1 Leading container glass manufacturer in India with a market share of 55% (x) 1.0 (%) FY09 FY10 FY

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1 Diversified Manufacturing (Containers & Packaging) BSE Report Hindusthan National Glass & Industries Ltd (515145) Financial Data HNGIL (INRm) Q112 FY11 Revenue 4,318 15,535 Growth (yoy) EBITDA 757 2,550 EBITDA margin (%) EBITDA/interest PAT PAT (%) EPS Share Holding Pattern Inner ring: FY11 Outter ring: FY10 21% 9% 7% 19% 74% Indian promoters Individuals Others 70% Business summary Hindusthan National Glass & Industries Limited (HNGIL) is India s largest manufacturer of container glass, with a market share of 55%. Glass bottles forms a significant portion of its product portfolio (over 95% of its sales). It also manufactures glass-forming machines and spares, and is engaged in purchasing, processing and selling of silica sand and feldspar. These products are used extensively in various industries such as pharmaceutical, beverage, processed foods and cosmetics. The company plans to double its production capacity to gain market share domestically. HNGIL exports to 30 countries, though it accounts for only 4.3% of its overall business. Mr. Chandra Kumar Somany and his family own (70%) and control the business of HNGIL. Business analysis Key strengths Key weaknesses 1 Leading container glass manufacturer in India with a market share of 55% Declining market share - dropped from 65% a year ago 2 Strong industry growth prospects Volatile margins 3 Long relationship with its prominent & diversified Aggressive capital expansions customer profile 4 Sound funding mix and superior operating cash flow generation Peers Q112 FY11 Revenue Asahi Glass 3,922 15,402 Piramal Glass 1,972 7,766 Haldyn Glass Guj ,318 PAT margin ASAHI Glass PIRAMAL Glass Haldyn Glass Guj Financial History (INRm) FY11 FY10 FY09 Revenue 15,535 13,834 13,306 EBITDAR (%) PAT (%) EPS Cash and liquid balances Total gross debt 6,405 5,666 5,101 Free cash flow Source: Prowess Earnings Analysis - Volatile Margins and Falling Asset Utilisations HNGIL Market data 23 Aug 11 Shares outstanding 87,338,565 Face value (INR) 2.0 Market cap (m) 1, Wk H/L 308.0/ CMP (INR) Source: Return Analysis (%) ROCE ROE Asset Turnover (x) Margin Trends (%) EBITDA margin PAT margin 11

2 Background Incorporated as Hindusthan National Glass Manufacturing Co. Ltd on 23 February 1946 at Rishra in Kolkata, the company's name was subsequently changed to Hindusthan National Glass & Inds. Ltd. on 22 November Its equity shares were listed on the Bombay Stock Exchange (BSE) on 5 April 1995 and on the National Stock Exchange (NSE) on 15 April The registered office of the company is located at Red Cross Place in Kolkata, West Bengal. Shareholding Structure as on 31 March 2011 Particulars Shareholding (%) Promoters and associates 69.9 Public shareholding Resident individuals 19.1 Institutions 7.6 Domestic companies 3.2 Source: Company It manufactures glass containers, glass-forming machines and spares, and is also engaged in purchasing, processing and selling of silica and feldspar. Liquor and beer manufacturing account for over two thirds of HNGIL s revenue. While volumes for liquor and beer industries are high, realisations from these are lower than those for pharma and other industries. Revenue Break up - End User Industry - 9MFY11 Others 11% Revenue Break up - Geography - (9MFY11) West 13% Pharma 10% Food 11% Liquor 53% South 20% North 45% Beer 15% East 22% Net Realisation per Metric Tonne (INR) Liquor Beer Pharmaceuticals Company 20,000 15,000 10,000 5,000 0 Source: Company, Fitch 2

