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Forex loss hits bottomline

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November 09, 2012

Rating Buy CMP Rs93

Previous Reco Buy Target Price Rs145

-16/-8 -7 5,686 18,684 n n n

Revenues above est. at Rs 4.2bn, up 28% yoy, EBIDTA at Rs 610mn, down 33% yoy due to forex loss of Rs 252mn vs gain of Rs 110mn. APAT below est. at Rs 43mn, down 81% yoy Demand moderation in USA premium C&P, but Europe C&P grows at healthy 30% yoy. Mass grows 28% led by new capacity, while 11% growth in SL drives SF&B segment Yields improve in new facility, but yet to achieve peak stabilization and optimal product mix. Expect yields to rise, plant stabilization and better product mix in ensuing quarters Cut FY13E/FY14E earnings est. by 16%/8% due to gradual stability in new facility and forex loss. Yields to improve in ensuing quarters. Maintain BUY with PT of Rs145/Share

EPS Chg FY13E/FY14E (%) Target Price change (%) Nifty Sensex

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

1M -2 -2

3M -9 -14

6M 12M -11 -21 -22 -28

Revenue above estimates, but forex loss impacts bottomline

PGL revenue was above estimates, but was far below expectations at PAT level. Revenues grew 28% yoy to Rs 4.2bn led by Pharma, which rose 45% yoy to Rs 1.1bn due to availability of 255 TPD furnace in this quarter (which was shut for relinement in Q2FY12). C&P segment grew 22% to Rs 2.2bn and SF&B grew 18% to Rs 1bn. EBDITA fell 33% yoy to Rs 610mn largely due to forex loss of Rs 252mn vs forex gain of Rs 110mn. Excluding forex impact, EBIDTA grew 9% yoy to Rs 863mn, but EBIDTA margins fell 370bps yoy to 20.5%. Fixed costs and subdued product mix in new facility impacted EBIDTA margins. APAT declined 81% yoy to Rs 43mn, below estimates.

Relative price chart

125 Rs % 10 116 2 107 -6

98

-14

89

-22

80 Nov-11

Jan-12

Mar-12
Pi ramal Glass (LHS)

May-12

Jul-12

Sep-12

-30 Nov-12

Rel to Nifty (RHS)

Source: Bloomberg

Premium C&P growth moderate, Mass C&P grows 28% due to new facility

Stock Details
Sector
Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn)

Glass & Glass Products PIRA IB 809 10 81 125/ 82 8/ 137 18,659 0.0

C&P segment grew 22% yoy to Rs 2.2bn led by mass segment, which grew by 28% yoy led by new capacity, while premium segment grew 15% yoy led by 30% yoy growth in India (exports to Europe), but US premium sales remained flat. C&P accounts for 52% of revenues, while premium share was 53% of revenues. Slowdown being witnessed in premium segment due to excess capacity & price cuts, which is impacting USA premium C&P market. However, PGL continues to gain share in Europe and would remain key growth driver. Capacity addition has aided traction in mass C&P segment, which is expected to improve with better yields & utilisation in new capacity.

160 TPD facility gradually stabilizing, but product mix weak

Shareholding Pattern (%)

S'12 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

M'12 71.8 2.8 5.7 6.9 12.8

J'12 71.8 2.8 6.6 6.6 12.2

71.7 2.8 5.1 8.0 12.5

New facility is gradually stabilizing with yields improving from 54% in Q1FY13 to 74% in Q2FY13. However, the product mix remained sub-optimal with more of lowend SF&B sales as compared to mass C&P. This facility contributed Rs 230mn to sales in H1FY13. Excess capacity in the market and pricing pressure has impacted product mix and thereby profitability. PGL expects yields to improve over next 1-2 quarters to 85-90% and also better product mix via venture into newer markets like international food market. Expect the facility to drive revenue CAGR of 20% over FY12-FY14E.

