Scripscan:Piramal Glass Ltd
cmp:114
Code:532949
Story:Piramal Glass supplies glass packaging products to cosmetics & perfumery, pharmaceuticals and food & beverages industries. It has manufacturing facilities in Gujarat, India, USA and Sri Lanka and will grow its capacity by another 22% by the end of this fiscal.The Ajay Piramal-owned company was making losses till FY09. But since then, it has shown a steady growth in its earnings. For FY11, net sales were 1,218.5 crore ( 1,104 crore in FY10) and the net profit was 103.4 crore ( 3 crore). Net sales have more than doubled in the last five years.The company did a rights issue in 2009, to reduce its debt. The debt to equity ratio was 15.7 then and has come down to 2.4 currently. This reduction in debt helped to reduce the interest outgo. This along with increasing sales from the highmargin cosmetics and perfumery (C&P) segment were the main reasons for the company's turn around.The C&P segment enjoys an operating margin of 30% against 22% for the pharma and F&B segments. Revenue share of the C&P category has grown from 35% in FY09 to almost 50% in FY11.As a result, the cash flow of the company has improved over the last two years.As highlighted earlier, higher sales from the C&P segment have helped the company to improve its profitability. The entry barrier to this segment is very high. Piramal Glass' US acquisition has given it access to customers such as Calvin Klein, Estee Lauder and the likes. It has 5.8% market share in the perfume packaging and there are nine other players, all based out of Europe. But Piramal Glass has a huge cost advantage over these companies. Cost of production for the Indian company is just 46% of that for its European peers. In comparision with its global peers, it is the fastest growing with the second highest capacity.The company has lined up capital expenditure of 260 crore in the next two years from internal accruals, mainly to increase the capacity of its C&P packaging. This will increase overall capacity by 22%. Already in the first quarter of FY12, the revenue share of this segment has increased to 55% from 49% in FY11. With this addition, the company will be able to improve its operating margins. Also as the debt level comes down, the interest cost would also fall.The company has given a growth guidance of 17% CAGR for next two years . On trailing twelve month basis, it is trading at a P/E of 9. At this valuation the stock looks attractive when compared to Hindustan National Glass which is in low margin and high volume business and is trading at a P/E multiple of 18.
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