Piramal Glass: Deal in the pipeline?

If one goes by the expectation of the stock market, there is no limit here. Piramal Glass, a listed glass company with a market cap of over Rs 1,000 crore, is considered as a deal in the pipeline. Over the past one year, Piramal Glass shares rose 45% while the broader BSE 500 index rose only 5%.

“The market is looking at the track record and expects some transaction sooner or later,” an investment banker tracking mid-tier companies told Firstpost.

Piramal Healthcare, a company promoted by the Ajay Piramal Group, sold the flagship formulations business to Abbott Laboratories last year for Rs 17,500 crore ($3.2 billion).

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[caption id=“attachment_25209” align=“alignleft” width=“380” caption=“The Indian container glass industry is growing at a rate of 12% and is expected to be worth $1 billion. Photo by Mo Riza/Flickr”]  [/caption]

What makes Piramal Glass attractive is its focus on the high margin Cosmetics & Perfumery segment (C&P). The share of C&P segment improved to 49% during the year ended March 2011 and is expected to increase further to 58% by the end of 2013.

This increase in share is expected to come from the commissioning of its greenfield C&P facility at Jambusar Gujarat, which is expected to be operational by March 2012 and will have a capacity of 160 tonnes per day (tpd). This expansion will lead to a 15% CAGR to its topline during FY11-FY13, as reported by SKP Securities.

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This explains why it is trading at a higher price to earnings multiple of 15 times as compared to the industry level of 6.5 times.

The Indian container glass industry is growing at a rate of 12% and is expected to be worth $1 billion, according to a report published last week.

The banker felt that international players like Pochet of France, a private company with a turnover of 500 million and one which made two acquisitions globally over the past year, or privately-held Heinz Glass of Germany, could be scouting for potential targets in India.

This list below is a good rule of thumb to examine Piramal Glass:

If you are a shareholder or retail investor looking to pick your stock watch out for the following:

• Could be a potential buy out candidate

• Promoters holding has reduced to 72.7% from 76.8% over the past one year.

• EPS shot up to Rs 11.5 per share at the end of March 2011 from Rs0.84 per share last year

• Debt to equity ratio reduced to 2.4 times at the end of March 2011 from 3.5 times earlier.

•Company’s capex plans are to spend Rs 260 crore over the next two years on its C&P segment

• Largest producer of nail polish bottles in the world with more than 30% market share

Banks/lawyers/consultants/private equity players may note the following:

• Co plans to reduce its debt to equity ratio to below 1.5 times by 2013.

• Average cost of borrowing at 7.25%

• Co open to inorganic acquisitions (global)

• Cash in hand is Rs 10 crore