The Flat glass segment comprises of float glass and rolled glass. Float glass is slowly emerging as the preferred flat glass product. The demand of float glass segment continues to be primarily driven by construction sector, in the residential and the commercial or retail segment of real estate. According to industry estimates, the demand for float glass is expected to increase by 10-12% in the next 3-5 years. India has only 8 float glass lines as compared to 196 in China. The total installed capacity for float glass is estimated to be 4700 tpd whereas float glass imports is estimated at 100000 tonne largely from China and Indonesia.

Another large segment is the specialty glass, which is mainly used in technical applications such as electronics and engineering. On the other hand, fiberglass is an immensely versatile material which combines it light weight with an inherent strength to provide weather resistant with a variety of surface textures. Fiber glass are mainly used in surfboards, boats, sports car, lorries, high end bicycles and large commercial wind turbines blades.

The aggregate Net Sales of 13 Glass and glass products manufacturing companies grew by 13% to Rs 1416 crore during the quarter ended June 2012. At the operating levels, the margins contracted by 500 bps to 13.8% due to the increase in the input cost leading the Operating Profits to fall by 17% to Rs 195 crore. Other Income increased by 25% to Rs 10 crore. Interest cost rose by 17% to Rs 108 crore, while the depreciation increased by 10% to Rs 102 crore resulting the PBT to turn red at Rs 5 crore. After the Rs 3 tax credit during the quarter under review, the Net Loss stood at Rs 2 crore against the Net Profit of Rs 34 crore in the corresponding quarter last year.

Asahi India pulls down glass aggregates

Asahi India reported loss of Rs 24.98 crore in the quarter ended June 2012, as against profit of Rs 3.11 crore in the corresponding previous quarter. This is despite 24% rise in net sales to Rs 482.95 corre during this period. Segment wise data evidences fall in margins in all the three segments – automotive glass, float glass and others.

Excluding Asahi India from aggregates, the sector would have still reported fall in profits, but would not have ended in losses at aggregate level.

HNG plans to expand capacity to 4775 TPD in India by FY14

Net Sales of Hindusthan National Glass (HNG) increased by 11% to Rs 480.83 crore during the quarter ended June 2012 but due to the steep fall in the margins, the company reported 71% fall in the Net Profits to Rs 7.68 crore. Besides fall in the margins due to the rise in the input cost, the results were also dampened by the high interest and depreciation. 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 is planning to take a price hike in Q3FY13 to offtake the cost increase for FY13.

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. The management expects the production and sales volumes to improve significantly from Q2FY13 onwards from the extended capacities as the utilization level increases.

HSIL expects Container Glass business to grow at 22-25% for FY13

Hindusthan Sanitaryware (HSIL) reported sluggish growth in the Net Sales by 6% to Rs 320.50 crore during the quarter ended June 2012 due to the 4% decline in the container glass business at Rs 164.03 crore. The decline in sales from container glass business was due to impact on business due to the delay in payment from one of the large customers (17% of CG sales). Further, it clarified that the issues were streamlined now.

The company indicated that the work is on for the faucet plant capacity expansion project and expected to commission in July-August 2013. The sanitaryware expansion project at Gujarat supposed to commission by September 2012 is running late and expected to be commission by December 2012 or January 2013. The total Capex for the two projects is 200 crore and there is no Capex planned for the next two years. It expects about 20% growth in Sanitaryware business and a sustainable 20-25% growth in the Container Glass business in Q2FY13. The Company expects Container Glass business to grow at 22-25% for FY13.

Piramal Glass expects to improve profits as the new capacity stabilizes

Consolidated Net Sales grew by 19% to Rs 376.3 crore during the quarter ended June 2012. Operating EBIDTA (excluding forex loss/gain) remained almost flat at Rs 82 crore due to the 440 bps dip in the margins at 21.8%. Net Profit declined by 66% to Rs 10.6 crore during Q1FY13.

Piramal Glass's new furnace of 160 TPD is operational since April 2012. Being a new furnace, it is in the process of stabilizing and produces a sub optimal product mix. The combination of these factors has impacted the profitability in the short run. Going forward, the company expects that as the new capacity stabilizes and improvement in product mix is achieved, they will witness improvement in profitability. Piramal Glass has a global market share of 6% in the C&P segment and will continue to focus on growing this share.

Outlook

The rising household income levels, growth in the other sectors such as construction, automobiles, electronic goods, consumer durables and the growing preference of glass containers as packaging medium are also the factors that will provide a helping hand in driving the demand for the glass and glass products in the medium term.

Despite decent growth in demand, the industry suffered due to steep rise in input costs, surge in power and fuel costs and higher fixed cost on expanded capacities. The players are selectively hiking prices, which could moderate the pace of fall in margins. With players expanding capacities at a time when demand growth decelerates, margin pressure can intensify in the short term.