Interview of Vijay Shah, Managing Director, Piramal Glass Ltd.

Vijay Shah, Managing Director, Piramal Glass Ltd. is a Co-founder of Piramal Glass Ltd. (formerly, Gujarat Glass Ltd.), a subsidiary of Piramal Healthcare Ltd. and has been its Managing Director since September 1992. Mr. Shah served as the Chief Operating Officer of Piramal Healthcare Ltd. (formerly, Nicholas Piramal India Ltd.) until August 2008. He has been with Piramal Group since 1988. Mr. Shah is a rank holder of the Institute of Chartered Accountants of India. He holds Bachelor's Degree in Commerce Rank holder and member of "The Institute of Chartered Accounts of India". Mr. Shah completed Advance Management program of Harvard Business School Boston, USA in 1981 and Management Education Programme from IIM Ahmedabad in 1987.

Piramal Glass Ltd. (“PGL”, erstwhile Gujarat Glass Ltd.) is a leading global manufacturer of flaconnage (glass containers) for pharmaceuticals, foods & beverages and cosmetics & perfumery industries. PGL has a global footprint with manufacturing facilities located in USA, Sri Lanka and India. The Company markets its products to more than 50 countries across the globe. The Company is also the largest producer of nail-polish bottles globally, with about 50% market share. PGL is listed on the National Stock Exchange (Ticker: PIRGLASS), the Bombay Stock Exchange (Ticker: 532949) and Ahmedabad Stock Exchange (Ticker: 20219).

In an exclusive interview with Hemant P. Maradia of IIFL, Mr. Shah says: "We do not want to give any specific guidance for FY12. However, for the period between FY11 and FY13, we will be growing at a CAGR of 17-18% with EBIDTA margins of 25-26%."

You have reported improved performance over the past several quarters. C&P is clearly the main driving force. So, what’s the outlook for the rest of FY12 and beyond?

Cosmetics & Perfumery has been the focus area for the company for last 5-6 years. C&P was ~ 30% of sales till FY-06 and today it constitutes almost 50% of the company sales. Today PGL is fastest growing company catering in this segment. Within C&P, Premium, which was a small portion in earlier years, constitutes about 55% of C&P now. This will lead to expansion in EBDITA margins and ROCE.

Where do you expect C&P to close FY12 in terms of its share in the company’s overall topline? How do you see the company’s business mix in the coming years?

We do not give any specific guidance for FY-12. By FY-13, we expect 55-60% of our sales to come from C&P. With a continued focus on Cosmetics & Perfumery, we are expecting to grow at a CAGR of 30%.

In the coming years in addition to C&P segment, we expect Speciality Food & Beverage to contribute 22% and Pharma to contribute 23% to revenues. Going ahead, we think, we can grow by 17-18% CAGR on topline, mainly led by growth in C&P.

Within the C&P space, the premium market is growing faster than mass market. Given the slowdown in the US and Europe, do you expect this momentum to persist?

The demand across Europe and USA is very good currently. There has been an extremely good rebound since the recession. As far as we are concerned, we are expecting momentum to be persistent because every time we are gaining shares of the market and our growth is not much dependent on the growth of the market. Also, we have a healthy geography mix of our sales. Emerging markets contribute to one third of our sales; this will keep us de risked from the perceived recession in the above markets.

What is the mix between Premium and Mass in the C&P segment? What is the internal target on this front?

About 45% of the revenue is coming from premium segment and 55% from Mass segment. For FY13, we are targeting to achieve 50-55% from premium and balance by mass. Our target is to grow at a CAGR of 28% - 30% by FY’13 in C&P.

Do you see Premium C&P products growing even faster?

Yes; Premium constitutes about 71% of the overall C&P market.

What is the break-up of C&P revenues in terms of geographies - US, Europe and Emerging Markets?

Emerging markets constitute for ~ 40% of sales, USA another 35% and balance in Rest of world including Europe.

Is your US C&P business profitable now?

Absolutely. In fact, sales grew from US$55mn during acquisition to US$81mn in FY11, thereby showing a growth of 9.9% CAGR. From a negative 15% EBDITA during acquisition, currently the numbers are + 13-14% EBDITA.

Given the slowdown in western markets, what is your de-risking strategy for the C&P business?

The C&P market is growing at 3-5%. The growth is being led mainly by Brazil, Russia and now also India and China; our estimate is that emerging markets are growing at mid teens and we have a strong position in these markets.

In our case, we are not so worried because we are gaining market share. We are growing very rapidly in the premium segment of the market. So, if at all it gets worse in the future, our growth rate could be slightly lower in the premium segment but that does not mean that our numbers will be majorly impacted. Our spread in terms of geography and presence across value chain will de-risk the company.

Since you are in growth phase, what are the expansion plans for the C&P business? What kind of capex have you planned for FY12 and next fiscal?

We have announced that in FY12 and FY13 we will spend about Rs. 260 crores (approx.); out of which Rs. 100 crores will go towards a Greenfield expansion of 160 tonnes per day for the Cosmetic & Perfumery furnace.

The balance Rs. 160 crores will be spent on the relining of four furnaces, which will happen between this year and next year.

What is the status of the proposed Greenfield facility at Jambusar in Gujarat? How much investment are you planning to pump into this plant?

At Jambusar, we are investing Rs. 100 crore for expansion of capacities by 160 tonnes per day. We are hoping that by end of this financial year, the facility will be up and running.

Are you done with the conversion of Pharma glass manufacturing capacity into C&P capacity?

One furnace catering to Pharma Glass with a manufacturing capacity of 75 TPD has already been converted to C&P with capacity to produce 55 TPD. The share of Pharma segment will be in the range of 23-25%.

At any point in future, will you completely exit from the Pharma segment?

We are definitely not looking at an exit from the Pharma segment, as we are the market leaders in India for over a decade now with a share of 35%. We will continue maintaining our leadership position and focus will be on improving geography mix and product mix.

What is the total production capacity of the C&P business? Where will it stand in the next 2-3 years?

At this moment, our total production capacity in C&P segment is 545 TPD and is the second largest installed capacity globally. This used to be about 300 TPD last year.

How are you funding the proposed capex plans?

We will raise funds from internal approvals for proposed capex. If we broadly do the arithmetic, you will realize that the company generates free cash flow and this will be enough not only to meet the expansion plans but also to bring down the Debt to Equity to targeted 1:5:1 from current 2.5:1.

What is the absolute debt? What is the debt-equity ratio?

Currently, the absolute debt level is around Rs. 900 crores. Debt-equity has improved. A year before, the debt equity was about 3.5:1. In FY11, it was 2.6:1 and after the first quarter of FY12, it is about 2.4:1. By FY13, we are aiming at a debt-equity ratio of 1:5:1.

Tell us about the F&B business and growth plans for this segment?

The F&B business is operated from US and Sri Lanka market. Sri Lankan markets are growing at late teens and this will help us grow in this segment. We are also focusing on niche segments within F&B segment, which will yield higher margins especially in the USA.

What is your guidance for FY12?

We do not want to give any specific guidance for FY12. However, for the period between FY11 and FY13, we will be growing at a CAGR of 17-18% with EBIDTA margins of 25-26%.

What is your message to the shareholders?

We thank our shareholders for their confidence in us. The company’s market capitalisation has gone up 4 fold from the time of the Rights Issue i.e. two years ago. We continued delivering the promised results and growth. With a well chalked out strategy and focus on business processes, the company will be able to meet the guidance and increase the market share. We will establish a strong position as the only Asian player in the nice C&P segment.