Mar 17, 2011, 01.29 PM IST | Source: Moneycontrol.com

Buy Hind Nat Glass; target of Rs 351: Unicon Investment

Unicon Investment is bullish on Hindusthan National Glass and Industries (HNG) and has recommended buy rating on the stock with a target of Rs 351 in its March 7, 2011 research report.

Unicon Investment is bullish on Hindusthan National Glass and Industries (HNG) and has recommended buy rating on the stock with a target of Rs 351 in its March 7, 2011 research report.

Hindusthan National Glass and Industries (HNG) is the leader of container glass market in India, with 55% share. The Company has pan India presence and its container glass portfolio ranges from 5ml to 3,200 ml in various colors, such as amber, flint and green. As of FY10, the Company has an installed capacity of 2825 TPD of Glass Bottles and Vials. It also has 47.5% stake in the float glass venture, HNG Float Glass Ltd, with an option to increase it.With sustained growth in user industry, we expect HNG's revenue to grow at13%&14%and Net Profit to grow at9%&11%in FY11E&FY12E respectively.

Container glass market is expected to grow at 10% - 12% per annum backed by a CAGR of ~ 10%, 16%, 15% and 14% in liquor, pharma, beverages and processed foods respectively. We believe HNG with its pan India presence is well placed to exploit the user industry growth. HNG has embarked upon an ambitious INR 25 bn expansion plan to cater to rising demand from user industry. The management plans to increase the total capacity from 2825 TPD in FY10 to 4,805 TPD by FY13, an increase of 70%. The green field plant at Naidupeta is strategically placed in the highest liquor consuming state of Andhra Pradesh, making company's growth prospects better. Power accounts for ~28% of total operating cost. HNG has shifted from Furnace Oil and LPG to Natural Gas in Bahadurgarh & Neemrana plants and is in the process of shifting to Natural gas in Rishra by Apr 11, Nashik by Sep 11, Puducherry by Oct 12 , Rishikesh by Jun 13; which will lead to a saving of ~INR 50 mn per plant per annum thus improving the overall operating margins. Improvement in draw and pack efficiencies, economies of scale in sourcing, production and customer service will further add to margins. HNG Float Glass Ltd (HNGFL) captured 15-18% (clear float glass) market share in 6 months and expects to more than break even at the net level in a full year's working in FY11.HNGhas 47.5% stake in the float glass venture. Rising stake in HNG Float Glass would be EPS accretive for HNG.

At the CMP the stock trades at 11x and 8x its FY12 and FY13 earnings respectively, which is at a premium to its peers. However, the premium is justified given the market leadership position (~55% in container glass) and low debt-equity ratio of 0.5x. The company also has 16.7% of the equity is in the form of treasury stock (14.6m shares, valued at ~INR 3.14 bn at the CMP), which can be used to fund capex. Considering the user industry growth prospects and company's expansion, we initiate coverage on the stock with a BUY rating and a price target of INR 351, implying an upside of 66%, says Unicon Investment research report.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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