Financial Snapshot (Consolidated)

Pritesh Chheda pritesh.chheda@emkayglobal.com +91-22-66121273 Prashant Kutty prashant.kutty@emkayglobal.com +91-22-66121341 YEMar FY11A FY12A FY13E FY14E Net Sales 12,185 13,778 17,270 19,793 EBITDA (Core) 2,781 3,032 3,520 4,215 (%) 22.8 22.0 20.4 21.3 APAT 930 959 987 1,489 EPS (Rs) EPS % chg RoE (%) 36.4 30.7 26.1 31.0 P/E 8.0 7.8 7.6 5.0 EV/ EBITDA 5.3 5.8 4.7 3.7

(Rsmn)
P/BV 2.6 2.2 1.8 1.4

11.6 2,002.1 11.8 12.2 18.4 2.5 2.9 50.9

Emkay Global Financial Services Ltd.

Result Update

Emkay

Piramal Glass

Piramal Glass
Exhibit 1: Quarterly Performance at a Glance Y/E, Mar (Rs. mn) Revenue Expenditure Consumption of RM as % of sales Employee Cost as % of sales Power & Fuel as % of sales Freight as % of sales Other expenditure as % of sales EBITDA Depreciation EBIT Other Income Interest PBT Total Tax APAT (before minotiry) Minority Interest APAT (after minority) Extraordinary items Reported PAT Adjusted EPS Margins (%) EBIDTA EBIT EBT PAT Effective Tax rate
Source: Company, Emkay Research

Result Update

Q212 3,295 2,390 687 20.9 610 18.5 531.0 16.1 206.0 6.3 356 10.8 905 264 641 10 283 368 94 275 45 230 0 230 2.9

Q312 3,464 2,603 676 19.5 636 18.4 649.9 18.8 229.9 6.6 410 11.8 861 284 577 1 286 292 63 229 41 188 0 188 2.3

Q412 4,047 3,197 914 22.6 715 17.7 670.0 16.6 264.7 6.5 634 15.7 849 264 585 12 135 462 64 399 15 384 133 251 4.8

Q113 3,848 3,034 737 19.2 775 20.1 822.6 21.4 242.1 6.3 458 11.9 814 311 503 6 385 125 18 106 32 74 0 74 0.9

Q213 4,214 3,604 836 19.8 792 18.8 874.9 20.8 288.2 6.8 812 19.3 610 333 278 5 166 117 28 89 46 43 0 43 0.5

YoY (%) 27.9 50.8 21.6 29.9 64.8 39.9 128.3 -32.5 25.9 -56.7 -49.0 -41.2 -68.3 -70.4 -67.6 2.0 -81.2 -81.2 -81.3 (bps)

QoQ (%) 9.5 18.8 13.4 2.3 6.4 19.0 77.5 -25.0 7.0 -44.8 -17.2 -56.8 -6.4 50.5 -16.3 43.9 -42.1 -42.1 -42.1 (bps) -670 -650 -50 -90 900

H1FY13 8,062 6,638 1,573 19.5 1,567 19.4 1697.5 21.1 530.3 6.6 1,270 15.8 1,424 644 780 12 551 241 46 195 78 117 0 117 1.4

H1FY12 6,535 4,977 1,336 20.4 1,242 19.0 1048.7 16.0 405.8 6.2 945 14.5 1,558 511 1,048 26 460 613 184 429 70 359 0 359 4.4

Gr (%) 23.4 33.4 17.8 26.2 61.9 30.7 34.5 -8.6 26.0 -25.5 -55.3 19.6 -60.7 -75.0 -54.6 10.8 -67.3 -67.3 -67.3 (bps)

27.5 19.4 11.2 7.0 25.4

24.9 16.7 8.4 5.4 21.5

21.0 14.5 11.4 6.2 13.8

21.1 13.1 3.2 1.9 14.8

14.5 6.6 2.8 1.0 23.7

-1,300 -1,290 -840 -590 -170

17.7 9.7 3.0 1.5 19.1

23.8 16.0 9.4 5.5 30.0

-620 -640 -640 -400 -1,090

Low-end India SF&B continues as new facility stabilizing, SL & USA growth steady

SF&B segment grew 18% yoy led by 11% growth in Sri Lanka (SL), but low-end India SF&B continued as the new mass C&P facility is yet to stabilize completely, thereby impacting product mix. Share to revenues remained at 23%. SL continues to post healthy growth, while USA is picking up. However, the impact on product mix would remain for 1-2 quarters till new facility achieves peak yields.

