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Asahi India: Conference call extracts - Views on News from Equitymaster
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Asahi India: Conference call extracts
Mar 23, 2006

Recently we had a conference call with Asahi India to understand the business model of the company and its future strategy. Here are the key takeaways. What is the company’s business?
Asahi India Glass is the leading glass company in India, manufacturing a wide range of automotive safety glass, float glass and architectural glass. It has three operating business units, namely Automotive Glass Unit (54% of FY05 net sales) and Float Glass Unit (46% of FY05 net sales). It has an 85% market share in automotive segment and is a key supplier of leading domestic automotive players like Maruti, Tata Motors, M&M and Hyundai. It has 25% market share in the float glass segment. While Asahi, Japan, holds 22% stake in the company, the Labroo Family (the Indian promoter) holds 33% with Maruti Udyog’s stake at 12%.

Key takeaways…

Country PCC (kgs/person)
India 0.7
Thailand 5.0
Japan 15.0
Middle East 26.0
US 45.0
Glass consumption – A brief overview: The per capita glass consumption (PCC) in India is 0.65 kgs/person, which is significant low (see table). Similarly, the ratio of consumption of plain glass vis-à-vis the value-add glass is different in India as compared to the world standards. For instance, in the architectural glass segment worldwide, around 70% of the sales is in the value-add segment. However, in India the value-add segment contributes to around 20% of sales. Demand growth is largely linked to GDP growth and in the last few years, the industry grew by 12% to 15%, with the organised sector outpacing unorganised segment in the float glass segment.

Capacity expansion plans: Asahi has outlined Rs 9 bn towards capital expenditure. Of this, around Rs 6 bn will be utilised in FY06 and the balance in FY07. The company is setting up a float glass (the key raw material for toughened, laminated and architectural glass) plant with a capacity of 700 tons per day. The plant is expected to come on stream by December 2006. Post this expansion, the total float glass capacity of the company will touch 1,200 tons per day. Similarly, the company is expanding its laminated windshields capacity to 2 m units (1.4 m units currently) and tempered glass capacity to 1.2 m sets in phased manner by FY09.

Architectural glass segment: Asahi, traditionally, has been a strong player in the automotive segment. In FY05, it had an 85% share of the market. In order to reduce the dependency on a single segment, the company has chalked out major plans in the architectural glass segment. For this purpose, it has set up a wholly owned subsidiary (Asahi Glass Solutions). To give a perspective, the scope that the segment offers is envisaged in the following table.

Glass consumption - segmental breakup
Segment % Industry Presence of Asahi
Architectural 70 Not significant
Automotive 11 Market leader
Value add 19 Market leader for automotive segment

Similarly, the company is aiming to increase its presence in the value-add architectural glass segment. As per the management, there exists a huge scope in this business and the same is indicated in the table below.

Architectural glass - the value chain
Hypothetical example Rs
Selling price of plain glass 100
Selling price of value addition 200-700
Incremental cost of value addition 100-350
Incremental profits on value addition 100-350

Raw Material: Silica sand is the key raw material for manufacturing float glass, accounting for around 66% of the total raw material requirement. The balance is accounted by PVB films, soda ash and other residuary materials. For silica sand, the company has its own mines to meet the current requirements. PVB films and raw glass is imported.

What to expect?
At the current price of Rs 97, the stock is trading at 38.5 times its trailing 12 months earnings. The management estimates the automobile industry (excluding motorcycles) to grow by around 10% to 12% per annum. Similarly, the float glass industry is expected to grow in the range of 9% to 10% per annum. In this background, the company aims to grow by around 18% to 20% per annum. The company is also working towards improving its operating margins to around 26% levels (21% in FY05).

We are in the process of initiating our coverage on Asahi India. As such, post another meeting with the management, we shall outline our concrete view on the stock.

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