Cethar Vessels - Hindusthan National Glass & Industries Limited.

Hindusthan National Glass 

RATING 

MID@S 

Corporate Factsheet 

Promoter Background Hindusthan National Glass was established in 1946 by Chandra Kumar 

Somany. His sons, Sanjay Somany and Mukul Somany ,Managing Director and 

Vice-Chairman in the company respectively, run the business. 

Presence 

6 units - Bahadurgarh , Neemrana, Nashik, Rishikesh, Rishra and Puducherry 

Fundamental View 

Current Market Price 

Recommended 

entry price 

Target Price/IRR 

Rs.272( as on 11th 

November,2010 on BSE) 

CMP 

430/35% p.a 

Management depth 

Business 

Laxmi Narayan Mandhana,CFO, and Jagdish Prasad Kasera, Senior President 

are the senior level professionals .Top management has an experience of 6 

decades in the business 

Manufactures glass containers for industries like liquor, cosmetics, beverages, 

processed foods, and pharmaceuticals. 

Market Data 

Market Cap (Rs.mn) 

23,756 at CMP 

Shareholding Promoters: 70% 

Institutions/Others: 30% 

Corporate Structure 

Revenue Model 

The group companies are Glass equipment (India) & HNG Float Glass (through 

an associate company) 

Revenue is based on piece rate basis 

Key Shareholders 

52-week High-Low 

(Rs.) 

Sequoia Capital-7.27% 

275-112 

Capacity 

2,825 TPD in FY10; Plans to ramp it up to 4,150TPD by FY13 

All time High-Low 

(Rs.) 

327-13 

Key Clientele 

Key Vendors 

Some of the clients include Coca Cola India, Pepsi India, Glaxo India, UB 

Group, Nestle India & Ranbaxy 

Tata Chemicals, Nirma, IOC, BPCL,GAIL, Magadi 

3M Average Volume 

Stock Return (%) 

Qty:43,235; Rs.4.18mn 

3M 6M 1Y YTD 

12 31 93 90 

Key Success Factors 

Credit Rating 

Corporate Bankers 

Auditors 

Strong distribution network, use of advanced technology, quality 

PR1+ for short term debt issued during August’09.Long Term Credit rating of 

AA+ from CARE 

HSBC, State Bank of India, HDFC 

Lodha & Co 

Correction from 52WH 0% 

Rise from 52WL 143% 

F&O - 

Index - 

Stock exchange list BSE,NSE,CSE 

B.Natesan - 044 43440006 , natesan@sparkcapital.in Private & Confidential 1


RATING 

MID@S 

Opportunity to back market leader with good growth prospects … 

• HNGIL is a market leader in the container glass industry in India with a market share of ~60%. Immediate peers are Piramal Glass (focus on cosmetics segment) and Hindustan 

Sanitaryware. Thus it enjoys pricing power in the industry. 

• The user industry for the container glass are IMFL & Beer, Food & Beverages, Pharmaceuticals and Cosmetics. The user industry is expected to grow at ~10-12% over the 

coming years driven largely by IMFL & Beer . HNGIL garners 60% market share in the IMFL & 75% share in the Beer space 

• Total Capacity of 2825 TPD across 6 facilities with a secular geographic spread (business advantage as proximity to end use market is a business demand considering the fact 

that empty glass cannot be transported more than 500kms);thus giving it access to all the regions in the country 

• Capex of ~Rs.10bn to augment container glass production capacity by 45% by FY13;Topline to grow at a CAGR of 18% over the next 3 years. 

• Entry into float glass business through 600tpd facility at Gujarat.Considering its past growth strategy coupled with comfortable balance sheet, we don’t rule out any plans for 

Indian/Overseas acquisitions over the coming years 

… as also solid financial strength 

• Sales ,EBITDA and PAT CAGR of 38%,43% and 65% over the past 3 years 

• Strong net cashflow from operations (CFO) in FY10 at Rs.2.9bn ;average Net CFO at 15% of sales in the last 5 years. 

