Piramal Glass : Target 155:: Anand Rathi

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Piramal Glass                                Price    108                                                                                                                             Target   155

~ Company Description

Piramal Glass- The Ajay Piramal group  company with its operations spread across India, Sri Lanka & USA has presence in the Pharma, Specialty Food & Beverage (SF&B) and Cosmetics & Perfumery (C&P) segment.

Piramal Glass (erstwhile Gujarat Glass) has an experience of more than 20 years of glass making in India. With acquisition of Ceylon Glass, Sri Lanka in 1999 and The Glass group, US in 2005, the company made a foray in international arena. Acquisition of the US company gave PGL an access to new technology enabling an entry into the developed, niche flocannage glass market and a large customer base in the premium C&P segment (like Arden, Estee Lauder, L’Oreal, Revlon etc.).

The acquisition of Glass Group has also brought with it a direct entry into the premium C&P business, an access to 17 out of the top 20 customers in the difficult to enter market marked by high gestation period of 3-5 yrs and product development cycle of 12-18 months. Post acquisition, PGL has not only turned around its US subsidiary but has commanded ~6% market share in the global flocannage glass market, making it the only Asian player to supply to the European Cosmetics and Perfume majors.

Piramal Glass is among the global leader in delivering packaging solutions for the perfumery and pharmaceuticals businesses. PGL offers an entire gamut of flacconage solutions  under  one  umbrella,  making  it  a  one-stop-shop  for  all  the  needs  of customers.          PGL      end-to-end        flacconage       solutions include           full        bottle    design capabilities, in-house mould design, CNC machines for mould manufacturing, high quality glass manufacturing and dedicated ancillaries for decoration and accessories like caps, cartons and brushes.

Investment Arguments

~Glass Packaging – Ample Scope to Scale up the Business

~Cost Advantage and US Subsidiary Given Competitive edge  

~Business Segments - C&P, Pharma, SF&B

~Continuous Customer Acquisitions Enhancing Market Share

~Healthy ROE and improving ratios

~The Road Ahead

~ Valuation

The business model of PGL is quite robust. It has consistently been eating the pie of global competitors in C&P (High margin) segment. Currently C&P segment contributes more than 52% of its total revenue where it enjoys competitive advantage (cost of production is almost half) over its peers thus ensuring business even in case of a European financial crisis. Because of cost benefit, PGL can offer better price to struggling clients. Current downturn in Europe given very good opportunity to PGL to enhance its penetration. As the company is growing by eating away competitors’ business without compromising the margins, we expect the company to post a strong growth of 12% in top line over FY11-FY13E. Stock is quoting at PE of 8.2x & 6.3x for FY 12e and FY 13e. Historically stock is quoting in a PE band of 8-10. We expect the stock to quote at PE of 9x for FY 13e and expect the price target of Rs. 155 (9 X 17.25)