Piramal Glass Ltd. - SPA Securities

Piramal Glass Ltd. (PGL) is a leading global manufacturer of glass containers for Cosmetics and perfumery (C&P), Pharmaceutical and Specialty food and beverages (SF&B) industries. It has a global footprint with operations spread across three countries: India, USA and Sri Lanka with total manufacturing capacity of 1245 mtpd. PGL markets its products to more than 54 countries across the globe and is the largest producer of nail-polish bottles in the world, with more than 30% market share. We met the management of PGL to get a sense of it's business potential and healthy strategy that is helping it in catapulting to a different league. Given below are key takeaways from the visit:

Shifting focus to high end C&P segment

As a part of business strategy, PGL is steadily shifting its focus from commoditised glass packaging business of pharma to high end segment of C&P business that offers superior realization and stable revenues. C&P segment commands EBITDA margin of ~30% as compared to EBITDA margin of ~22% in pharmaceutical and ~25% in SF&B segment. Share of C&P segment to total sales has increased from 36% in FY09 to 52% in 9MFY12 and the company targets to increase it further to 60% in FY13 (revenue CAGR 28%-30% over FY11-13E).

Further PGL is also targeting to increase share of premium segment in C&P business from 50% currently to 55%-60% in FY13, which will lead to increase in revenues as premium segment enjoys considerably higher realisations (around twice) than the mass segment.

Speciality Food & Beverages - on a steady growth path

The SF&B division caters to the niche market for high end liquor, wine and food which are often unique in design and decoration. As this business is freight-intensive, PGL caters to this segment from Sri Lanka and USA. In Sri Lanka, the company is the single source supplier in the domestic market with 91% market share. PGL plans to export specialty value added liquor and boutique wine bottles to neighboring markets like India, Australia and South Africa to improve realization rates. PGL expects this segment to register revenue CAGR of 16%-18% over the next couple of years due to rising demand for SF&B glass from India, Australia and the US.

De-leveraging balance sheet

Piramal Glass has been steadily strengthening its balance sheet by repaying debt and reducing interest cost led by turnaround in business and robust operating cash flows. Over the past couple of years, PGL has deleveraged its balance sheet by reducing debt equity ratio from 7.0x in FY10 to 2.9x in H1FY12. The company has guided for debt equity ratio of 1.5x by FY13.

Revenue CAGR of ~18%

PGL reported 10% growth in topline in 9MFY12 aided by 15% growth in C&P segment (contributing 52% to total sales) and 27% growth in SF&B segment (25%). PGL is guiding for revenue CAGR of ~18% over the next 2 years, on the back of 28-30% CAGR growth from premium C&P segment in line with the long-term strategy of the company.

Outlook & Valuation

While the global C&P market (size $ 2.1 bn) is growing in single digits, PGL is growing at a much faster pace through market share expansion. It is the sole Asian player and currently has a market share of ~5% of global C&P market. Access to premium clientele and huge cost competency vis-à-vis global players will continue to provide significant competitive advantage to the company. Currently the stock trades at a P/E of 8.83x its TTM EPS of INR 12.87 & P/BV of 2.45x its BV of INR 46.34.

Source : Equity Bulls

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