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ASAHI INDIA GLASS LIMITED -- SHORT ANALYSIS

Rama Krishna Vadlamudi November 26th, 2009

 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 100 170 70
of glass
Freight 100 165 65 Delivered 100 110 10
prices of glass
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.

Rama Krishna Vadlamudi, BOMBAY www.scribd.com/vrk100 Nov. 26th, 2009 Page 1 of 2


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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Rama Krishna Vadlamudi, BOMBAY www.scribd.com/vrk100 Nov. 26th, 2009 Page 2 of 2

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