LOHIA SECURITIES LTD.

Transcription

1 Hindusthan National Glass & Industries Limited Prabir Adhikary

2 Dear Patrons... Despite the uncertainties associated with two consecutive coalition governments, the Indian economy has undergone rapid and all-encompassing change, clearly indicating the strengths of Indian democracy. Economic policy changes have eased out Indian enterprise from governmental control towards globalization of the economy. These measures have borne fruit and the economy is on a steady progressive path. In spite of petroleum price hikes, inflation is under control and the national economy is expected to grow by around 8.5-9%. The balance of payments continues to be favourable and India has comfortable foreign exchange reserves. The Indian packaging industry size is estimated at USD 16.7 billion. India constitutes 3% of the global packaging industry, out of which the share of glass packaging is just 7%. The Indian glass packaging industry is growing at around 7% and is expected to grow at 12-15% over the next 10 years following increased consumption, the corresponding need to package it and the preference for glass for various reasons. The Indian glass industry has a rich history, from mouth blown and hand working processes; it has taken to automation in a big way, although traditional manufacturing processes have not been abandoned. Mouth blown and handcrafted glassware have a dominant role in decorative and table glassware, products which are exported in large quantities. The majority of raw materials required by the industry are available locally, providing excellent scope for growth and development. Glass industry in India is poised to grow rapidly owing to its extensive use in the numerous sectors. The market is driven by increasing disposable income and willingness to spend on better living standards due to rising aesthetic sense among consumers as well as glass being the preferred medium of packaging. Advantages of glass as a packaging material over aluminum are glass is made from silica, which is easily accessible whereas aluminum requires bauxite mining at a high environment cost, glass is also 100% recyclable and can be recycled endlessly with no loss in quality or purity as well as possesses an excellent shelf life. Advantages of glass as a packaging material over plastic are that modern-day plastics like PET are recyclable but with a low shelf-life compared to glass and also Plastic can leach dangerous chemicals into the product (like Bisphenol-A, which is suspected to cause certain brain and cardiac diseases) and can also lead to content oxidation due to the porous nature of plastic. Glass requires low energy when using raw materials compared to plastic that requires about four times as much energy as glass needed. With the increase of FMCG sector as well as increasing health consciousness among general people, it is expected that glass packaging market would prosper in the near future. Glass is preferred as packing material in view of its transparency, chemical inertness, impermeability and ability to maintain the optimum freshness of its contents. Regards, Lohia Research 2 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

3 Particulars Company: Contents: Hindusthan National Glass & Industries Limited Page No. Company Profile Industry Analysis Investment Rationale Key Risks & Key Strengths Quarterly Performance 13 --Financial Highlights & Projections Peer set Analysis 16 --Future Outlook & Valuation 17 Research Team 18 Disclaimer 18 3 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

4 Investment Rational 14 th March, 2011 Volume led growth fuelled by continuous expansion plans Revenue from container glass tends to increase with volume through higher realizations Increasing production efficiency due to switchover to natural gas from furnace oil Captive power unit for its manufacturing unit & furnace restructuring: strategies to bring down power costs Efficient raw material procurement strategies Attractive DE ratio Long term is 0.35 Long Term & Short Term is 0.50 MARKET DATA Bloomberg Code (HNGI:IN) Reuters Code (HNGI.NS) Price (Rs.) Target Price (Rs.) 360 Time (in months) 1 2 Dividend Yield (%) 0.71% 52 Week High/Low /(191.10) Equity Capital(Rs in Mn) Face Value (Rs.) 2 Market Cap (Rs Mn) Avg.10 day Vol. (NSE) 9179 Key Strength Diversified customer base Only player having PAN India presence High Focus on R&D INDEX WEIGHTAGE BSEMIDCAP 0.069% Key Risks Threat from alternate packaging materials Threat from unorganized glass market Increasing raw material costs Financial uncertainties overseas Valuation Our DCF-based price of Rs. 360 incorporates the expansion plans in container glass and float glass division which is assumed to take effect in FY12 and FY13 respectively. DCF value is based on perpetual growth rate of 6.5% and D/E of present We believe that our assumptions are conservative and DCF is most appropriate measure to value HNG. At our target price, the stock offers a potential upside of around ~70% from the current level; we initiate a buy rating on the stock. SHARE-HOLDING PATTERN (%) Promoters DII 0.38 FII 7.29 Others (As on Dec, 2010) RELATIVE PERFORMANCE (%) Nifty Stock Stock over Nifty 1m m m yr Particulars E E E Total Revenue (Rs. In Mn) % Growth EBDITA (Rs. In Mn) EBIT (Rs. In Mn) PAT (Rs. In Mn) EPS (Rs.) P/E (x) P/BV (x) RoE (%) *P/E, P/BV computed based on CMP ` as on14th March, Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

