Management Meet Update

October 13, 2010

Rating matrix
Rating : Unrated Hindusthan National Glass (HINNAT)
Target : NA
Target Period : NA Rs 235
Potential Upside : NA

Venturing ahead…
Key Financials Growth (YoY)
Rs. Crore FY07 FY08 FY09 FY10 We recently met the management of Hindusthan National Glass (HNG)
Net Sales 24.4 96.5 29.3 4.0 and also visited their plant at Rishra (805 tpd capacity). The company is
EBITDA 37.2 106.4 10.3 33.7
a leader in the container glass manufacturing business (55% market
Net Profit 38.9 366.3 (32.5) 42.5
share by value). HNG produces glass bottles from 5 ml to 3,200 ml in all
EPS (Rs) 38.6 366.7 (57.8) (71.2)
colours (amber, flint and green) and supplies to liquor, beer,
pharmaceuticals, food, dairy and carbonated beverage manufactures.
The company has six manufacturing units across the country and has
Valuation summary the largest manufacturing capacity of 2825 tpd in India. Recently, HNG
FY07 FY08 FY09 FY10 ventured into the float glass business (capacity of 600 tpd) and is
EPS (Rs) 30.9 144.2 60.8 17.5 planning to expand its capacity in this segment to 1300 tpd by setting
P/E (x) 7.6 1.6 3.9 13.4 up greenfield manufacturing facilities.
EV / EBITDA (x) 8.2 5.8 5.2 8.3
P/BV (x) 1.3 0.3 0.5 2.2
Key takeaways
RoNW (%) 19.3 33.9 13.6 17.5
RoCE (%) 16.5 17.9 12.8 16.2 ƒ Pioneering technology
The company was the first to bring the NNPB technology to India in
FY08 and introduced it in its Bahadurgarh plant. HNG plans to
increase the output as a proportion of the total production by this
Stock data technology and introduce it to three more plants by 2012-13. The
Market Capitalization Rs. 2069 crore uniqueness of the technology is that it reduces the bottle weight by
Total Debt (FY10) Rs. 566.6 crore 15-35% and delivers better glass strength. Consequently, this leads
Cash and Investments () Rs. 150.4 crore to lower raw material costs and transportation cost, superior quality
EV Rs. 2650.2 crore and is more environmental friendly.
52 week H/L 275 / 122
Equity capital Rs. 17.5 crore
ƒ Float glass business
Face value Rs. 2
MF Holding (%) 0.37 HNG has entered the float glass business through its associate
FII Holding (%) 7.27 company HNG Float Glass Ltd having its first unit at Halol, Gujarat
(commenced in February, 2010) with a 600 tpd capacity. The
Price movement company manufactures glass of thickness ranging from 3 mm to 12
7,000 300
mm. Currently, revenues from this business stand at Rs 30 crore.
HNG expects to break even at the net level by FY11.
6,000 250
5,000
200
4,000
150
3,000 Exhibit 1: Key Financials
100
2,000 Rs. Crore FY07 FY08 FY09 FY10
1,000 50 Net Sales 523.8 1029.4 1330.6 1383.5
0 0 EBITDA 104.9 216.5 238.8 319.3
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 EBITDA Margin (%) 20.0 21.0 17.9 23.1
Price (R.H.S) Nifty (L.H.S) Depreciation 34.0 70.9 75.4 86.9
Interest 19.4 23.7 43.7 47.2
Analyst’s name
Reported PAT 34.4 160.4 108.2 154.2
Sanjay Manyal EPS (Rs) 30.9 144.2 60.8 17.5
sanjay.manyal@icicisecurities.com
Parineeta Poddar
Source: Company, ICICIdirect.com Research
parineeta.poddar@icicisecurities.com

ICICIdirect.com | Equity Research

Hindusthan National Glass (HINNAT)

ƒ Capacity expansion and efficient operations management

HNG is continuously increasing its capacity across its units and is
creating a greenfield unit in Naidupeta (Andhra Pradesh) of ~650
tpd expected to commence by March, 2012. Also, it has enhanced
its capacity in Nashik by 100 tpd that would grow its volumes by
~30% in 2012-13. HNG, thereby, increased production from
7,67,971 tonnes in 2008-09 to 7,85,300 tonnes in 2009-10. The
company has also been increasing its operational efficiency by
introducing narrow neck press and blow (NNPB) technology in its
units and moving towards replacing furnace oil with natural gas that
would help it to bring down its costs. It has entered into a JV with
OMCO, a Belgium based company for mould manufacture, which it
would use in house and subsequently sell in the open market also.
The company owns in-house warehouse and transportation facility
(fleet of 100 trucks) to maintain good inventory levels and ensure
timely delivery to customers during peak demand seasons.