• Acquisition of loss making units at inexpensive prices coupled with improving operating efficiencies has culminated into a comfortable debt/equity ratio ; one of the lowest in the 

industry. (refer debt/equity chart on page 8).Average D/E ratio for last 5 years is 0.76:1 

• ROE at ~15.5% in FY10 is the highest among its national and international peers. We expect ROE to improve ~200bps to 17.5% by FY13.Last 5 years average ROE at ~19%. 

… with scope for improvement in EBITDA margins 

• At present, HNGIL uses furnace oil as a feedstock for energy. The company will switch over gradually to natural gas (contract in place for three plants & in process for the other 

three) as a feedstock over the next 3 -4years which will result in EBITDA expansion of 700bps over FY10-14 

• Sand mining and sand beneficiation facilities to improve packing ratio (owing to reduction in default pieces) going ahead as sand is a key quality component in manufacturing 

glass 

• Sand beneficiation + higher truck fleet + backward integration through own moulds +efficiency measures should further spice up the margin expansion by~200 bps. (though not 

factored in the model thus providing cushion) 

Valued attractively for a 2-3 year play! 

Investment Thesis 

• We believe that HNG is a compelling long term story to invest into considering the fact that the company is at the cusp of a sustained business growth coupled with the 

significant improvement in operating parameters 

• At the CMP of Rs.272,HNG trades inexpensive (according to us) at 9.4x P/E and 5.6x EV/EBITDA on FY13 estimates .On FY12 estimates,HNG trades at PE of 14.1x & 

EV/EBITDA of 7.9x whereas peer group namely Hindustan Sanitaryware and Piramal Glass trade at 9.2x and 7.9x on FY12E EPS & 5.9x and 6.4x on FY12E EV/EBITDA. 

• We believe HNG should trade at premium multiples compared to its peers given its leadership status, superior operating parameters and healthier balance sheet. 

• We would value the stock using a combination of EV/EBITDA( considering the significant capex being incurred over the next couple of years), and P/E metric.We attach an 

EV/EBITDA multiple of 8.5x and P/E multiple of 12.5x on FY13 numbers whereas we value the float glass business at 1x price to book.We arrive at a one and a half year target 

price of Rs.430 per share translating into an upside of 35% p.a. Recommend a BUY with 4 star rating. 



