Mid-cap Scanner: Hindustan National Glass

The company plans to expand capacity by FY12 and should benefit from better efficiency and a hike in its stake in a float glass venture

Hindustan National Glass (HNG) is India's largest container glass solutions provider with a 65% market share. The company has a market cap of Rs 20 billion and the average traded volume over the past two weeks was at 4,000 shares. HNG has plants at Rishra (West Bengal), Bahadurgarh (Haryana), Rishikesh (Uttarakhand), Neemrana (Rajasthan), Nashik (Maharashtra) and Puducherry. The company has grown in the past 10 years through mergers and acquisitions and it has also succeeded in turning around some of the loss-making units that it acquired. It is in the container glass space which makes up about 7% of the Rs775 billion packaging industry. This business has been growing at 8% CAGR. (Compound annual growth rate is the year-over-year growth rate over a specified period of time.)

HNG caters to the pharmaceuticals, liquor, beverages, cosmetics and processed foods industries. While 85% of its sales volumes are to the FMCG sector, 15% is in the pharmaceuticals sector. The volume breakup businesswise is liquor 52%, beer 13%, food and beverages 17% and personal care 4%. Among HNG's customers are United Spirits, Pernod Ricard, Diageo, Radico Khaitan, United Breweries, SAB Miller, Carlsberg, Pepsi, Coke, Nestle, Unilever, Heinz, Cipla, Pfizer and Glaxo.

HNG plans to increase capacity by 40% in FY12 to accelerate growth. It had delayed capacity expansion because of volatile fuel costs, according to a report by Motilal Oswal (MOSL) on the company. Capacity is to be increased from the current 2,825 tonnes per day (tpd) to 3,775tpd in CY12. This includes a 100tpd capacity at Nashik, for the high-margin cosmetics glass segment. MOSL estimates 7% volume CAGR over FY10-12 to improve significantly to 23% CAGR over FY12-14.

The company is also setting up a unit with 650tpd capacity at Naidupeta in Andhra Pradesh at a cost of Rs4.9 billion, to cater to demand in South India. The unit is expected to begin production in January-March 2012. 

Another positive aspect is the improving efficiency that should result in margin expansion. "Draw efficiency has improved from 64.5% in FY07 to 85% and pack efficiency has also got better to 87%," MOSL said. These efficiencies ratios indicate the number of bottles produced to the molten material drawn.

HNG is working towards using LNG at its Neemrana unit beginning this year, as well as at the Nashik unit from FY12. The company has implemented technical improvements such as the narrow-neck-press-and-blow process that produces lighter and yet stronger bottles. This has brought higher realisations for the company, while reducing costs for its customer. Higher capacity in the cosmetics business is expected to also add to margins.

CRISIL Equities expects margins for HNG to recover in the ensuing quarters, after a not so good first quarter, since the company raised prices by about 6% from August 1. "We continue to remain positive on the growth prospects for HNG, driven by its leadership position in the container glass industry and strong management capabilities. We maintain the fundamental grade of '4/5', indicating that HNG's fundamentals are superior relative to other listed equity securities," CRISIL said in a recent report.

A third aspect going for HNG is that it plans to increase its stake in a 600tpd float glass venture from the current 47.5% to 51%. MOSL has valued the stake at Rs32 a share and it expects this to begin contributing to the consolidated numbers from FY12. However, CRISIL is somewhat disappointed by a lack of clarity in the performance of the float glass business in the first quarter. The company does not disclose results of this unit on a quarterly basis.

Most of the benefits from the expansion, margin improvement and the float glass venture are likely to kick-in in the long term.

MOSL also points out that HNG has a low debt-equity ratio of 0.5x and that nearly 17% of the equity is in the form of treasury stock (reacquired stock) that can be used to further reduce debt. It has valued the container glass business at 10x F12E EPS and the stake in the float glass business at Rs32 a share (and at 10x FY12E EPS for a 51% stake). It has a target price of Rs325. CRISIL estimates the fair value for the stock at Rs292, at 13x FY11 and 11x FY12 earnings.

Late May, news reports suggested that Piramal may sell its glass business to HNG. Since then, the stock has traded in a range of Rs 200-250, although currently it shows a technically bearish trend. In June, an investment entity of Sequoia Capital acquired a little over 7% stake in HNG for Rs1.3 billion  (about $27 million). 


