Hindusthan National Glass & Industries Ltd. Well Packaged…: Target INR 268.4 Initiating Coverage - BUY : SKP

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Company Background
Hindusthan National Glass & Industries Ltd. (HNGIL), incorporated in
1946, is a part of the Chandra Kumar Somany Group. The company is
engaged in the manufacturing of container glass bottles that find
application in industries as diverse as liquor, beer, pharmaceuticals,
food, carbonated drinks and cosmetics among others. The company
has six manufacturing facilities in India and one in Germany.
Investment Rationale
Pan India presence with dominant market share
HNGIL is the only player in the container glass industry having Pan
India presence and a market share of ~50%. It generates ~64% of
sales from North & East region where it already has a strong
presence, however South and West contribute to ~32%, thus
providing significant geographical risk diversification.
Cost efficiencies to contain margin erosion
To improve production efficiency, HNGIL has introduced the Narrow
Neck Press and Blow technology which reduces the weight of glass
by 15 to 35% resulting in cost savings. It has also implemented the
usage of gas at four of its plants and intends to use the same for
remaining plants in near future. Going forward, we expect
EBITDA margins to improve by 229 bps ~FY12-14E to 19.2%.
Capacity addition to drive volumes
HNGIL is implementing a greenfield expansion of 650 TPD plant at
Naidupeta, Andhra Pradesh at an investment of INR 8,250 million
which is expected to be operational by July 2012. It is also adding
another 425 TPD through rebuilding its existing facilities.
Investments to unlock value
HNGIL holds 47.4% strategic stake in HNG Float Glass which is
engaged in the manufacturing of float glass to meet the needs of
construction and auto sectors. It also holds 14.6 million shares in
HNG & Ace Trust, which at CMP is valued at INR 2.99 billion.
Valuation
We rate a BUY rating on the stock with a price target of INR 268.4
/share, implying an upside potential of 30.9% from current levels in
18 months. Our target price is based on the 50% weightage to DCF
value of INR 258.4/share, 25% equal weightage to each P/E multiple of
12x FY14E EPS of INR 27.1/share and P/Bv multiple of 1.3x FY14E
book value of INR 178.1/share.

Hindusthan National Glass & Industries Ltd. Management Meeting: Adding Capacities to Service End User Demand Growth:: Takeaways from J.P. Morgan India Emerging Opportunities Access Days

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HNGI is the largest container glass (bottles) manufacturer in India with a market
share of 55% (source: company). Its key customers include players from liquor,
pharmaceutical, soft drinks and food industries. HNGI is in the process of expanding
its glass bottling capacity from current 3,250TPD to 5,650TPD by FY15 to cater to
rising demand. It has also recently entered the float glass market, through its associate
company HNGFL in which it has 47.4% interest. HNGFL operates a 600TPD plant,
which has rapidly gained market share (21% pan-India share in first year of
operations according to company) in the clear glass segment.
 End user demand continues to be strong: According to the management, Indian
glass container market is growing at about 12% per annum driven by end user
industries of Liquor, Pharma, food and carbonated drinks. Management has not
seen any material slowdown in demand recently and believes it will be able to
grow revenues 12%-15% going forward.
 Capacity expansion, entry in float glass could drive growth: HNGI is in the
process of expanding its capacity from current 3,250TPD to 5,650TPD by FY15 in
order to cater to increasing demand. It has also recently entered the float glass
market, through its associate company HNGFL in which it has 47.4% interest.
HNGFL operates a 600TPD plant has rapidly gained market share in the clear
glass segment (21% pan India, 30% in west India).
 Management expects German acquisition to turn profitable next year: HNGI
has acquired a glass container plant in Germany recently to gain a foothold on the
German market as well as to acquire technology know-how. The German facility
is currently loss-making as the PTM ratio (usable to defective bottles) is low.
According to management, it has made a plan to improve the ratio by reducing the
number of defects and expects the plant to turn profitable next year.
 Consensus valuation: Based on Bloomberg consensus estimates, HNGI is trading
at 6.5xFY12E P/E and 4.6xFY13E P/E. On a P/BV basis, it is trading at 1.1x
FY12E and 0.9x FY13E vs FY12E ROE of 14%.