Piramal Glass - Betting slow but gradual FY14E growth - ElaraCapital

Lackluster results continue

Piramal Glass reported operationally lacklustre quarter; fourth time in a row. Revenue was reported at INR4.22bn, up 10% QoQ, 7% above our expectation. This is attributed to the 160tpd newly commenced capacity which is generating higher revenues. Operational EBITDA margin (before forex) at 17.8% is 100bps down qoq, 560bps down yoy. The technical issue in the 255tpd capacity, poor product mix led by the weak market condition and increasing gas prices have continued to impact margin over the last four quarter.

Market condition remain weak; operating leverage to benefit

Weak US and European market has led to subdued growth in the C&P business. Alternately 25% local capacity additions in the recent past has added excess capacity and thus making difficult to tap local market in frail export market. In FY14E, we expect topline growth of 15% and 130bps improvement in operating EBITDA margin of 20.4%., led by gradually improving product mix and operating cost leverage partly offset by the 10% gas prices increase expected on current run rate. Further a stable currency should reduce forex losses.

Stock may languish in near term; recover after two quarters

At FY13E EPS runrate the stock is trading at unreasonable level of 32x. However, if the company could meet or come closer to its previous EPS runrate, the P/E could improve substantially. The company is trading at P/E and EV/EBITDA of 8.8x/6.6x and 4.3x/3.7x on FY14/15E respectively. We have cut our price target to INR108 from INR123 ascribing 5x EV/EBITDA to FY14E operating EBITDA. The stock may garner better valuation as earnings trigger will be appreciated.

Source : Equity Bulls

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