Piramal Glass Pvt Ltd Management Discussions

Business Overview:

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

Market Overview: Market Size

• Cosmetics & Perfumery Global market size is estimated to be US$ 2.4 – US$ 2.7 billion.

• Pharmaceutical Global market size is estimated to be US$ 2.1 – US$ 2.4 billion.

• Specialty Food & Beverages is estimated to be US$ 1.5 – US$ 1.7 billion.

Cosmetics & Perfumery Business:

The glass containers manufactured in Cosmetics & Perfumery are used to fill nail polish, perfumes, skin care creams, foundations, attars, etc. The main raw materials for glass 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	Clubbed as Mass Segment
• Skin Care
• Nail Polish or Colour Cosmetics

The C&P glass packaging constitutes 52% of the current sales and has been growing at a CAGR of 19.8 % over the last 5 years. For FY 14, C&P division grew at 10%.

The Cosmetics and Perfumery Division of Piramal Glass caters to international marquee customers like LVMH, Yves Rocher, YSL, Coty, Unilever, Revlon, L’Oreal, P&G, Elizabeth Arden, Estee Lauder etc. apart from local C&P brand owners in international markets like Erkul Kozmetic, Compagnie De Diffusion, Cosmed, Expak, Baralan International, Estico Ltd., Revolline Ltd. These customers use the glass bottles and jars for products like nail polish, make-up foundations, perfumes, skin care creams etc.

Pharmaceuticals Business:

It caters to the requirements of Pharmaceutical Industry for packaging like molded vials for injectibles and bottles for syrups, droppers and infusions In the Indian market, PGL enjoys a leadership position in the domestic market.

Products manufactured conform to US, Indian and European pharmacopeia in Type I, Type II and Type III formulations. PGL is a leading supplier of glass containers to both multinational and Indian pharmaceutical companies like GlaxoSmithKline, Pfizer, Cipla, Abbott, Alembic, Ranbaxy, E-Merck, Aventis, Dabur, Himalaya drugs, Dr. Reddy’s Laboratories etc.

In FY-14, this segment continued to see competition in the form of replacement with PET especially in the Oral formulations and amber glass bottles in the range of 60 ml to 100 ml. PGL has focused on export markets, mainly USA, and currently 51% of PGL Pharmaceutical division comprises of exports.

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

Specialty Food and Beverages Business:

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

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

Performance summary :		Rs. in million
Particulars	FY 2014	FY 2013
Sales and Profit:		_
Total Operating Income	17,930.7	16,438.6
EBIDTA	2,845.2	2,760.0
PBT (after exceptional items)	699.0	403.1
PAT (after prior period items)	558.5	357.7
Margins:
EBIDTA %	15.9%	16.8%
PBT % (after exceptional items)	3.9%	2.5%
PAT % (after prior period items)	3.1%	2.2%
Growth:
Total Operating Income	9.1%	16.8%
EBIDTA	3.1%	(17.2%)
Net Profit	56.1%	(67.0%)

Results review summary:

Total Operating Income for the year ended 31^st March 2014 grew by 9.1% to Rs. 17,930.7 million compared to Rs. 16,438.6 million in FY2013.

Earning before Interest, Depreciation, Tax and Amortizations (EBIDTA) for the year was at Rs. 2,845.2 million, a growth of 3.1% over FY2013 EBIDTA of Rs. 2,760.0 million.

Net interest was at Rs. 1,037.3 million, as compared to Rs. 1,043.2 million in FY2013. The total consolidated debt as on 31^st March 2014 was Rs. 14,024.4 million, Non-operating income includes profit on sale of land in Sri-Lanka of Rs. 303.0 million Depreciation for the year ended was Rs. 1,411.9 million compared to 1,313.7 million in FY2013. Further, taxes were at Rs. 140.5 million, compared to Rs. 45.4 million in FY2013.

As a result, there was a Net Profit of Rs. 558.5 million, compared to Rs. 357.7 million in FY2013.

