Piramal Glass – a World Class Company

Piramal Glass Results

(in Cr.)
Jun-11
Mar-11
FY10-11
Revenue
197.34
207.58
771.88
Net Profit
19.23
22.9
68.6
EPS
2.39
2.85
8.53
Cash EPS
4.64
5.28
17.73
OPM %
29.02
30.29
27.33
NPM %
9.74
11.03
8.89

Piramal Glass share price movement

 
 
 
Weekly H/L
126.45
120.1
Monthly H/L
132.7
118.7
52 Weeks H/L
156
79.15
 
( 26 Jul 11 )
( 9 Feb 11 )
Delivery / Var+ELM %
65.23
12.5

Piramal Glass

Piramal Glass share price movement
Piramal Glass share price movement | Source

Piramal Glass is a world class company


Q1 results not satisfactory

Piramal Glass has not produced good results for the quarter ended 30.06.11 when compared to the quarter ended 31.03.11. Revenue declined from Rs.207 crore to Rs.197 crore. Revenue for the full year 2010-11 was at Rs.771 crore. Net profit declined from Rs.22.90 crore to Rs.19.23 crore. Net profit for the year 2010-11 was at Rs.68.60 crore. Operating profit margin declined from 30.29% to 29.02%. Net profit margin declined from 11.03% to 9.74%. The shares of Piramal Glass are traded in the Indian stock markets at Rs.121 (05.11.11). The company is engaged in the manufacture of containers and packaging. The highest share price in the last one year recorded was at Rs.156 (26.07.11) and the lowest price at Rs.79 (09.02.11). The present share price is close to the lowest price in the last one year. This gives a temptation to the investors to acquire the shares of Piramal Glass at the current price level. It is worth it? Let us analyse.

High margin cosmetics & perfumery bottling

The company is in the field of high margin perfumery and cosmetic packaging. It is noteworthy that the flagship company of the Piramal group Piramal Healthcare Ltd is engaged in the manufacture of perfumes. Therefore the company’s packaging can be sold to the flagship company without any hitch. Piramal Glass supplies its glass packaging products to foods, beverages and pharmaceuticals industries apart from cosmetics and perfumes. Here again, Piramal Healthcare and another Piramal group company Piramal Life Sciences are in the pharmaceutical business. The former can source its requirements of packaging from Piramal Glass. The latter is right now engaged in only research activities. Piramal Glass has manufacturing facilities in USA, Sri Lanka and India (Gujarat). The company plans to expand its capacity by 22% in the current fiscal year.

Turned around

Piramal Glass was a loss making company till 2009. It turned around then. In the last five years, sales turnover has more than doubled. The company’s debt equity ratio was at a high of 15.7 in 2009. After the rights issue, it has now come down to an acceptable 2.4. Through this reduction, the company has saved on interest cost also. Piramal Glass’s entry into the high margin cosmetics and perfumery packaging was one of the main reasons for its turnaround. Food, pharmaceuticals and beverages packaging enjoy a margin of around 22% whereas cosmetics and perfumery enjoy a margin of around 30%. The company derives half of its revenues from the cosmetics and perfumery packaging.

US acquisition helps expand customer base

Through a US acquisition, Piramal Glass could access high profile customers like Estee Lauder, Elizabeth Arden, L’Oreal, Revlon Calvin Klein and others. In the perfumery packaging, Piramal Glass enjoys a market share of 5.8%. There are totally ten players in perfumery packaging including Piramal Glass and the remaining nine are based in Europe. Because Piramal Glass is an India-based company, it enjoys cost advantage over others almost to the tune of 50%. Piramal Glass has the second highest capacity in the world. But in terms of growth, it is number one among its global peers. Among the ten companies, SGD has a market share of 21%, Pocket 13%, Heinz 12% and Bormioli Luigi 10%. But many of these nine European companies are more than hundred years old. Piramal Glass acquired a market share of 5% in just two years of entry. It is the only Asian company in the foray. It enjoys the patronage of customers like Yves Rocher, LVMH, Coty and YSL.

Reduction in debt equity ratio reduces interest outgo

By virtue of the reduction in debt equity ratio, Piramal Glass enjoys cash surplus. It plans to invest around Rs.250 crore in the next two years mainly out of this cash surplus to increase its capacity of cosmetics and perfumery packaging further. For the next two years, Piramal Glass plans to grow at a CAGR of 17%. In India, Hindustan Glass is also in the field of packaging, but it has not entered into the high margin cosmetics and perfumery packaging yet as it requires expertise.