5 Company Profile Hindusthan National Glass & Industries Limited (HNG), incorporated in 1946, is the market leader in the Indian glass industry with market share of 55%. HNG was founded by Mr. C K Somany following the commissioning of India s first fully automated glass manufacturing plant at Rishra (near Kolkata). The company has started its operation under the banner of Hindusthan National Glass Manufacturing Co. Ltd., which was subsequently renamed as Hindusthan National Glass & Industries Ltd. (HNGIL). Presently, it is the key player in India s container glass industry with a pan India presence and its plants are located at Rishra, Bahadurgarh, Rishikesh, Neemrana, Nashik and Puducherry. The Company is ISO 9001:2000 quality certified and is pursuing ISO 14000/18000/22000 certifications for comprehensive environmental compliance. Corporate History- Key Events HNG was incorporated in Rishra (near Kolkata) on 23 rd February India s first fully automated glass manufacturing plant with an installed capacity of 30 TPD was commissioned Installed capacity was raised to 1100 TPD and was certified with ISO 9001: Production strength was raised to 1800 TPD with the acquisition of Owens Brockway (India) Ltd. at Rishikesh and Puducherry Installed capacity was increased to 2150 TPD through acquisition of Larsen & Toubro Plant (Nashik) Incorporated HNG Float Glass Ltd. to set up a float glass plant in Halol Merged with Ace Glass Containers Limited and installed capacity of container glass was increased to 2435 TPD through debottlenecking Acquired Neemrana Plant through merger of Haryana Sheet Glass and installed capacity was increased to 2540 TPD Ranked 307 th among the top 1000 Indian companies on the basis of net sales by Business Standard as well as rated the best Indian company in the Glass & Ceramics category by Dun & Bradstreet Singed largest deals in the Indian Glass Industry worth Rs 2.5 billion Corporate Structure Hindusthan National Glass & Industries Limited Glass Equipment (India) Ltd. (100%) Quality Minerals Ltd (100%) HNG Float Glass Ltd (HNGFL) An Associate Company (47.5%) Capital goods & spares supplier to glass industry Net revenues: INR 366 Mn Mineral supplier to glass industry Net revenues: INR 29 Mn Manufacturer of float & processed glass Net revenues: INR 275 Mn 5 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

6 Board of Directors Name Chandra Kumar Somany Sanjay Somany Mukul Somany Kishore Bhimani Sujit Bhattacharya Ratna Kumar Daga Shree Kumar Bangur Dipankar Chatterjee Indrajit Kumar Saha Venkatasan Sridar Designation Chairman Vice Chairman & Managing Director Vice Chairman & Managing Director Director Director Director Director Director Director Director Summary of Plants (FY ) Container Glass Division Plant Location Furnace No Installed Capacity(TPD) Rishra, West Bengal Bahadurgarh, Haryana Rishikesh, Uttarakhand Puducherry, Union Territory Nashik, Maharashtra Neemrana, Rajasthan Float Glass Division Plant Location Present Capacity (TPD) Halol, Gujarat 600 Client Mix The company manufactures glass bottles in various sizes ranging from 5 ml to 3200 ml in three colors i.e. amber, flint and green. The company s products have a downstream application in the liquor, beer, beverages, pharmaceuticals, processed food and cosmetic industries. The differentiating factor that places the company ahead of its competitors is its strong customer profile across all the downstream verticals. The company s strong customer profile can be determined from the fact that it accounts for the top ten players in the respective sectors. In addition to the strong customer profile, the company s revenue from various downstream verticals is well diversified thereby making it insulated from temporary spin in any one sector. HNG has captured a large share of the Indian market and also has an increasingly satisfied client base in more than 23 countries. HNG has pan India presence with JIT supply facilities to its customers. The company has a fleet of over 100 trucks which helps it to reduce overall landed cost to customers. 6 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