Forex loss & sub-optimal product mix impacted EBIDTA margins

EBIDTA declined 33% yoy to Rs 610mn as PGL reported forex loss of Rs 252mn vs forex gain of Rs 110mn in Q2FY12. Adjusting for forex impact, EBIDTA grew 9% yoy to Rs 863mn, while EBIDTA margins declined 370bps yoy to 20.5%. This was due to weak product mix and recurring fixed costs in new facility and high energy cost. Management stated that energy & raw material cost has peaked out, thus do not expect significant increase in these cost heads from here on. While, the fixed cost for the new facility has been initially high, operating leverage would kick in from ensuing quarters, thereby improving profitability.

Emkay Research

November 09, 2012

Piramal Glass

Result Update

Following delay in stabilization of new facility & forex loss, we have revised our earnings estimates down by 16%/8% for FY13E/FY14E
The new facility is yet to achieve peak stabilization and optimal product mix, which impacted EBIDTA margins adversely, while unfavourable forward covers resulted in forex loss of Rs 178mn in H1FY13. Thus, we have revised our EBIDTA margins by 110bps each for FY13E & FY14E to 20.4% and 1.3% respectively. Subsequently, we have cut earnings estimates by 16%/8% to Rs 12.2/share and Rs 18.4/share for FY13E and FY14E respectively.
Exhibit 2: Revision in Earnings Estimates FY13E Y/E, Mar (Rs. mn) Revenues EBITDA EBITDA Margin (%) APAT EPS
Source: Emkay Research

FY14E % Change 1.4 (3.7) -110 bps (15.8) (15.8) Earlier 19,615 4,409 22.5 1,624 20.1 Revised 19,793 4,224 21.3 1,489 18.4 % Change 0.9 (4.2) -110 bps (8.3) (8.3)

Earlier 17,035 3,664 21.5 1,171 14.5

Revised 17,270 3,529 20.4 987 12.2

Forex loss hit profits; Expect better yields & product mix in ensuing quarters; Maintain BUY with TP of Rs 145
Although, PGL reported above estimates revenues, profitability was severely impacted by M-T-M forex loss, high fixed cost and weak product mix in new facility. Management also cited signs of moderation in premium C&P market due to excess capacity & realization cuts. However, it remained confident on steady growth in Europe premium C&P segment, mass C&P segment and SL SF&B market. These segments would drive 20% revenue CAGR over FY12-FY14E. The new plant would gradually achieve peak stability and optimal product mix, while energy & raw material costs, which have remained stable, are expected to taper from hereon. Moreover, on forex, the company may gradually reduce its hedged exposure. All this would help in improving profitability in H2FY13 and FY14E respectively. The stock is trading at 5.1x FY14E EPS of Rs 18.4, while on EV/EBIDTA, it trades at 3.7x FY14E. We maintain BUY on PGL with price target of Rs 145/Share, which translates into 4.7x FY14E EV/EBIDTA.

Emkay Research

November 09, 2012

Piramal Glass

Result Update

Key Financials (Consolidated) Income Statement

Y/E Mar (Rsmn) Net Sales Growth (%) Expenditure Raw Materials Employee Cost Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY11A 12,185 10.4 9,404 2,457 2,369 4,578 2,781 19.7 22.8 1,069 1,712 14.0 280 714 1,277 244 19.1 1,033 3,101.6 8.5 -103 930 0 930 930 2,002.1 FY12A 13,778 13.1 10,746 2,926 2,593 5,228 3,032 9.0 22.0 1,058 1,973 14.3 303 881 1,396 311 22.3 1,085 5.0 7.9 -126 959 0 959 959 3.1 FY13E 17,270 25.3 13,750 3,495 3,215 7,040 3,520 16.1 20.4 1,267 2,253 13.0 216 1,019 1,450 323 22.3 1,128 3.9 6.5 -141 987 0 987 987 2.9 FY14E 19,793 14.6 15,578 3,896 3,682 8,000 4,215 19.7 21.3 1,360 2,855 14.4 305 971 2,189 487 22.3 1,702 50.9 8.6 -213 1,489 0 1,489 1,489 50.9