Piramal Glass produces one out of two nail polishes

Earlier, Piramal Glass was known as Gujarat Glass Ltd. Initially in 2000, Piramal Glass entered the nail polish bottling market and subsequently in low priced perfumes bottles called mass perfumes. It attained a dominant position in the nail polish bottle market. Today, Piramal Glass manufactures one out of every two nail polishing bottles globally. In 2011, it produced 1.72 billion pieces of nail polish bottles. In 1999, the company acquired Ceylon Glass in Sri Lanka. Production of flacconage glass is a highly profitable specialised business. It involves high technology and only a selected few companies can produce the product to meet the quality. Piramal Glass acquired the American company with a view to produce this glass. Piramal Glass lays emphasis on marquee international brands in the premium segment. In terms of geographical spread of the company’s market, US contribute 35%, Asia and BRIC 45% and the remaining 20% is contributed by Western Europe.

Glass packaging market worth $30 billion

Global glass packaging market is estimated at $30 billion. Out of this, moulded glass garners a sizeable share amounting to $28 billion. Tubular version takes the rest $2 bullion market share. Piramal Glass is in the field of moulded glass business amounting to $28 billion globally. Cosmetics and Perfumery packaging is estimated worth $2.3 billion, pharma sector $2 billion and Foods & Beverages $1.3 billion. Piramal Glass is converting a part of its pharmaceutical bottling capacity to cosmetics and perfumery packaging. This makes sense as conversion of low margin products into high margin value added products increases profits and profitability. Cosmetics and perfumery packaging is made of glass whereas plastics are used along with glass in speciality food, snacks and beverages market. Piramal Glass converted a 75 tonnes per day furnace in Surat to a 55 tonnes per day furnace dedicated to cosmetics and perfumery bottling.

Capacity expansion

Piramal Glass is setting up a Greenfield plant of capacity 160 tonnes per day by the end of financial year 2012 to meet the increasing requirements of cosmetics and perfumery bottles. The company is also realigning four pharmaceutical bottle furnaces to cosmetics and perfumery bottle furnaces with an investment cost of Rs.160 crore. This will add a 50 tonnes per day capacity. After all these things, the company’s total capacity in cosmetics and perfumery bottles will go up to 600 tonnes per day. That will catapult Piramal Glass to the second largest manufacturer of cosmetics and perfumery bottles in the world. Piramal Glass’s US plant has a capacity of 195 tonnes per day and operates with two furnaces. However, Piramal Glass is planning to shift 85 tonnes per day capacity from USA to India to save on labour cost. But a portion of the saved labour cost will have to be spent on freight cost. Gas is an important component in the production of glass. Piramal Glass will be getting the required gas from Gas Authority of India and Gujarat Gas. But gas prices are also rising in India. This should increase cost of manufacture for the company. It remains to be seen whether it can pass on the increased cost to its customers in order to retain its profitability.

70% of revenues from exports

Luxury market in India is growing fast with increase in the purchasing power of the people. It is estimated that by 2015, a quarter of the luxury market in the world will be concentrated in China and India. Indians have just now started buying high quality perfumes like Eternity, CK One, Issey Miyake and Miss Dior. Products like Antiquity Blue are being sold in Indian cities in increasing numbers. Piramal Glass has therefore a bright future even within India. It is currently exporting to 50 countries. 70% of its turnover comes from exports. The weakening of the rupee against dollar should benefit the company. Piramal Glass has established marketing offices in ten countries across six continents. Piramal Glass offers a complete array of flacconage solutions under one roof, which includes in-house mould design, full bottle design capabilities, glass manufacturing, mould manufacturing and dedicated ancillaries for decorating and accessories such as cartons, caps and brushes. In the domestic pharmaceutical glass packaging segment, Piramal Glass is the market leader with 35% market share.

Reasons why you should invest in Piramal Glass

The shares of Piramal Glass can be acquired at the current price for medium term holding for the following reasons:

  • The share price now is close to its yearly low
  • The company belongs to the reputed Piramal group
  • Ajay Piramal, who heads the group, is skilful and experienced in steering the company to greater heights
  • The company is the market leader in domestic glass bottling segment in all sectors
  • The company is one of the ten manufacturers of the high-end cosmetics and perfumery bottles.
  • The company will soon become world number two in terms of capacity in cosmetics and perfumery bottles
  • The company adopts high technology in its products
  • The company has vision to expand capacity
  • Compared to its peers, Piramal Glass enjoys low cost advantage
  • 70% of its revenue is acquired from exports
  • The company has export basket of more than 50 countries

The company is the only manufacturer of cosmetics and perfumery glass bottles in USA.

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Piramal Glass located in India

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Piramal Glass, the world class company is located here

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