7 Expansion Plans Container Glass Division Year Project Capacity Addition Capacity FY TPD Brownfield Project at Nashik 650 TPD FY TPD Greenfield Project at Naidupetta 650 TPD FY TPD Greenfield Project in North 650 TPD FY TPD HNG is rebuilding its existing furnace capacities in its various plants and expecting to raise total furnace capacity by 1200 TPD FY TPD *denotes expected capacity Float Glass Division HNG has 47.5% stake in HNG Float Glass Ltd (HNGFL) which is proposed to be made a subsidiary in near future Joint Venture HNG & OMCO International NV (world s leading glass mould manufactures), jointly (50:50) setting up mould manufacturing facilities under the name of OMCO HNG Engineering Limited for designing, manufacturing, marketing and sales of moulds for glass packaging products like beverages, liquor, food, pharmaceutical and cosmetic use. 7 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

8 Cases in Millions HINDUSTHAN NATIONAL GLASS & INDUSTRIES LIMITED Industry Analysis The glass industry comprises four key segments: hollow glass (mostly containers), flat glass, fibers and special glass. Container glass is the largest, dedicated to the growing demand coming out of the food, drinks, perfume and pharmaceutical sectors. The global glass industry is estimated to grow from USD 465 billion in 2007 to USD 597 billion in 2014 (Source: SPG Media). Among the various segments, the largest are the food and beer segments. The Indian packaging industry size is estimated at USD 16.7 billion. India constitutes 3% South Korea France Spain UK USA Mexico Japan China Brazil India Indonesia Per Capita Consumption in (Kg.) of the global packaging industry, out of which the share of glass packaging is just 7%. The Indian glass packaging industry is growing at around 7% and is expected to grow at 12-15% over the next 10 years following increased consumption. India s large growing middle-class and organized retail sector are the primary catalysts of packaging industry growth. The demand for glass containers is driven by a growth in end-user segments like liquor, beer, pharmaceuticals, food processing and carbonated drinks. The liquor and beer industries are the biggest users of glass containers (65% share), followed by pharmaceuticals (11%), food (13%), carbonated drinks (7%), cosmetics and others (4%) Scope of growth Source: IBEF 89 Alcohol & beverage industry: The alcohol and beverage industry, especially IMFL, is expected to sustain 12% CAGR on account of changing lifestyles and rise in disposable incomes. However per capita alcohol consumption (in India) is a mere 1.8 litres per adult while in Russia it is around 10 litres per adult. Growth Drivers Rising consumption among urban 300 women. Expected to increase from 10% of all consumers in the period to 25% 200 Rising disposable incomes and 100 changing lifestyles Higher penetration of international 0 brands like SAB Miller and Diageo, resulting in the introduction of HNG Supply Liquor Industry Volumes premium brands. Source: Company Data Pharmaceuticals industry: India's Pharmaceutical Industry is the 3 rd largest in the world in volume terms and14th in value terms. The Indian domestic market is currently ~USD 12.3bn and is growing at CAGR of 12-15% as against a global average of 4-7%. It is projected to grow to USD 20bn by Growth Drivers Increased health awareness Expansion of healthcare facilities in the rural and far-flung areas to further boost demand Increasing penetration of customized insurance plans would drive afford ability of healthcare services 8 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