3 Corporate Structure HNGIL a (FY11) Revenue: INR15,535m Net Profit: INR866m 99.7% Quality Minerals Ltd Revenue: INR9.6m Net Profit: INR1.4m 100% Glass Equipment (India) Revenue: INR269m Net Profit: INR17.9m 47.4% HNG Float Glass Ltd n.a. Source: Transaction documents Management Director Chandra Kumar Somany Sanjay Somany Mukul Somany Kishore Bhimani Sujit Bhattacharya Ratna Kumar Daga Shree Kumar Bangur Dipankar Chatterji Indrajit Kumar Saha Ram Raj Soni Position Non-Executive Chairman Managing Director Joint Managing Director Executive Director Business Overview Headquartered in Kolkata (West Bengal), HNGIL has container glass manufacturing facilities across six locations in Rishra, Nashik, Neemrana, Rishikesh, Bahadurgarh and Puducherry with 44 production lines and 11 furnaces, converting into a production capacity of 2,825 tonnes per day (TPD). HNGIL possesses one of the widest portfolios for container glass, ranging from 5 ml to 3,200 ml across multi-coloured bottles (amber, flint and green). Capacity: Aggregate capacity of 2,930 TPD or 1 million tonnes per annum (FY10: +11% yoy and FY09: +9% yoy). Installed capacity FY11 MT per day Rishra, West Bengal 805 Bahadurgarh, Haryana 780 Nashik, Maharashtra 370 Rishikesh, Uttarakhand 425 Puducherry 370 Neemrana, Rajasthan 180 2,930 Improved capacity utilisation - Utilisation levels increased to 81.7% in FY11 from 76.2% in FY10 as a result of increased draw to pack ratio (ratio of finished bottles produced to molten material drawn). 3

4 Capacity Utilisation Capacity - glass tumblers (LHS) Capacity utilisation (RHS) (Capacity 000 tonnes per annum) 1,100 1, (%) Customer Profile HNGIL has a diverse customer base, and meets a significant portion of customers requirements. Its customers include: United Spirits (60% of its bottle requirements in India are met by HNGIL), Pernod Ricard (55%), United Breweries (65%), SAB Miller (60%), Coca Cola (40%), Pepsi (70%), & Bajaj Corp (95%). Large part of HNGIL s income comes from these customers, with most of them being associated with the company for over five years. Exports at INR673m in FY11 (FY10: INR767m), contributed 4.3% (5.5%) to HNGIL s total revenue of INR 15bn Industry Analysis Industry Outlook is Positive The All India Glass Manufacturers Federation pegs the size of Indian container glass market at USD870m with an expected growth rate of around 12%. Average per capita glass consumption in India is 1.4 kilos while that of Japan and the US is 10.2 kilos and 27.5 kilos, respectively, reflecting the significant growth opportunity (Source: Total installed capacity of the industry (container glass) is 7,000 TPD. o o HNGIL has a total installed capacity of 2,930 tpd (42% of total installed capacity in India). Piramal Glass has a total installed capacity of 695 tpd. Strong economic drivers for end-user segments (liquor and beer, pharmaceuticals, food, cosmetics, etc.) Liquor: Size of the Indian made foreign liquor market is estimated to be around USD4.5bn with total sales volumes of 265m cases and the industry is projected to grow at 12% p.a. CAGR. Others Entry barrier owing to capital intensive nature Top three Indian players are HNGIL, Piramal Glass and AGI Glaspac Substitute packaging options of glass such as pet bottles and aluminum cans are increasingly being used in packaging, which might eat into glass packaging s market share thus affecting HNGIL. Strategy/Business Plan Aggressive growth HNGIL plans to double its capacity of bottle production from 2,930 TPD to 5,925 TPD by FY14. Backward integration Substantial investments in float glass business and captive mining for silica for the Rishra plant (West Bengal) Switchover to natural gas from furnace oil Plans to enter into perfumery segment 4

5 Expansion pipeline Project Name Nellore Container & Float Glass Manufacturing Complex Project Nashik Glass Manufacturing Plant Expansion Project Neemrana Glass Mould Expansion Project and other Greenfield projects in North Maintenance capex and other rebuild Location Naidupet Nellore, A.P. Capacity (TPD) Estimated project cost (INRbn) Status Expected to be completed by March 2012 Nashik, MH Expected to be completed by November 2011 Neemrana- Rajastan Yet to start construction will depend on market dynamics Total 2, bn Source: HNGIL annual report Financial Analysis Growth and Profitability Volume-Led Growth HNGIL has been on a growth tangent over the last five years. Its revenue has grown at a CAGR of 29.1% since FY06 to INR15bn in FY11, driven by both organic expansions and acquisitions. The growth has been driven primarily by increasing capacities, while margins continue be volatile. In FY11, while HNGIL s net sales grew by over 12% yoy to INR15bn, its EBITDA margins declined to 16.4% (20.6%), primarily driven by increased input costs during the last quarter. Increasing Input Costs Driving the Margins Down As seen in the table below, the increase in the input costs were higher than the increase in realisations per metric tonne, leading to a decline in HNGIL s margins. To mitigate the volatility in the fuel cost, the company has switched to natural gas from furnace oil. Per unit details Particulars FY11 FY10 Variance (%) 4Q11 4Q10 Variance (%) Realisation per MT 18,519 17, ,726 17, RM per MT 4,947 4, ,284 4, Packaging materials & charges per MT 1,460 1, ,562 1, Power & fuel per MT 5,519 4, ,077 5, Leverage and Capital Structure In FY11, the company had a total debt of INR6.4bn, including working capital limits of INR2.1bn, term loans of INR2.7bn, non-convertible debentures of INR1.25bn, and other unsecured debt of INR0.35m. Despite significant expansions, HNGIL has maintained a sound capital mix as evidenced by a decline in its debt/capital ratio to 35.8% at end-fy11 from 54% at end-fy06. Further, its credit metrics was strong in FY11, with financial leverage (debt/ebitda) of 2.5x (FY10: 2.0x) and interest coverage of 5.0x (FY10: 6.0x). Cash Flow Analysis Large Capital Expenditure Eating Into Cash Accumulations HNGIL has consistently shown an improvement in its operating cash flows. For FY11, it reported cash flow from operations of INR2.3bn, covering over one-third of its total debt obligation. However, huge capital outflows due to capacity expansions have been eating into these cash flows. Over FY08-FY11, HNGIL spent over INR8.5bn to increase its capacity by 21%, and intends to invest over INR20bn-INR22bn in the coming years. 5

