Key Takeaways of the call

• In the quarter ended June 2012, Net Sales increased by 11% to Rs 480.83 crore, but due to steep fall in margins, the company reported 71% fall in Net Profits to Rs 7.68 crore on y-o-y basis. Besides fall in margins due to rise in the input cost, the results were also dampened by high interest and depreciation.
• Production volume increased 4% to 230158 MT in Q1FY13 compared to 221092 MT in Q1FY12.
• Sales volumes increased by 3.5%, while realizations increased by 7.3% in Q1FY13 over Q1FY12 on the back of the price hikes of an average of about 8% implemented in FY12.
• Operating EBIDTA Margins declined from 18% in Q1FY12 to 14% in Q1FY13 primarily on account of further increase in input cost. Q1FY13 witnessed an increase of 21% in per ton cost of production as compared to Q1FY13, power % fuel cost (44% of total expenditure) and raw material cost (32% of total expenditure) increased by 22% and 15% y-o-y respectively during the quarter.
• In order to optimize the cost, the company is implementing various processes and systems across the manufacturing units. The company is sourcing power through IEX, and it has entered into long term tie ups with mine owners for captive processing and supply of silica sand.
• The company expects the margins to improve as the initiatives start yielding cost benefits in the coming quarters.
• During Q1FY13, Interest & Finance cost increased 52% to Rs 30 crore from Q1FY12 due to borrowings to fund capacity expansion.
• The company is planning to take a price hike in Q3FY13 to offtake the cost increase for FY13.
• The average realization for the Container Glass for FY13 is Rs 21800 per tonne.
• As part of their capacity expansion, a furnace was fired at Naidupeta, Andhra Pradesh in July 2012 and expected Commercial operation Date (CoD) is by the end of Q2FY13. It is expected to start contributing meaningfully to the performance from the subsequent quarter. The management expects that the improved manufacturing efficiencies will reduce the marginal cost per unit at this plant.
• The Greenfield capacity at Naidupeta is strategically located with close proximity to key raw materials. The company mentioned that this will facilitate strengthening its operations in South-key market in India.
• At Nashik, Maharashtra, the expanded capacity was operational for 1 week (CoD-26 July 2012) and the full commercial production is expected to commence in Q2FY13.
• The management expects the production and sales volumes to improve significantly from Q2FY13 onwards from the extended capacities as the utilization level increases. The management added that the long tern growth of the company is intact.
• The company has a current installed capacity of 4235 TPD in India (including Naidupeta) and 320 TPD in Germany. It has planned to expand capacity to 4775 TPD in India by FY14.
• HNG acquired assets of Germany based Agenda Glass (AG) with a manufacturing capacity of 320 TPD in May 2011 and commenced operations under HNG management in August 2011. HNG expects this company's overall operations to break even in FY2013.
• The management mentioned that the Efficiency at the AG has improved significantly to 83% from 72% at the time of acquisition and the Storage cost has reduced after the construction of the warehouse.
• The company expects both its German (AG) and Float Glass business (47.4% stake in HNG Float Glass) to add positive numbers to the overall performance of the company in March 2013.
• The Long term Debt to Equity ratio increased from 0.50 times at the end of June 2011 to 1.57 times at the end of June 2012 as HNG incurred long tern debt to partly fund capacity expansions.
• ROCE stood at a lower 4.56% at the end of June 2012 against 11.17% at the end of June 2011. During this period, Return on Net worth also deteriorated to 2.64% against 8.85%. The company expects that the enhanced volumes and effective cost rationalization will yield improved returns in the coming quarters.
• The Net working capital cycle days increased from 66 days at the end of June 2011 to 97 days at the end of June 2012. The company mentioned that it has implemented various initiatives to improve the working capital cycle and minimize the lag in effectively passing increase input cost.
• The company expects to have a much higher export turnover going forward as it has relationship with many customers globally.
• It expects some moderation in the soda ash prices globally.
• Stand alone Debt as on 30 June 2012 stood at Rs 2306.1 crore.