>PIRAMAL GLASSES: global leader in delivering packaging solutions for the perfumery and pharmaceuticals businesses

■ Glass Packaging Industry – Ample Scope to Scale up the Business
The global market size of the glass packaging industry is currently valued at US $30 bn dominated by the moulded glass packaging industry to the extent of US $28 bn while the balance is being contributed by the tubular glass packaging industry.


Further, of the moulded glass packaging industry, food and beverage (F&B) glass constitute majority of the market (more than 85%), while the balance is contributed equally by the pharma, and cosmetics and perfumery (C&P) segments. On the other hand, the SF&B market size is pegged at US $1.3 bn (5% of the F&B market). The addressable market for PGL (which has presence in C&P, pharma, and SF&B segments) is thus ~20% of the moulded glass packaging market.


■ Cost Advantage and US Subsidiary Given Competitive edge
Flacconage is a labour and skill intensive industry. Though the manufacturing of glass itself is highly automated, critical functions such as quality control need large teams of skilled professionals. Not surprisingly, the total cost of production in India, where manpower is among the cheapest in the world, is less than 50% of that in France and almost half of that in the US (Source: Mckinsey). With manufacturing facilities in India and Sri Lanka, Piramal Glass is able to produce glass at significantly lower costs than its competitors in other parts of the world and deliver a sustainable cost advantage to customers.


■ Healthy ROE and improving ratios
PGL has exhibited a sharp improvement in return ratios. The RoE is clearly improving as it was 3.4% in 2010 and 34% in 2011. High RoE in 2011 was because of leverage effect and going forward we expect 25-27% RoE is manageable.


The debt/equity has also reduced from the peak of 31x in FY09 to 3x in FY11. Going forward, we estimate the D/E of the company to reduce further to a reasonable 2x by FY13E and 1.5x by FY14E thus lightening the balance sheet despite the capex of Rs 260 cr. Moreover, the company has already restructured its debt to a lower interest rate, which is now stands at 7.5% against earlier peak rate of 13%.


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