New glass plant to up revenue 30% for FY12 & FY13: HSIL

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: First, could you tell us a little more about glass because we understand that is going to be commissioning in the January of the coming year. How much will it add by way of capacity and even revenue in FY12 and FY13?

A: We are having two glass plants; one is in Sanathnagar which an industrial area in Hyderabad where capacity is 650 tonne per day and another plant is at Bhongir which was commissioned two years ago with a capacity of 475 tonne per day. So current total capacity is 1125 tonne per day. We are putting up a new furnace of 425 tonne per day which will be operational sometime in February. We will let up the furnace in January and it will go into production in February 2012. So this year’s revenue in glass business will be up by around 28-30% and next year again it will be up by 30%.

Q: While your revenues are going up by 30%, the entire capex in total in excess of Rs 600 crore is quite a sizable amount. What kind of an effect will it have on your debt equity?

A: Rs 600 crore is not only for glass and it is over a period of next three years, so this will be spent till March 2014. This glass expansion will take around Rs 250 crore. We have already spent Rs 50 crore last year for expanding capacity of glass in Sanathnagar by 50 tonne. So a total Rs 300 crore is already spent.

Rs 50 crore we have spent on sanitary ware expansion at Bibinagar where capacity of plant has gone up from 1.3 million pieces to 2 million pieces per annum, taking total capacity of sanitary ware from 2.8 million pieces to 3.5 million pieces.

We will be investing around Rs 20 crore for expansion at Bhadurgarh next year, taking capacity up by 3 lakh pieces and a Greenfield plant of 1.2 million piece capacity in Gujarat, taking total capacity to 5 million pieces.
Another Rs 100 crore would be spent in putting up a faucet plant. Work on that has already started in Bhiwadi in Rajasthan and it should be operational by end of FY13.

So, total expenditure of Rs 600 crore is on three expansions - glass, sanitary ware and faucet business. Since it is over a period of next three years, there is strong cash generation in the company and so, borrowings will not be too high. Yes, of course, we would be borrowing some amount, but at the peak it will be about 0.9:1.

Q: What is then the impact in the quarter gone by in this October to December on account of fuel and rupee fluctuation? Also, is the company planning to combat it by perhaps increasing the prices?

A: Sanitary ware, most of the raw materials are indigenous, there is very little imported input, so there is no impact as such on business. But of course, fuel is a large component in terms of cost of production which is impacting the input cost. We already revised the prices by 6.5% from November 1 which has been absorbed by the market. So that has taken care of all the cost increases which has taken place or which might take place in next few months.

In the glass, again fuel is the important cost of production where the fuel costs are going up because of the rupee depreciation. We also import some amount of soda ash. There will be price increase in glass sometime by end of this month or early January. A proposal has been sent to the customers and we are in the process of discussing that.

Q: Could you tell us the likely price hike in the glass division and at least in the quarter gone by in and Q3 are your margins expected to remain in the 17-18% mark?

A: Yes, the margins actually could be slightly better in terms of improved accession in all the plants and capacity utilizations being more than 100%. But in any case, if the price increase in glass does not take place in December, then we will be able to maintain the margin. January onwards, the price increase in the glass is again 6-7% to different customers.

Q: The sanitary ware segment of yours is heavily dependent on the property market. In terms of volume growth, are you noticing any sort of sluggishness in that sector?

A: Not till now. Volume growth has been 12% in November this year which is very strong in terms of 12% revenue growth. The balance growth comes from product mix change and price increases. 12% is quite a strong growth because that is what people have been talking of. But difference between the market and our company is that we are not very dependent on the institutional segment. We have a large distribution network- around 1550 dealers and around 14,000 retail outlets. We have penetrated each town in the country where the population is 50,000 plus. So we are largely sold in retail which is individual house construction and replacement market. The dependence on the institutional segment is only 24-25%. If that slows down by a few percentages, I think we can take care of it by still increasing our penetration and little bit more push on the retail side.