Food inflation up at 10.86% for the week ended 21st Aug

New Delhi: After declining for two consecutive weeks, food inflation inched up marginally to 10.86% for the week ended 21st August, as prices of cereals, fruits and milk rose, reports PTI.

Food inflation was 10.05% during the previous week, while it was 14.86% a year ago.

The rise in food inflation has been driven by higher prices of cereals, milk and fruits. Prices of vegetables, especially onion and potato, however, have declined.

Analysts and experts, however, believe that the food inflation will stabilise in the next few months and may decline to single digit level, mainly on account of the expectations of good monsoon and kharif output.

The Reserve Bank of India (RBI), experts said, will continue to follow the tight monetary policy to check rising prices. The central bank had raised key policy rates thrice in the recent past to check inflation.

"We will continue to see some minor ups and downs in the food prices for a few weeks. However, the overall picture is one of decline due to a good monsoon and we should food inflation in single digit by the last quarter, as markets are flooded with fresh farm supplies," Crisil Chief economist D K Joshi said.

The central bank, he said, was unlikely to make any changes in its monetary policy stance, based on upswing in the food inflation during just one week.

"We do not think RBI will go for any major changes at its upcoming mid-quarterly review on September 16. However, we may see some action after that," Mr Joshi said.

On an annual basis, cereals turned expensive by 6.67% for the week under review. Within this group, prices of pulses soared by over 14%, while rice and wheat increased by 8.05% and 7%, respectively.

However, vegetable prices went down substantially.

Compared to last year, vegetables were less expensive by 9.90%. Within vegetables, potato was cheaper by 51.25%, while onion went down by 8.97% on an annual basis.

When contacted, Jawaharlal Nehru University's Jayati Ghosh said: "There is always fluctuation in food inflation and this is a very normal season pattern. However, the issue of price rise for the common people have to be addressed."

She said RBI may go for some more tightening of the monetary policy over the next few months but it will not be solely driven by a single week's food inflation data.

"The question is where (policy action will take place).

They need to make it sector specific. There are problem areas like food and this should be taken into account," Ms Ghosh said.

Facing the opposition attack in the Lok Sabha on the issue of price rise, finance minister Pranab Mukherjee had last month sought the cooperation of the states in taming food prices, while dismissing the charge that the Centre is insensitive to the plight of the common man.

Overall inflation based on wholesale prices had declined to single-digits in July at 9.97%, after being in double digit for five months.


BlackBerry data requests legitimate: UN official

London: The chief of the United Nation's (UN) telecommunications agency urged the Canadian manufacturer of the BlackBerry to allow law enforcement agencies, including those in India, access to customer data, saying governments had legitimate security concerns which should not be ignored, reports PTI.

The International Telecommunication Union (ITU) agency's secretary general Hamadoun Toure said that all governments engaged in the fight against terrorism had the right to demand access to users' information from the maker of the BlackBerry - Research In Motion Ltd.

"Those are genuine requests," he told The Associated Press yesterday.

"There is a need for cooperation between governments and the private sector on security issues".

RIM has said it complies with all legal requests, but is unable to provide anyone with the text of e-mails sent using its corporate service, which is designed from the ground up for secure communications.

The International Telecommunication Union is responsible for coordinating the use of the global radio spectrum, promoting international cooperation in assigning satellite orbits, and establishing standards for the telecommunications industry.

The little-known body also serves as a global forum for discussion of cutting-edge communications issues.

The agency has no independent regulatory power, but Mr Toure's comments are a barometer of sentiment among the agency's 192 member states, who are expected to re-elect him to a second term later this year.

At least five of those members - India, Indonesia, Lebanon, Saudi Arabia, and the United Arab Emirates - are already considering banning some BlackBerry services over concerns that the devices' powerful data encryption could be used as a cover for terrorist and criminal activity.

Civil libertarians have argued that the controversy is in fact fuelled by authoritarian governments' inability to eavesdrop on BlackBerry-using citizens.

Governments in the US and elsewhere have largely made their peace with encryption technology. E-mails can still be obtained through legal channels, for example by obtaining a warrant to search the corporate servers of companies that use BlackBerrys.

But that isn't enough for some officials in Asia and the Middle East, who have demanded that RIM modify its practices to allow them wholesale access to BlackBerry e-mails as they're being transmitted.

RIM has thrown up its hands, saying the way its system is set up prevents anyone except its clients from decrypting communications.

A company representative in London did not immediately respond to a request for comment on Mr Toure's remarks.


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