RATING 

MID@S 

Business Drivers – Favourable industry scenario 

Global packaging industry at ~USD 500bn …India mere 3% of the global size 

India - One of the lowest consumer of container glass in the world 

• Global Packaging Industry at ~USD 500 bn, expected to touch USD 597bn 

by 2014 

• At Rs.775bn,Indian Packaging Industry translates to a mere ~3% of the 

global size 

• Glass Packaging industry 6-7% of the overall packaging industry 

South Korea 

France 

Spain 

USA 

UK 

Mexico 

Japan 

China 

Brazil 

India 

Indonesia 

1.4 

1.2 

5.9 

4.8 

10.2 

19.5 

27.5 

27.5 

50.3 

63.9 

• Indian ratio abysmal 

• Huge potential to 

increase going forward 

89 

0 20 40 60 80 100 

Source: Company Presentation 

Source: Company Presentation figure in kg 

Rising per capita income in USD 

… driving consumption of alcobev, food, beverages 

1,500 

IMFL 

1,000 

500 

0 

1,000 1,010 1,030 

831 

741 

649 

562 

468 488 

2001 2002 2003 2004 2005 2006 2007 2008 2009 

• Per capita consumption 

low at 1.83 litres against 

global average of 3.1 litres 

• Expected to grow at 

10-12% per annum 

Beer 

• Far lower per capita 

consumption at 1.3 litres 

against global average 

of 24 litres 

• Better lifestyle will drive 

consumption growth 

Food and Beverages 

• Higher disposable 

income – a key driver 

• F&B growing at 8-10% 

Per capita Income 

Source: Company Presentation 

Source: Industry REports 

B.Natesan - 044 43440006 , natesan@sparkcapital.in 

Private & Confidential 

3

Tpd 


RATING 

MID@S 

HNG in a nutshell – Risen to market leadership over the years 

42% of capacity creation through acquisition of loss making units 

Manufacturing facilities across the country giving it pan India presence … 

4,000 

3,000 

2,000 

Capacity 

Expansion 

Acquisition 

of Ow en's 

1,100 

1,800 

L&T plant 

acquisition 

2,150 

Capacity 

expansion 

2,435 

Loss making 

unit at Neemrana 

2,585 

2,825 

Location Capacity in TPD Furnaces 

Rishra 805 3 

Bahadurgarh 655 3 

Neemrana 180 1 

1,000 

Rishikesh 425 2 

30 

0 

1952 2000-01 2001-02 2005-06 2006-07 2007-08 Present 

Capacity 

Source: Company 

Nashik 390 1 

Puducherry 370 1 

Source: Company 

Leader by a mile … 

Marquee Clientele 

HNG 

2825TPD 

• Largest container 

glass manufacturer 

• Garners a country 

market share of ~60% 

HSIL 

1000TPD 

• Leader in the South with 

a share of 70% 

• 17% market share in the 

country volumes 

Piramal Glass 

675TPD 

• Small but a niche player 

specializing in the 

cosmetics segment 

Source: SPARK Capital 

Source: Company;SPARK Capital 



RATING 

MID@S 

IMFL and Beer - key drivers for the company 

Revenue Mix by Volumes … 

… by Value 

Pharmaceutical 

11% 

Others 

11% 

Food 

13% 

Beer 

15% 


12% 

Others 

13% 

Food 

14% 

Beer 

14% 

Liquor 

50% 

Liquor 

47% 

Source: Company,SPARK Capital 


Average Realization - Rs.17377 per tonne in FY10 

Region wise mix in FY10 


Food 

18,378 

19,726 

East 

20% 

South 

22% 

Average 

17,377 

Liquor 

16,503 

West 

16% 

Beer 

16,066 

15000 16000 17000 18000 19000 20000 

North 

42% 




Rs. mn 

Rs. mn 


RATING 

MID@S 

Story – Capacity to expand 45% by FY13….EBITDA margin to expand by 500bps over the years 

Capex of ~Rs.10bn over the next 3 years … 

… to ramp up container glass capacity to 4150tpd by FY13 

Location As on FY10 Capacity Adition Timeline 

Rishra 805 265 FY12 

Bahadurgarh 725 140 FY11 

Rishikesh 156 25 FY11 

To rev-up 

exposure 

in AP – 

the largest 

liquor 

consumin 

g state in 

India 

1.4 

1.2 

1.0 

0.8 

0.6 

0.4 

0.2 

0.3 

0.2 

0.2 

0.1 

0.1 

Nashik 354 24 FY12 

0.0 

FY10 FY11 FY12 FY13 FY14 

0.0 

Naidupeta, AP 0 650 FY13 

Volume in mn 

Grow th 

Source: Company,SPARK Capital units in tpd – tonnes per day 


Switchover to natural gas as a source of fuel … 

… resulting in an EBITDA expansion of 500bps 

Location 

Natural Gas 

Availability 

Savings of ~Rs.900-1200 per tonne 

Rishra in two years Furnace Oil per tonne 145 litre 

Bahadurgarh Commenced Supply Price of FO Rs.26 per litre 

0.3 

0.3 

0.2 

20.6% 

21.8% 

23.3% 23.5% 

25.7% 

Rishikesh in two years Fuel Cost per tonne Rs.3770 

Nashik from April 2011 Natural Gas per tonne 150-190 SCM 

Neemrana 

Puducherry 

Started supply in July 

2010 

Likely to start supply 

from 2012 

Price 

Fuel Cost per tonne 

Rs.15 

Rs.2850 

Naidupeta contract in place Savings per tonne Rs.920 

0.2 

0.1 

0.1 

0.0 

FY10 FY11 FY12 FY13 FY14 

EBITDA in % 





RATING 

MID@S 

Lowest debt Equity ratio in the industry at ~0.5:1 … leaving sufficient scope for company’s inorganic growth plans 

