Piramal Glass Shift Continues, Maintain BUY :: Emkay

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Piramal Glass

Shift Continues, Maintain BUY

BUY

CMP: Rs 137                                       Target Price: Rs 160

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n     Piramal Glass (PGL) Q2FY11 performance exceeds expectation – revenue growth at 2.6% yoy to Rs3.1 bn and APAT up 3700% yoy to Rs206 mn

n     C&P contribution improves from 43% of revenues to 48% of revenues – C&P register revenue growth of 14.6% yoy to Rs1.4 bn

n     Fine-tune assumptions on interest expenditure and material costs – upgrade FY11E earnings by 9.9% (Rs9.3/Share) and FY12E earnings by 3.0% (Rs18.7/Share)

n     Maintain BUY with revised target price of Rs160/Share

PGL Q2FY11 performance exceeds expectation- APAT at Rs207 versus

expectation of Rs155 mn

PGL Q2FY11 performance exceeds expectations. The key highlights of the quarter are

as under (1) revenue growth 2.6% yoy to Rs3.1 bn (2) Ebidta growth of 8.6% yoy to

Rs0.7 bn and (3) APAT growth of 3700% to Rs206 mn. The Ebidta margins stood at

22.2% flat on qoq bases and 120 bps improvement on yoy basis. PGL continues to gain

from renegotiation of interest costs and repayment of borrowed funds – resulting in

44.7% yoy reduction in interest expenditure from Rs309 mn to Rs171 mn.

Progress on expected lines – C&P glass shows traction and increases

contribution to revenues

Progress was on expected lines – with 14.6% yoy growth in C&P business from Rs1.3

bn to Rs1.4 bn. Whereas, Pharma business declined by 0.1% yoy to Rs0.9 bn in the

quarter. C&P contribution has risen from 43% of revenues to 48% of revenues – in line

PGL’s strategy to improve high-value and high-margin C&P business. Incrementally,

C&P’s contribution to revenues should improve- amidst shift of Pharma capacities in

favor of C&P in India.

Upgrade earnings estimates for FY11E and FY12E by 9.9% and 3%

respectively

H1FY11 performance is ahead of estimates – driven by (1) lower-then expected interest

expenditure and (2) better-then expected operating performance- driven by rising share

of C&P in total revenues. We fine-tune our assumptions on interest expenditure and

material costs – align with H1FY11 performance. We upgrade FY11E earnings by 9.9%

and FY12E earnings by 3.0% to Rs9.3/Share and Rs18.7/Share respectively.

Maintain ‘BUY’ rating with revised target price of Rs160/Share

PGL is heading on right path and on expected lines – rising contribution of high margin

C&P business and lowering contribution from low margin Pharma business. We give

thumbs up to the progress achieved in H1FY11- and effect earnings upgrades. We

maintain ‘BUY’ rating and revise target price from Rs142/Share to Rs160/Share –

valuing the company on EV/EBITDA multiple of 5.2X – average of domestic and

International players.