9 TPD HINDUSTHAN NATIONAL GLASS & INDUSTRIES LIMITED Food processing industry: The retail food sector of India is expected to double from USD 70 bn in 2008 to USD 150 bn by 2025 (Source: Per capita consumption (bottles per adult per annum) McKinsey) on account of a growing health USA 760 consciousness resulting in the increased use of glass packaging. In India, 10-12% of all food and beverages are packed in glass Mexico 674 containers as against 40-50% in developed Brazil 315 economies (Source: CRISIL). Growth Drivers Russia 149 Increasing health consciousness China 39 with shift from traditional unpackaged formats to packaged, branded products India 9 Increase in penetration of glass containers currently10-12% of all food and beverages are packed in glass Source: Company Data containers in India as compared to 40-50% in developed markets Investment Rationale Volume led growth fuelled by continuous expansion plans: HNG is the market leader in Indian container glass business and it is strengthening its position further through continuous expansion plans. At present its container Capacity Additions (TPD) Installed Capacity (TPD) 650 glass making capacity is 2825 TPD which is expected to grow to 5975 TPD by FY through various Greenfield and Brownfield expansions in India. The company is producing 15 million bottles per day ranging from 5 ml to 3200 ml which is expected to increase with new technologies company is bringing in. South India is the next big market after north India in terms of container glass demand, which is growing at a rate of 18-20%. In order to meet demand from South India and free up some of its east India capacity, HNG is setting up a 650 TPD Greenfield unit at Naidupeta in Andhra Pradesh. This would help the company to enhance its market share in the liquor segment. Revenue from container glass tends to increase with volume through higher realizations: HNG is serving food, soft drinks, beer, liquor, pharmaceutical, toiletries, vials as well as household industries through its container glass. It is earning most of its revenue from the liquor segment, though its realization from liquor segment has come down by 1% respect to FY but overall realization from the entire segment has increased in respect to FY From 15 th February, 2011 HNG has E E E E Source: Company Data & Lohia Estimate 9 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

10 made 10% increase in glass price per ton, so with increasing volume and increasing realization, it is expected that company s revenue will increase in near future. HNG has net revenue of Rs Mn % 18.71% 11.52% 4 Year CAGR 14% 14.88% 14.62% 14.87% 15.13% 11.17% 11.30% 11.46% 10.00% 8.22% 11.41% 5.00% % E E E Net Revenue ROE PAT Margin Source: Company Data & Lohia Estimate 20.00% 15.00% in FY which is expected to grow at a CAGR rate of 14% in next three years. PAT was Rs Mn in FY which is expected to maintain a growth rate of 11% annually in coming years. ROE of the company is expected to maintain ~15% YOY in coming 2-3 years. Increasing production efficiency due to switchover to natural gas from furnace oil: Fuel is very essential for the glass industry as it requires high furnace temperature all the time for years. So rising fuel prices affects badly on the companies operating expenditure as well as its margins. HNG has surprised industry observers by enhancing its fuel efficiency. HNG is replacing furnace oil with natural Place Capacity (TPD) Fuel Status ( ) Bahadurgarh 655 Natural gas Neemrana 180 Natural gas Nashik 390 Furnace Oil (Switchover to natural gas is likely by September 2011) Rishra 805 Furnace Oil (Switchover to natural gas is likely by 2012) Rishikesh 425 Furnace Oil (Switchover to natural gas is likely by July 2012) Puducherry 370 Furnace Oil (Switchover to natural gas is likely by 2012) Source: Company Data gas in all of its plants across country in a phased manner. This replacement is already done at its Bahadurgarh and Neemrana plants and very soon replacement will be started in other plants as well. Power & fuel costs are increasing on an average rate of 39% from FY to FY whereas from FY to FY these costs have increased just 2% due to the switchover from furnace oil to natural gas. HNGI uses a high proportion of cullet (40%), which helps to save power and fuel costs a 10% increase in cullet proportion in the batch results in a 2.5% decline in energy cost. Besides, HNGI has higher speed of draw and moulding machines, and the turnaround time in its batch process plants is lower. HNG has been successful in increasing its draw efficiency from 70% to 85% in the last three years. It has gradually increased its packing efficiency to 87% in FY Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

