Mumbai: Glass bottles maker Piramal Glass Ltd has decided to close a significant portion of the struggling US facility that it had acquired in a debt-laden deal in 2005.
Paring debt: Piramal Glass managing director Vijay Shah. Abhijit Bhatlekar / Mint
It will shift its US operations, except speciality food and beverage bottles production, to India by next March as part of a restructuring, managing director Vijay Shah said in an interview on Tuesday. It will also lay off around one-third of its 540 US employees.
The company, which makes glass packaging for pharma, perfume and speciality food and beverage sectors, retreated from the brink of a bankruptcy caused by huge debt and its bleeding US unit.
“We have created huge additional capacities in our manufacturing locations in India, and shifting the manufacturing from the US facility to these locations will directly result in saving cost by more than 50%,” Shah said. “By doing this, we hope the US subsidiary will also break even by the end of this year.”
Piramal Glass, a group company of the Ajay Piramal-led drugs and healthcare to financial services conglomerate, is among the world’s top five glass bottle makers by sales in the pharma segment, and the third largest manufacturer of cosmetics bottles by capacity.
As of March 2009, it had a costly debt of Rs1,357 crore, mainly in rupees, for additional investments in the US entity and to increase capacity in India, while its net worth was Rs260 crore.
Piramal Glass acquired US-based Glass Group Inc. in 2005 to get access to the world’s largest perfume market as well as to the latest technologies.
“The US acquisition was in a hurry and we didn’t have enough time to look at many of the critical aspects pertaining to the operations of the company,” said Shah.
In addition to the initial acquisition cost of about $18 million (about Rs90 crore then), Piramal Glass invested around Rs300 crore in the US firm over the years. For setting up additional capacity in India, it spent another Rs450 crore.
The cost of debt for these investments and adverse market conditions, including foreign exchange losses, resulted in a net loss of Rs23 crore in 2007-08 and Rs103 crore the next fiscal. It returned to profit in the second quarter of 2009-10, led by a turnaround in its US unit. It made a quarterly profit of around Rs2 crore.
“The investments that we have made in the last 3-4 years are now fructifying... All our manufacturing assets have been approved after stringent audit norms by top perfumery manufacturers like Procter and Gamble, LVMH, Yves Rocher, Coty, among others, in the last couple of years,” said Shah.
Piramal Glass’ vice-president, strategic planning and investor relations, Chunduru Srinivas, said the company now expects to make a consolidated profit in 2009-10.
Kamna Jain, a sector analyst with SKP Securities Ltd, said in a March report that while Piramal Glass was poised to recuperate, any change in the business mix as well as growing competition and threats such as new substitutions to glass packaging could hurt its profitability.
A rights issue last year to raise about Rs188 crore helped the firm pare part of its debt, now standing at Rs1,030 crore.