Rexam 

HSIL 

Ow ens 

Amcor 

Piramal Glass 

1.1 

1.2 

1.4 

2.6 

2.9 

• Commendable for glass 

manufacturing company 

• Company has embarked on a strategy to take HNG global 

• Scouting for acquisitions abroad to mark international presence. 

Expecting to close a deal by March’2011 

• Plans to add 2 nd float line of 1050tpd at existing facility at Halol;100 

tpd cosmetics plant at Nashik plant on the drawing board stage. 

Saint Gobain 

HNG 

0.5 

0.8 

• Leaves room for funding 

future growth plans 

• Exports + 2 nd float line will cost ~Rs.17bn (on going capex excluded) 

0.0 0.5 1.0 1.5 2.0 2.5 3.0 

Debt/Equity 

• Funding through internal accruals + debt + sale of treasury 

shares(16.7% as on today) 

Source : Bloomberg, SPARK Capital 

Solid Financials – Scores high amongst national & international peers 

• Sales, EBITDA and PAT CAGR of 38%, 43% and 65% over the past 3 years; Operating margins at 20% for FY10 – expanded by 400bps over the past 4 years 

• Debt Equity extremely comfortable at 0.5:1 considering the highly capital intensive nature of the industry ;asset turnover ~0.7:1; Interest coverage at 4.9x in FY10;average of 

4.3x over the last 4 years 

• ROEs at 15.5% and ROCE at 13% for FY10.Though not attractive on an absolute basis, extremely attractive relative to its peers. (chart below : Source Bloomberg) 

Total Asset 

Currency Company Name Bloomberg Code Debt/Equity turnover EBITDA Margin PAT Margin ROE ROCE 