ƒ Performance Highlights

The company has been growing at a CAGR of ~23% from FY07 to

FY10. However, it witnessed sluggish growth in FY10 due to
declining demand and failure to pass on the increasing costs to
consumers. The margins have, however, improved in FY10 due to
the efficient management of other raw material costs (other than
power and fuel) by the company. The company generated ~95%
(FY10) of its sales from the domestic business, up 5% from FY09.
HNG’s export performance was, however, subdued in 2009-10 with
a decline in revenue contribution from 9.71% in 2008-09 to 5.64% in
2009-10.

Exhibit 2: Revenue (Rs crore) and Growth (%)

1600.0 120.0
96.5
Growth has taken place at a CAGR of 23%. However, 1400.0
100.0
FY09 and FY10 have seen a decline in growth rate 1200.0 Declining user
due to falling demand demand and delay in 80.0
1000.0
passing increased
800.0 costs 60.0
600.0 29.3 40.0
24.4
400.0
4.0 20.0
200.0
0.0 0.0
FY07 FY08 FY09 FY10

Net Sales Growth (%)

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 2
Hindusthan National Glass (HINNAT)

Exhibit 3: Segmental break-up of supply

The company supplies ~65% of its products to Pharmaceuticals Others

2% Food
the alcohol industry followed by the food industry 11%
13%
to which it sells 13% of its produce
Soft Drinks
7%

Beer
15%
Liquor
52%

Source: Company, ICICIdirect.com Research

Exhibit 4: EBITDA and PAT margin

23.1%
25.0%
21.0%
20.0%
20.0% 17.9%

In spite of falling sales and failure to pass on costs

15.0%
easily, the company has been able to sustain margins 15.6%
backed by increasing operational efficiency 10.0%
11.1%
5.0% 8.1%
6.6%
0.0%
FY07 FY08 FY09 FY10

EBITDA Margin PAT Margin

Source: Company, ICICIdirect.com Research

The return ratios have been in line with the

performance over the years, except for in FY08 as
there was a substantial decline in reserves and
surplus leading to the upsurge

ICICIdirect.com | Equity Research

Page 3
Hindusthan National Glass (HINNAT)

Exhibit 5: RoNW and RoCE

40.0
33.9
35.0
30.0
25.0 19.3
17.5
20.0
13.6
15.0
16.5 17.9
16.2
10.0
12.8
5.0
-
FY07 FY08 FY09 FY10

RoNW (%) RoCE (%)

Source: Company, ICICIdirect.com Research

Exhibit 6: Debt to equity ratio

1.6 1.39
1.4
The company has constantly aimed at reducing its 1.2
debt and generating enough internal resources to
1
manage operations 0.7
0.8 0.58 0.6
0.6
0.4
0.2
0
FY07 FY08 FY09 FY10

Debt to Equity

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Page 4
 Hindusthan National Glass (HINNAT)

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093

research@icicidirect.com

ANALYST CERTIFICATION
We /I, Sanjay Manyal MBA (FINANCE) Parineeta Poddar MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the
specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading
underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of
companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities
generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts
cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and
employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities
from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities
policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return of investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities and affiliates accept no liabilities for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.

ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received
compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment
banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three
months following the date of publication of the research report for services in respect of public offerings, corporate finance, investment banking or other advisory services in a merger or specific
transaction. It is confirmed that Sanjay Manyal MBA (FINANCE) Parineeta Poddar MBA (FINANCE) research analysts and the authors of this report have not received any compensation from the
companies mentioned in the report in the preceding twelve months. Our research professionals are paid in part based on the profitability of ICICI Securities, which include earnings from Investment Banking
and other business.

ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the
research report.

It is confirmed that Sanjay Manyal MBA (FINANCE) Parineeta Poddar MBA (FINANCE) research analysts and the authors of this report or any of their family members does not serve as an officer, director
or advisory board member of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use
of information contained in the report prior to the publication thereof.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

ICICIdirect.com | Equity Research

Page 5