6 Cashflows (INR) 2,500 2,000 1,500 1, ,000 Cashflow from operations Source: Company, Fitch Free cashflow Working Capital Cycle Receivable days Payable days (%) Return and Asset Efficiency Analysis With continuous expansion plans, HNGIL has been increasing its asset base substantially; while sales growth has been marginally lower, resulting in a declining asset turnover ratio (0.8x in FY11). Further, HNGIL s margins have been volatile resulting in lower returns. 6

7 Annex 1 Financial Analysis Summary FY11 FY10 FY09 FY08 FY07 Income statement Revenue 15,535 13,834 13,306 10,291 5,271 Revenue growth (%) EBIT 1,721 2,323 1,634 1, Interest expense Net income 866 1,542 1,082 1, Balance sheet Cash and equivalents Total assets 21,380 19,629 17,585 15,074 6,327 Total debt 6,405 5,666 5,101 4,209 2,507 Common equity 11,496 10,545 9,490 8,799 2,396 Total adjusted capitalisation 17,901 16,212 14,592 13,008 4,903 Cash flow Operating EBITDAR 2,550 2,846 2,171 2, Cash interest paid Cash tax paid Other changes before funds from operations Funds from operations 1,934 2,389 2,161 1, Working capital Cash flow from operations 2,260 2,441 1,203 1, Capital expenditure 3,200 2,363 1,689 1, Dividends Paid Free cash flow Receipts from Asset Disposals Business Acquisitions Business Divestments Exceptional & Other Cash Flow Items Net Cash In/Outflow Equity Issuance/(Buyback) FX movement ,317 4 Other Items Affecting Cash Flow**** Net Cash Flow Available for Financing , Closing Net Debt 6,356 5,609 4,984 4,038 2,498 Profitability Op. EBITDAR/revenues (%) EBIT/revenues (%) PAT/revenues (%) Ratios Asset turnover ratio (x) Current asset turnover ratio (x) Op. EBITDAR/net fixed charges (x) Net adjusted debt/op. EBITDAR (x) Net adjusted Debt/Equity (x) 0.5x 0.5x 0.6x 0.7x 1.6x ROCE (%) ROE (%) Growth Op. EBITDAR (%) EBIT (%) Net income (%) EPS (%) na na Per share data Number of common shares (m) EPS (at various FVs) EPS (at FV 2/-) DPS Dividend payout ratio (%) Source: Company, Fitch Annex 2: Share Price and Volume Data 7

8 Stock Price Movements (Indexed) Price Jun 10 Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11 BSE Price Volume Chart Volume (RHS) Price (LHS) (INR) Jun 10 Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug , , , , , ,000 50,000 - Valuation Comparison: As at 23 Aug 2011 As at 23 Aug 2011 HNGIL Asahi Glass Piramal Glass Haldyn Glass Guj BSE Sensex P/E (x) Price/book (x) Dividend yield (%) Source: BSE, 8

9 Annex 3 Recent Financial Results Description Q311 Q411 Q112 Net sales 3,996 4,199 4,318 Total expenditure 3,274 5,142 3,562 EBITDA Depreciation 246-1, EBIT Interest and finance expenses Other income Profit before tax Tax Profit after tax EBITDA margin (%) EBITDA interest Source: Company 9

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