INR HNG HNGI IN 0.5 0.7 21% 11% 16% 13% 

INR Piramal PIRA IN 2.6 0.7 22% 0.4% 2% 10% 

INR HSIL HSIL IN 0.8 0.7 18% 5% 9% 9% 

USD Owens OI US 2.9 0.8 19% 2% 9% 2% 

GBP Rexam REX LN 1.2 0.8 14% -0.6% -1% 1% 

Euro Saint Gobain OLG GR 1.1 0.9 10% 0.5% 1% 1% 

AUD Amcor AMC AU 1.4 0.9 12% 2% 6% 5% 



RATING 

MID@S 

Entry into float glass with a 600tpd capacity at Halol, Gujarat 

Details of the venture 

Competitive Landscape 

• 600TPD capacity at Halol, Gujarat 

• Project cost of Rs.6bn with a funding mix of Rs.2.5bn equity and 

Rs.3.5bn debt 

• Floated an associate company – Hindusthan Float Glass 

• Equity Stakes: 47% by Hindusthan National Glass, 12.4% by IFC, 

Washington and the rest by promoters 

1,600 

1,400 

1,200 

1,000 

800 

600 

400 

200 

16% 

31% 29.40% 

10.37% 

13% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

Why Float Glass 

0 

0% 

0% 

• Float Glass finds application in construction and automotive 

Gujarat 

Guardian 

Asahi India 

Glass 

Saint Gobain 


Gold Plus 

Sejal 

Artchitectural 


HNG Float 


• Revival in economy resulting in pick up in both the sectors 

Total Capacity in TPD 

Market Share 

• Both the sectors expected to witness high growth 

• 60 years of glass manufacturing prowess 

• Manufacturing process not too different 

• Float Glass industry growing at 12-15% over the last 9 years 

Management’s view on the new venture 

• Management is extremely gung-ho about the business 

prospects;growth of 20-25% CAGR expected over the coming years 

• HNG started production in Feb 2010 

• As per Industry reports, HNG has garnered a market share of 13% in the 2 

months of production .* 

Our View 

• We echo the management’s confidence of transferring the container glass 

manufacturing expertise to the float glass business 

• We reserve our concerns on the demand side being cyclical – doubts on 

managements' capability on managing cyclicality 

• We value the business on 1x price to book translating into 

Rs. 13 per share for HNG shareholders 

* As per the management, YTD market share is 27%.We have not captured 

it in the graph as we do not have other company data. 


RATING 

MID@S 

Future Outlook 

• We have assumed a volume growth of 40% over FY10-13 ie 12% CAGR and higher realisation of 6%;Sales to grow at a CAGR of 18% to Rs. 22.8bn by FY 13. 

• On the RM front, though we appreciate the fact that soda ash prices are volatile, we have kept the margins constant assuming complete pass through of price increase to 

customers thanks to the leadership status that HNG enjoys. 

• We expect a 250-300bps fall in power and fuel costs by FY13 on account of shift to natural gas. Coupled with higher operating leverage, the operating margins are expected to 

expand by 440bps to 25% 

• With the company reverting to full tax rate by FY12, we expect PAT to grow at a slower pace of 18% CAGR over FY10-13 negating the improvement in operating margins 

• We don’t foresee major shift in the working capital cycle going ahead. We expect the company to continue throwing cash at the operating level though FCF will be negative 

considering the cash outflow towards capacity expansion. 

• Thanks to the higher CFO, we don’t see a major stress on the debt/equity ratio;forsee D/E ratio at 0.57 by FY13. 

• We expect Return on equity to expand by ~200bps to 17.5% in FY13 as against 15.5% in FY10 whereas expect the ROCEs to remain at ~13%. 

• We have not factored the higher realisations that could accrue from better product mix and sale of value added products like lighter weight bottles 

• We have also not factored the benefits that could accrue to EBITDA from the efficiency measures undertaken by the company 

Valuation – Stock appears attractive from a 3-4 year horizon; BUY with a TP of Rs.430 on a one and half year horizon 

• At CMP of Rs.272 (as on 11th November,2010), the stock trades at 5.6x EV/EBITDA and 9.4x PE on FY13 estimates. 

• Taking cognizance of the improvement in operational parameters coupled with the tax benefit waning off by FY12,we value the stock using a combination of EV/EBITDA and 

P/E metric. 

• Attaching a multiple of 8.5x EBITDA and 12.5x P/E on FY13 numbers , we arrive at a average standalone share value of Rs.417 ;On a 1x P/B basis, we ascribe a value of 

Rs.13 per share for the float glass business 

• Recommend a BUY with a target price of Rs. 430 over a one and a half year horizon implying an upside of 35% p.a. 



RATING 

MID@S 

Financial Summary 

P & L (Rs. Mn) FY10 FY11E FY12E FY13E 

Total Revenue 13,834.5 15,376.6 18,426.1 23,483.3 

EBITDA 2,846.1 3,104.3 4,065.9 5,640.0 

Other Income 346.6 100.0 100.0 100.0 

EBIT 2,323.3 2,327.8 3,139.1 4,452.9 

PBT 1,851.0 1,741.3 2,507.6 3,776.3 

PAT 1,542.8 1,393.0 1,680.1 2,530.1 

Cashflows (Rs.mn) FY10 FY11E FY12E FY13E 

Operating 2935.7 2312.8 2524.7 3393.5 

Financing 43.1 1,556.8 1,664.1 -1,381.0 

Investing (3,046.2) (4,000.0) (4,000.0) (2,000.0) 

