Kolkata: The Somany family, founders of India’s biggest glass container manufacturer Hindusthan National Glass and Industries Ltd (HNGI), is looking to sell around 7.5% of the company’s shares to invest in an “unrelated business”.
The proposed share sale may raise around Rs 135 crore at current prices, paring the family’s stake to 62.5%. The stake sale is expected to be concluded in the current fiscal, according to Laxmi Narayan Mandhana, HNGI’s chief financial officer. Details about where the money would be deployed were not disclosed.
The company is also looking for investors to sell an additional 7.5% stake from its 14.64 million treasury stocks, he said. Likely buyers are private equity firms, which are being offered a “sizeable stake” of around 15%. HNGI’s treasury stocks, or its own shares held through a trust, account for 16.76% of the equity capital.
Until recently, HNGI was trying to bring in a “global leader”, through the sale of treasury stocks, as a partner that could provide technology, according to Mandhana.
A preliminary agreement had been signed with a potential partner to explore the possibility of a share sale, but the talks did not lead to a deal.
“The exclusivity arrangement with the potential partner ended in December; we are now free to scout for other buyers,” Mandhana said.
The HNGI management is expecting a valuation of 6-10 times its operating profit, or earnings before interest, depreciation, tax and amortization (Ebidta) for the share sale. In fiscal 2011, results for which were announced on Monday, HNGI posted an Ebidta of Rs 270 crore, down 15% from the previous year.
“The reason for the decrease in Ebidta is increase in power and fuel costs, packing and material charges, which we could not pass on to the consumers in time,” Mukul Somany, HNGI vice-chairman and managing director, said in a company release.
Revenue during the year, however, increased 14% to Rs 1,543 crore. HNGI dropped 0.31% to Rs 207.20 on the Bombay Stock Exchange on a day that the bourse’s benchmark Sensex dropped 1.82% to 17,993.33 points.
To reduce operating costs, the company is considering the option to shut one of its plants in northern India and move the workers and machinery to another one nearby, according to Mandhana.
In fiscal 2012, the company’s management expects profit margins to improve to “normal” levels because cost increases have been fully factored into product prices.
HNGI controls around 55% share of the glass container market in India.
Its consumers are pharmaceutical companies, and food and beverage producers.
A research report by Kolkata-based Spark Capital Advisors (India) Ltd said consumption of glass containers in India is expected to grow 10-12% annually over the next few years, driven largely by spirit and beer producers. HNGI supplies about 60% of the bottles used by Indian alcoholic beverage producers, and around 75% of those needed by breweries, according to the Spark Capital note.
HNGI said in the release that it expects glass container consumption in India to expand by at least 15% in the current year. To address rising demand, HNGI is raising manufacturing capacity.
Over the next three years, it plans to double the combined production capacity of its six factories in India to 5,975 tonnes per day (tpd), the company said in a statement on Monday.
It is also buying assets abroad. On 12 May, the company announced that it had concluded a transaction to acquire Germany’s Agenda Glas AG for €50 million (Rs 312 crore).
The amount included €10 million to be spent on augmenting Agenda Glas’s manufacturing capacity.
HNGI is eyeing at least two more overseas acquisitions this year, according to Mandhana. If they materialize, the company will spend around Rs 1,250 crore on them.
The company had earlier said it was looking at potential takeover targets in West Asia, North Africa and Southeast Asia, with a manufacturing capacity of at least 300 tpd. The German company it acquired has an existing capacity of 320 tpd.