Balance Sheet
Y/E Mar (Rsmn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets FY11A 804 2,216 3,020 499 6,486 1,131 7,617 143 11,278 15,174 6,580 8,594 402 103 6,102 2,404 2,779 133 651 135 3,922 2,833 1,090 2,180 0 11,278 FY12A 809 2,732 3,541 553 7,843 2,830 10,673 210 14,977 16,801 7,531 9,270 1,531 139 7,670 3,018 3,115 308 1,001 228 3,633 2,416 1,217 4,037 0 14,977 FY13E 809 3,511 4,321 694 7,843 2,830 10,673 210 15,898 18,801 8,798 10,003 531 139 10,248 3,398 3,694 1,419 1,508 228 5,022 3,546 1,476 5,225 0 15,898 FY14E 809 4,768 5,577 907 7,343 2,830 10,173 210 16,867 19,401 10,158 9,242 531 139 12,432 4,166 4,233 2,076 1,729 228 5,477 3,805 1,672 6,955 0 16,867

Cash Flow
Y/E Mar (Rsmn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY11A 997 1,069 714 0 1,678 -137 3,837 -1,112 2,725 280 -101 -1,561 0 -2,208 -714 -92 0 766 -2,249 28 71 133 FY12A 1,092 1,058 881 0 -1,615 -233 2,388 -2,868 -480 303 -37 -2,887 15 3,057 -881 -324 0 -434 1,432 934 133 308 FY13E 1,234 1,267 1,019 0 -77 -323 2,243 -1,000 1,243 216 0 -816 0 0 -1,019 -348 0 1,050 -316 1,111 308 1,419 FY14E 1,884 1,360 971 0 -1,072 -487 1,897 -600 1,297 305 0 -327 0 -500 -971 -445 0 1,003 -913 657 1,419 2,076

Key Ratios
Y/E Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) 2.6 2.7 61.3 3.0 3.4 98.8 2.2 2.6 80.4 1.5 1.9 90.0 8.0 3.7 2.6 1.2 5.3 3.8 7.8 3.7 2.2 1.3 5.8 3.8 7.6 3.3 1.8 1.0 4.7 4.6 5.0 2.6 1.4 0.8 3.7 5.9 11.6 24.9 35.6 3.5 11.8 24.9 41.9 3.5 12.2 27.9 51.5 4.3 18.4 35.2 67.1 5.5 22.8 8.5 16.8 36.4 15.0 22.0 7.9 17.5 30.7 16.9 20.4 6.5 16.2 26.1 17.0 21.3 8.6 19.5 31.0 20.7 FY11A FY12A FY13E FY14E

Emkay Research

November 09, 2012

Piramal Glass

Result Update

Recommendation History: Piramal Glass PIRA IN

Date 14/08/2012 08/05/2012 01/02/2012 24/10/2011 Reports Piramal Glass Q1FY13 Result Update Piramal Glass Q4FY12 Result Update Piramal Glass Q3FY12 Result Update Piramal Glass Q2FY12 Result Update Reco Buy Buy Buy Buy CMP 98 109 115 123 Target 155 155 155 160

Recent Research Reports

Date 08/11/2012 01/11/2012 31/10/2012 29/10/2012 Reports Page Industries Q2FY13 Result Update Essel Propack Q2FY13 Result Update Titan Industries Q2FY13 Result Update Havells India Q2FY13 Result Update Reco Sell Buy Buy Accumulate CMP 3,447 41 259 586 Target 2,849 62 285 600

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November 09, 2012

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