Free-cash -110.5 -1,687.2 -1,475.3 1,393.6 

Balance Sheet (Rs. Mn) FY10 FY11E FY12E FY13E 

Networth 10,545.1 11,733.8 13,209.5 15,739.6 

Total debt 5,666.4 7,366.4 8,366.4 7,866.4 

Gross fixed assets 16,699.9 16,974.5 22,474.5 26,974.5 

Net fixed assets (incl.CWIP) 11,380.2 14,503.7 17,476.9 18,189.8 

Net working capital 4085.1 4439.4 5441.9 6759.2 

Investments 

1,446.2 1,446.2 1,446.2 1,446.2 

Cash & Cash equivalents 

57.4 (83.9) 104.9 117.5 

Inventories 

2,223.3 2,318.6 2,654.6 3,209.9 

Debtors 

2,200.9 2,519.8 2,915.9 3,608.7 

Ratios/Valuation FY10 FY11E FY12E FY13E 

Sales growth (%) 4.0% 11.1% 19.8% 27.4% 

EBITDA growth (%) 31.1% 9.1% 31.0% 38.7% 

EBITDA Margin (%) 20.6% 20.2% 22.1% 24.0% 

EBIT Margin (%) 15.4% 14.1% 15.9% 17.8% 

Tax rate (%) 16.6% 20.0% 33.0% 33.0% 

PAT margin (%) 10.9% 9.0% 9.1% 10.7% 

Dividend/share 1.56 2.00 2.00 2.00 

Total Debt/Equity (%) 0.5 0.6 0.6 0.5 

Return on Equity (%) 16% 13% 13% 17% 

CMP (Rs.) 272 

EPS (Rs.) 17.6 15.9 19.2 28.9 

P/E (x) 15.4 17.1 14.1 9.4 

EV/EBITDA (x) 10.3 10.0 7.9 5.6 

Treasury shares held to the extent of 16.7% of company’s 

equity- to be used to part finance ongoing capex 

Sequoia Capital ,through one of their arms, Ironwood Holdings picked up 7% 

stake in the company (partly from promoter and rest from Treasury shares )at 

Rs.208 per share in May 2010.After the stake sale, the company still holds ~16.7% 

of treasury shares – open to further offloading shares to part finance its capex. 


RATING 

MID@S 

Description 

Mid Cap Ideas from Spark (Mid@s) is a “quick-take” research product from the sales desk at Spark Capital. Sector-agnostic and bottom-up in nature, output from Mid@s spells out the investment 

thesis in a concise format. 

Clearly differentiated from regular research in its approach and style of elucidation, Mid@s seeks to pitch interesting listed market possibilities, predominantly in the mid- and small-cap segments. 

In terms of stocks under coverage, Mid@s does not overlap with regular research output, which is more sector-driven and stays committed to routine q-o-q analysis. Unlike regular research 

output, Mid@s focuses more on speed and breadth of releases, without wanting to compromise on the quality of analysis. 

Rating Interpretation 

Strong Fundamentals and attractive price: BUY 

Metrics appeal, pick on correction: ADD 

Cause for worry, gradual exit advised: REDUCE 

Weak Fundamentals, price unattractive: SELL 

Analyst Certification 

The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this research report accurately reflect the analyst(s) personal views about the subject 

companies and their securities. The Research Analyst(s) also certify that the Analyst(s) have not been, are not, and will not be receiving direct or indirect compensation for expressing the specific 

recommendation(s) or view(s) in this report. 

Spark Disclaimer 

Typically, Mid@s targets returns of 20% + on its calls and pitches stories that have a 12 month time-horizon for a play-out. 

This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as 

investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. 

Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this 

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to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital Advisors (India) Private Limited makes no representation 

or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital Advisors (India) Private Limited, its affiliates, 

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Copyright in this document vests exclusively with Spark Capital Advisors (India) Private Limited.

Cethar Vessels - Hindusthan National Glass & Industries Limited.

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