Net sales analysis:				Rs. in million
Consolidated Sales break-up	% Salience	FY 2014	FY 2013	% Growth
Domestic Sales
Cosmetics & Perfumery	8.4%	1,481.2	1,206.9	22.7%
Pharmaceuticals	13.2%	2,319.4	2,166.9	7.0%
Specialty Food and Beverages	2.1%	377.5	560.6	(32.7%)
Sub-total – India	23.7%	4,178.1	3,934.4	6.2%
Global Sales
Cosmetics & Perfumery	43.2%	7,611.4	7,024.7	8.4%
Pharmaceuticals	13.9%	2,447.2	1,922.8	27.3%
Specialty Food and Beverages	19.2%	3,381.7	3,228.6	4.7%
Sub-total - Outside India	76.3%	13,440.3	12,176.1	10.4%
Consolidated Total Sales	100.0%	17,618.4	16,110.5	9.4%

Notes:

Global Sales are Total Consolidated sales outside India. % Salience is percentage of sales in the category to net sales

Manufacturing facilities review:

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

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

Piramal Glass Limited (PGL):

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

Furnace location and number	Installed Capacity TPD *	Type of glass containers manufactured
Jambusar (3)
1	270 TPD	Soda Lime Amber – Pharmaceuticals
2	125 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	95 TPD
6	100 TPD

* Tons per day

Piramal Glass USA Inc (PGI):

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

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 50 ml. 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 cost increased by 13.4% to Rs. 3,890.1 million as compared to Rs. 3,429.7 million in FY13. This increase is mainly on account of increase in gas rate in India, power rate in Ceylon and the rate variation in foreign currency conversion.

Manpower:

The PGL Group seeks to recruit and retain quality industry professionals and provide them with a high performance environment. During the financial year, total consolidated workforce of PGL was 3987 as compared to 3997 in FY2013.

The workforce details are as follows:

Consolidated manpower break-up	FY2014	FY2013	+/–
Piramal Glass Limited	3,079	3,047	32
Piramal Glass – USA, Inc.	502	531	(29)
Piramal Glass Europe SARL	4	3	1
Piramal Glass Ceylon PLC	402	416	(14)
Total	3,987	3,997	(10)

Business risk factors:

– Replacement threat:

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

– Capital intensive

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

– Glass industry is Energy intensive

– Exposure to exchange rate fluctuations :

With 76% of sales from global markets, any change in currency dynamics will have an impact on the margin.

Disclaimer:

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

Annexure to MD&A: Financial Highlights (Consolidated)

Income Statement			Rs. in million
	Year ended 31st March 2014	Year ended 31st March 2013	% Growth (De-growth)
Net Sales	17,618.4	16,110.5	9.4%
Investment Income	13.8	16.0	(13.5%)
Other Operating Revenue	298.4	312.2	(4.4%)
Total Operating Income	17,930.7	16,438.6	9.1%
EBIDTA	2,845.2	2,760.0	3.1%
EBIDTA as % to Total Income	15.9%	16.8%
Interest	1,037.3	1,043.2	(-0.6%)
Depreciation	1,411.9	1,313.7	7.5%
Profit before Tax and Exceptional items	396.0	403.1	(1.7%)
Exceptional Items / Other Income	303.0	—
Profit before Tax	699.0	403.1	73.4%
% of Total Income	3.9%	2.5%
Provision for Taxation- Current	60.9	74.7
– Mat Credit Entitlement	(36.1)	(42.9)
– Deferred	115.7	13.7
Profit After Tax	558.5	357.7	56.1%
% of Total Income	3.1%	2.2%

Net Sales

During the year Net sales increased by 9.4% to Rs. 17,618.4 million as compared to Rs. 16,110.5 million in FY 2013. The detailed analysis of it is discussed earlier in the report.

Other Operating Revenue

Other operating revenue was at Rs. 298.4 million in FY2014 as compared to Rs. 312.2 million in FY2013.

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

EBIDTA grew by 3.1% to Rs. 2,845.2 million. EBIDTA as a % of total income was 15.9% in FY 2014 as compared to 16.8% in FY 2013.

Interest

Net interest cost reduced by 0.6 % to Rs. 1,037.3 million as compared to Rs. 1,043.2 million in FY 2013.

Balance Sheet		Rs. in million
	As at 31st March, 2014	As at 31st March, 2013
SOURCES OF FUNDS
Share Capital	809.2	809.2
Reserves & Surplus	2,968.9	2,858.5
Minority Interest	701.5	671.6
Loan Funds	14,024.4	13,129.7
Deferred Tax Liability (Net)	274.3	180.9
TOTAL	18,778.3	17,649.8
APPLICATION OF FUNDS
Fixed Assets	10,932.7	10,994.6
Investments	1.1	1.1
Net Working Capital	7,844.5	6,654.1
TOTAL	18,778.3	17,649.8
Key Ratios:
Particulars	FY 2014	FY 2013
Debt Equity Ratio	3.1 : 1	3.0 : 1
Return on Capital Employed	7.9%	8.7%
Return on Net Worth (%)	12.7%	8.5%
Asset Turnover Ratio	1.6	1.5