11 Break on rising power & fuel costs 17.99% 23.26% 19.90% 21.02% % EBITDA Power & Fuel Costs EBITDA Margin Source:Company Dara 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Efficient Raw material Procurement Strategies: Raw material consumption cost and power & fuel cost are the two major cost components with raw material cost accounting for about 45% of cost of production in the last three years. HNG s key raw materials comprises of silica, limestone, dolomite, feldspar, soda ash and cullet. Silica and soda ash accounted for 60-65% of the total raw material cost. The Company imported a large part of its soda ash need from Kenya, presently imported soda ash costs Rs. 11,500 per ton whereas domestic costs is Rs. 14,00 per ton, and thus company reducing major portion of its soda ash requirement costs. The Company also has tied up with distilleries and bottlers for cullet procurement, by entering into long-term contracts for seamless supply. The company has entered into tie-ups with major soda ash vendors like Magadi (East Africa), Tata Chemicals, Gujarat Heavy Chemicals and Nirma leading to stable supplies. Attractive DE ratio: Total debt comprising secured and unsecured loans has increased 11.51% from FY to FY HNG is maintaining attractive debt-equity ratio from FY (below 1) and in FY its DE ratio was as follows: 0.50 for the long term & short term 0.35 for the short term Key Risks Risk in exports: Companies export provides it the twin advantage of growth, profitability and business de-risking. Due to the economic condition overseas, companies export has got affected. The cost of freight and breakage possibility is also throwing challenges in this area. The Company s export performance was modest in , with the international markets passing through a difficult phase and not having adequate incremental volume to offer. Revenues from international markets were 5.64% in as against 9.71% in The Company marketed products in Asia, Europe, North America and Africa. Going ahead, the Company intends to increase its exposure in the non-saarc nations including opening a depot in some locations. Threat from alternate packaging materials: The container glass industry is facing threat from alternate forms of packaging like flexible packaging laminates and plastic containers in applications like milk packaging, intravenous fluids, blister packs for tablets and capsules. Besides, bottled soft drinks are increasingly being sold in aluminum cans and PET bottles. The Indian Plastic Industry has been growing at a phenomenal rate of 15% over the years and with its potential harnessed, it is all set to reach the 12.5 MMT consumption mark, making India the 11 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

12 third largest consumer of plastics by 2010, after US and China. PET packaging has high potential in segments like pharmaceuticals, beverages, confectionery, liquor and personal care. However, Container glass enjoys its own importance in the packaging industry, despite the rapid development of packaging alternatives for an important reason that established environment friendliness reflected in its biodegradability and recyclability. Besides, the growing awareness on account of benign and hygienic packaging demand will drive the demand for container glass over plastic alternatives. Increasing raw material costs: Raw material for container glass and float glass are sand silica, soda ash, cullet, dolomite, limestone, feldspar etc. APP or average procurement price is increasing which affecting its margins. Also inability to procure adequate raw materials at the right price may affect company s competitiveness. From FY to FY , raw material costs has increased at an average rate of 42% YOY which was quite high and putting pressure on the margins. The company has entered into secure raw material supply contracts with suppliers leading to uninterrupted delivery and trying to maintain an average critical raw material inventory of days to ensure continuous supply which helped it to save some of the costs. Key Strengths Turnaround expertise: Over the last eight years, HNG turned around sick units acquired from Owens Brockway at Puducherry & Rishikesh, the Nashik unit (acquired from Larsen & Toubro) and the Neemrana unit (acquired from Haryana Sheet Glass). HNG continuously focus on the same approach acquisition, debottlenecking and rehabilitation leading to value unleashing in the shortest possible time. Diversified customer base: HNG has diversified, growing and loyal clientele United Spirits, Pernod Ricard, Diageo, Radico, SAB Miller, Pfizer, Cipla, GlaxoSmithKline, Hindusthan Unilever, Dabur, Heinz, Nestle and Coca-Cola, among others generate substantial repeat business. HNG s current sales mix is highly skewed in favor of alcoholic beverages like IMFL and beer, which together account for 65% of its sales volumes. Soft drinks and food contribute another 20%. Food and beverages thus account for about 85% of its volumes. The pharmaceuticals segment accounts for 13% of its sales volumes, and personal care accounts for the balance 3%. HNGI has consciously increasing the proportion of higher realization soft drink bottles, as the industry has come back to a high growth trajectory of 15-20%. As HNG is increasing its presence in different business modules so it helps the company to hedge the risk that occurs due to uncertainties in the economy as well as in the demand supply scenario. Only player with pan India presence: HNGI is the only player in the container glass industry with a pan India presence. It has manufacturing facilities in the North (Bahadurgarh, Neemrana and Rishikesh), the West (Nashik), the East (Rishra), and the South (Puducherry). Its competitors are largely regional plays HSIL has capacities in Andhra Pradesh while Haldyn Glass and Piramal have their units in Gujarat. HNGI is the only container glass manufacturer in East India. Its well spread units work to its advantage, as glass containers are usually transported only within a 500km radius. Its pan India presence enables HNGI to cater to user industries across geographies. Synergy: There is a synergy between the two businesses (float and container glass). Nearly 60% of the manufacturing process is common. 12 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

