debt was Rs13.57bn then.
We had a rights issue of around Rs1.85bn in September FY10, which was fully subscribed. Post that, we had three quarters of turnaround and from (Rs1.04bn) negative PAT we had; we are at Rs33mn of profits and from 14.6% EBITDA margins we are at 21.6% in FY10.
We have seen a turnaround last year and are currently in the growth phase. Our recent investments are just about fructifying and we are here committed to our vision of "global leadership in glass packing business".
What is your debt-equity ratio? What is the target for the next two years?
We had a debt-equity ratio of 15.4:1 in FY09 and in FY10; we are at 3.4:1. This improvement is on account of improved operating margin, better control on working capital and judicious capex which resulted in free cash flow which was used to clear part of the debt.
Coupled with this, we also had a Rights Issue of around Rs1.85bn which was also used to clear the debt. By FY12 we aim a debt-equity ratio of 1.7/1.8:1.
Brief us about various segments?
We are a specialty glass manufacturing company. We cater to Cosmetics & Perfumery (C&P) industries, Pharmaceutical industries and Specialty Food & Beverage (SF&B) industries
Since the beginning, PGL has been in niche markets and hence none of our product portfolio caters to commodity glass packaging. Our products find application in C&P (glass bottles for nail polish, perfumes, foundations, attars, etc.), Pharmaceutical (glass bottles for injectibles, liquid oral formulations, etc.) and SF&B (glass bottles for high end liquor, wine and food).
Brief us about your manufacturing facilities?
We have manufacturing facilities in emerging economies i.e. India and Sri Lanka and developed economies i.e. USA. We have 11 furnaces that are spread across Kosamba and Jambusar (both in Gujarat) in India, Horana in Sri Lanka and Flat River & Williamstown in USA. The combined capacity from these 11 furnaces globally is 1115 tons per day (TPD).
Out of 1115 TPD, 340 TPD is dedicated to C&P, 440 TPD to Pharmaceuticals and balance 335 TPD is to SF&B
How are your acquisitions doing as of now?
PGL had two manufacturing acquisitions one in Sri Lanka (formerly known as Ceylon Glass Co. Ltd.) in FY99 and in USA (Glass Group Inc. formerly known as Wheaton Glass) in FY06.
The Sri Lanka operation mainly caters to SF&B and currently enjoys approximately 88% share in Sri Lankan market and about 30% of its sales are exported.
Sri Lankan operations turned around in about couple of years after the acquisition. In FY08 we doubled the capacity in Sri Lanka from 120 TPD to 250 TPD to cater to the export market. While doubling the capacity, we also moved the manufacturing facility to the tax-free zone. It will get tax exemption till FY13.
We acquired the USA operations from Glass Group Inc. (formerly known as Wheaton Glass), a Chapter 11 company in USA for USD18mn. In over three and a half years since that acquisition, the cumulative investment in USA has been around USD75mn, including acquisition cost of US$18mn, funding of cash loss, upgraded capex and working capital. In FY10, USA operations had a cash break even and turned PAT positive in the last two quarters.
Brief us about your exports and its contribution to the revenue pie?
Our products are sold in over 55 countries. 76% of our sales are out of India. The Indian operations account for 55% of sales, out of which approx. 60% is exported. USA accounts for 32% of sales and Sri Lanka 13%. In terms of geography, emerging economies i.e. BRIC (Brazil Russia, India and China) contribute around 35% of our sales.
Which segment is the main contributor to your revenues?
43% of our sales come from C&P, 31% from Pharmaceuticals and 26% from SF&B, which we cater through the Sri Lankan and American markets.
Do you foresee any changes in the C&P product mix going forward? What kind of growth are you targeting for FY11?
C&P had contributed 19% of our sales in FY04. In FY10 it contributed to 43% of the sales. Going forward, we estimate that in the next couple of years, C&P would reach 50% of our sales.
Within C&P, the once negligible sub-category Premium contributed 43% in FY10. We estimate this to go up to 63% by FY12. The growth would be driven by emerging economies.
In Asia, PGL is the only player with approvals. We have ongoing relationships with marquee clients like P&G, Coty, L’Oreal, Estee Lauder, LVMH, Elizabeth Arden, Merck, Cipla, Cadbury Schweppes, etc.
Do you plan to exit the Pharma segment?
No. We will continue to focus on this segment. 31% of our sales are in Pharmaceutical segment and we are the leader in India with close to 35% of the market share. Moving forward, we would focus and concentrate on product mix and geography mix improvement.
Do you expect any consolidation in the global C&P industry? What strategies will you put in place to tackle that?
Yes. In the next five years, we anticipate the industry to consolidate mainly with the customers shifting their procurement from Asia. PGL has invested in capacity expansion in the last three years and focus will be to improve product mix and hence ROCE of existing capacity.
PGL has invested in world class business processes like Manufacturing Excellence (journey to achieve Six Sigma) and SAP – ECC 6 giving it an edge over competitors. Apart from these, modern management techniques like Balanced Scorecard, X Matrix and EVA are also being implemented.
What is the outlook for topline and bottom line growth?
In terms of topline we are expecting 10-12% growth in FY11. The focus is on margin expansion and hence ROCE should increase. We had 14.9% EBITDA margin in FY09 that grew to 21.6% in FY10. By FY12 we are giving a guidance of 28% for EBITDA margin.
What are your expansion plans? What is your capex plan?
We are not looking for Greenfield projects till FY12. We will continue with existing production. We have 1115 tons per day capacity.
In the last three years, PGL has invested Rs8bn and this capacity would suffice for the planned growth.
In the next three years, we will have only Brownfield expansion and we have estimated a capex of approx. Rs1.6bn against a depreciation of Rs3bn. We would use internal accruals for the same.
PGL has also gained from USA operations in terms of skill, technology and know-how.
Our average interest cost has come to the range 7-7.5% from about 10-11% in the past.
The focus of the company is generating free cash and improving ROCE from current 10% level to late teen level.
What would be a game changer initiative for you?
PGL has world class glass manufacturing facilities and processes approved by 17 out of top 20 customers in the C&P segment. Asia / emerging markets are growing as the vital consumer markets and because PGL is the only player from Asia, growth is certain.
We have invested in Value Added Services like Design Studio (close to 100 new designs are launched every year), Decoration etc. and hence customers prefer us as a one-stop shop for glass packaging.
Brief us about your working capital and inventory management?
Inventory level is 30-40 days. Working capital as a percentage of sales in FY09 was 48%. In FY10 it improved to 38% and going ahead we will stabilize the same at 33-35% approx.