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Buy Hindusthan National Glass & Industries Ltd. - Well Packaged.. - SKP Securities

Posted On: 2012-05-05 10:29:19


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.


Source: Equity Bulls

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