13 Quarterly Performance Particulars (Rs. in Mn) 3QFY11 3QFY10 Y-o-Y(%) 2QFY11 Q-o-Q(%) Net Sales & Other Operating Income % % Total Expenditure % % PBIDT (Excl OI) % % Other Income % % Operating Profit % % Interest % % PBDT % % Depreciation % % PBT % % Tax % % PAT % % Equity Capital % % Face Value % % EPS % % Source: Mint Income Statement Particulars (Rs. In Mn) FY08-09 FY09-10 FY10-11E FY11-12E FY12-13E Total Revenue % Growth 28.84% 4.63% 12.97% 14.05% 14.10% Expenditures Staff Costs % of Net Sales 5.03% 6.07% 5.28% 5.29% 5.40% Other Manufacturing Costs % of Net Sales 72.55% 70.96% 70.10% 69.97% 69.74% Miscellaneous Expenses % of Net Sales 6.08% 2.25% 3.23% 3.39% 3.62% Total Expenditures % of Net Sales 83.66% 79.28% 78.62% 78.66% 78.75% EBITDA EBITDA Margin % 17.99% 23.26% 23.00% 23.00% 23.00% Depreciation EBIT Financial Charges PBT Tax PAT Shares In Issue EPS Dividend paid Dividend payout ratio Net profit transferred to Reserves Source: Mint & Lohia Estimate 13 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

14 Balance Sheet Particulars (Rs. In Mn) FY08-09 FY09-10 FY10-11E FY11-12E FY12-13E Asset Gross Asset Accumulated Depriciation Capital WIP Net Fixed Asset 9, , , , , Investments & Deposits 1, , , , Total Current Assets 6, , , , , Current Liabilities & Provisions 2, , , , , Net Current Asset 3, , , , , Capital Deployed 14, , , , , Liability Total Debt 5, , , , , Deferred Tax Liabilities Total Borrowings 5, , , , , Share Capital Reserve and Surplus 9, , , , , Total Stock Holder's Equity 9, , , , , Capital Employed 14, , , , , Source: Mint & Lohia Estimate Cash Flow Statement Particulars FY08-09 FY09-10 FY10-11E FY11-12E FY12-13E Cash Flow from Operating Activities PAT Depreciation Interest Expense Direct taxes paid Operating Profit Before WC Changes Changes in Current Assets (ex. cash) ( ) (191.43) ( ) (349.48) ( ) Changes in Current Liabilities Changes In WC ( ) (28.80) ( ) (876.58) Cash Generated From Operations Direct Taxes Paid (99.71) (278.50) (742.41) (855.98) (989.85) Change in Deffered Tax Liabilities (236.92) (279.29) (151.74) Net Cash Generated From Operations Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

15 Cash Flow from Investing Activities Capital Expenditure (CAPEX) ( ) ( ) ( ) ( ) ( ) Investments (424.84) (114.31) (100.00) Net Cash Used In Investing Activities ( ) ( ) ( ) ( ) ( ) Cash Flow from Financing Activities Change in Debt Change in Equity Dividends Paid (87.34) (131.01) (146.23) (168.60) (194.97) Interest Paid (434.49) (471.72) (503.72) (565.92) (625.87) Others (399.76) (479.23) (495.58) Net Cash used in Financing Activities (35.19) (498.17) (46.68) (464.99) Cash and cash equivalents At the beginning Net Increase in Cash and Cash (53.89) (67.00) Equivalents Cash and cash equivalents At the end Financial Ratios Source: Mint & Lohia Estimate Financial Ratios FY08-09 FY09-10 FY10-11E FY11-12E FY12-13E Profitability Ratios Return on Equity (ROE) 11.52% 14.88% 14.62% 14.87% 15.13% Return on Capital Employed (ROCE) 10.86% 13.72% 15.13% 15.66% 16.03% Liquidity Ratios Current Ratio Acid Test Ratio Debt-Equity Ratio Source: Mint & Lohia Estimate 15 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

