Asahi India Glass Limited - A Short Analysis - VRK100 - 26112009

Asahi India Glass Limited - A Short Analysis - VRK100 - 26112009

 

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• In its 23-year old history, the company had incurred a net loss for the first time during the year 2008-09 due to adverse market conditions following the global financial meltdown

• It capex, which started in 2005-06, is over now. As a result, its free cash flow has shown tremendous improvement to Rs 278 crore during 2008-09 from Rs 39 crore in 2007-08

• The company’s total debt has grown from Rs 445 crore with debt-equity ratio at 2.20 in 2004-05 to Rs 1,617 crore with debt-equity ratio of 6.06 in 2008-09

• The company’s net assets have grown from Rs 356 crore in 2004-05 to Rs 1,350 crore in 2008-09; which means the entire capex is achieved with the help of massive debt acquired between 2004-05 and 2008-09

• Due to the huge capex, higher level of competition and consequent deterioration in the business environment, the company’s key financial ratios are in an extremely bad shape

• Its ROCE is less than two per cent and RONW is negative for 2008-09

• Its debt-equity ratio is more than 6.00 which is extremely high

• Due to high debt, its interest cover is at an abysmally low level of 0.26

OUTLOOK FOR THE GLASS INDUSTRY:

The glass industry is plagued with excess supply. Fresh capacity addition is likely to depress glass prices further. Realty sector, which uses architectural glass in a big way, is down in the dumps after the global financial meltdown. There is a large gap between supply and demand; with supply far ahead of the demand. The demand is now estimated at 2,750 tonnes per day (tpd), while the supply is about 3,600 tpd, including 400 tonnes of imports. The important players in the glass industry are Hindustan National Galass, Saint Gobain Glass India Ltd, Gujarat Guardian and Asahi India Glass. Exports have declined sharply due to the slump in the US and Europe. However, the automobile sector is looking up at this point of time. This may give some boost to the players which are catering to it in a major way.

MATRIX SHOWING THE INPUT COST Vs. REALISATION : (BL dt. 4.11.09)



INPUTS                 2000      2009       % rise             INPUTS                    2000       2009        % rise

Soda Ash                 100         187         87                Diesel                           100         194          94

Fuel oil                     100         288      188                 Manpower                    100         210        110

Packing                    100         160        60                 Delivered cost of glass    100        170         70

Freight                     100         165         65                Delivered prices of glass 100         110         10



As can be seen from the above, in the last nine years the cost of glass has gone up by 70 per cent, whereas the sale price has shown a meager increase of 10 per cent only. This essentially sums up the existing grim situation of glass industry in India.

VALUATION:

Its current market price is hovering around Rs 62. Its EPS is nil as it has made net losses in four out of the last six quarters. Its book value is Rs 12.63 as on March 31, 2009. The net sales have remained stagnant in the last six quarters. Due to high depreciation cost (following massive capex in the last four years) and concomitant abnormally high interest cost, the company’s interest coverage ratio is extremely low. This low interest cover affects the company’s ability to survive any further deterioration in the fortunes of glass industry in India.

Its market cap is a little less than Rs 1,000 crore. Promoters’ stake in the company is around 55 per cent. The management is known for its transparency. The CEO and MD of the company is Sanjay Labroo. The promoters have pledged 43 per cent of their stake – which comes to around 13 per cent of the company’s total stake. The company is a major OEM for Maruti Suzuki, on whose fortunes Asahi India depends. Maruti Suzuki holds 11 per cent stake in Asahi India Glass.

Investors may have to wait patiently for the company to show some improvement in future. But, going by the industry scenario, it will test investors’ patience to the hilt in the next one to two years. Considering the present excess supply situation in the glass industry in India, tepid economic recovery in the US and Europe and the deteriorating financial ratios of the company; the company’s prospects look grim at this point of time until something dramatic happens to the real estate industry and other manufacturing industries. Much also hinges on the continuing recovery in India’s automobile industry. Its free cash flow will further improve this year.

AUDITOR’S QUALIFICATIONS IN 2008-09: (A). It paid Rs 83 lakh as remuneration to the managing director and other directors. This is in excess of the limits under the Companies Act. Had the remuneration been in accordance with the Act, the loss after tax would have been lower by Rs 83 lakh and loans and advances would have been higher by the same amount in 2008-09. The company maintains that it has made adequate profits in the past and justifies the present remuneration and is seeking the approval of the authorities concerned for the remuneration paid.

(B). It did not default in term loan repayment of dues to banks, except for a delay of three days and 25 days in repayment of two loan instalments of Rs 4.17 crore each and repayment of Rs 20 crore due end March 2009. The company is planning rescheduling of loan repayments.

Data source: CapitalMarket



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