16 HINDUSTHAN NATIONAL GLASS & INDUSTRIES LIMITED Peer Set Analysis Container Glass Companies *TTM Price *Market Cap # *EV # *PAT # EBIDTA # EPS (Rs.) P/E P/B V EV/ EBIDT A HNG Piramal Glass Haldyn Glass Hindusthan Sanitaryware Average of Container glass industry * TTM trailing twelve months average prices; # figures in Rs. Millions Source: Mint & Lohia Estimate D/E Comparison with Nifty Future Plans & Outlook Volume HNG SNP CNX Nifty The Company is optimistic of prospects for the following reasons: Creation of a greenfield unit in Naidupeta (650 TPD) by March 2012 and enhanced capacity in Nashik (650 TPD) that are expected to grow volumes by 30% in A growing focus on NNPB technology delivering higher margins, lowering transportation costs Lower resource consumption (energy and water) through Servoshear and Graphoidalshear spray system technologies Higher productivity through sophisticated furnace control mechanisms Replacing furnace oil with natural gas in the Bahadurgarh and Neemrana units The installation of a captive 1.2 MW power plant based on waste heat recovery in Rishra 16 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

17 Valuation DCF VALUATION (Rs. In Mn) FY11E FY12E FY13E EBITDA Depreciation Less: Cash Tax NOPLAT Capex ( ) ( ) ( ) Changes in WC ( ) (876.58) Free Cash Flows ( ) PV of Estimated FC Flows ( ) It is assumed Free Cash flow beyond FY13 grows at 6.5% Horizontal Value PV of Estimated Perpetuity Flows (Terminal Value) Total Present Value (EV) Book Value of Debt Fundamental Value of Equity No of Outstanding Shares Fundamental Value per share (Rs.) Our DCF-based price of Rs incorporates the expansion plans in container glass and float glass division which is assumed to take effect in FY12 and FY13 respectively. DCF value is based on perpetual growth rate of 6.5% and D/E of present 0.50x. We believe that our assumptions are conservative and DCF is most appropriate measure to value HNG. At our target price, the stock offers a potential upside of around ~70% from the current level; we initiate a buy rating on the stock. 17 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters

18 For Suggestions, clarifications & your valuable feedback write back to us at: Lohia Securities Ltd, 4 Brabourne Road, 5 th Floor Kolkata Board :( 91-33) , research@lohiasecurities.com For Institutional Sales Lohia Securities Ltd, 1602-B, Lady rattan Tower, 72 Dainik Shivner Marg Gandhinagar, worli, Mumbai Board: (91-22) , inst.dealing@lohiasecurities.com Institutional Team: Our Fundamental Research Team Name Id Contact No. Basanti Gourisaria basanti.gourisaria@lohiasecurities.com Rajkumar Mondal rajkumar.mondal@lohiasecurities.com Gitika Bhansali gitika.bhansali@lohiasecurities.com Krishna K Agarwal krishna.agarwal@lohiasecurities.com Prakash N Sharma prakash.sharma@lohiasecurities.com Prabir Adhikary prabir.adhikary@lohiasecurities.com Sonu Shah sonu.shah@lohiasecurities.com Sailesh Sarda sailesh.sarda@lohiasecurities.com Our Technical Research Team Name Id Contact No. Aditya Agarwal aditya.agarwal@lohiasecurities.com Our Derivative & Statistical Research Team Name Id Contact No. Anand Lath anand.lath@lohiasecurities.com Institutional Sales Name Id Contact No. Ashok Kamat ashok.kamat@lohiasecurities.com Deepak Parekh deepak.parekh@lohiasecurities.com Investment Rating: Buy > 15% Hold (5% - 15%) Sell < 5% DISCLAIMER: The information and opinions contained herein have been compiled or arrived at, based upon information obtained from reliable sources. Such information has not been independently verified and no guarantee, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. LSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report. LSL and its directors, associates, employees may or may not have any positions in any of the stocks dealt in the report. This report is only for PRIVATE CIRCULATION. 18 Lohia Research is also available on Bloomberg LSEC<go>,Thomson Reuters