Hindusthan Glass close to overseas buy

Hindusthan National Glass and Industries Ltd (HNGL) may finalize a strategic overseas acquisition in the pharmaceuticals space in the next two-three months, a top official said.

India’s largest glass bottle maker by market share, which largely caters to industry sectors such as liquor and food and beverages, plans to strengthen its presence in the drug sector in both local and international markets. The acquisition is likely to cost HNGL between Rs.200 crore and Rs.400 crore. The existing clients of the target company in the pharma sector are the key advantage that the local firm expects from this buy, said vice-chairman and managing director Mukul Somany.

“An acquisition in the drug space, where we wanted to grow further, would not only help entering foreign markets, but also to have several new global clients,” he said

Somany declined to share details about the target firms and its key markets. “We were looking for acquisition targets in Middle East, other South-East Asian countries, and Europe,” he said. HNGL had engaged Rothschild Consulting and PricewaterhouseCoopers to advise on the deal, according to a person familiar with the acquisition plan, who requested that he remain unnamed.

To fund the acquisition, the company plans to sell a part of its 16.76% treasury stock to institutional investors, and a few potential buyers had shown interest. Treasury stock is shares held by the issuing corporation and available for resale. HNGL’s treasury stock was created in 2002 when it merged Owens Brockway India Ltd with itself. In June 2010, US private equity firm Sequoia Capital acquired a stake of at least 7% in HNGL, partly from the treasury stock and from the promoters, the Kolkata-based Somany family, for about Rs.127 crore.

As part of the increasing focus in pharma sector, HNGL has also recently raised its production capacity at its local factories. “To cater to the growing demands from the pharma industry, we have now revamped our Bahadurgarh unit, which includes realigning of furnaces and installing new machinery and equipment for automatic inspection, shrink packing machines, etc.,” Somany said. HNGL’s revenue from the pharma sector was Rs.166 crore in the last fiscal. The company is expecting a turnover of Rs.195 crore in the current fiscal that began 1 April.

According to Somany, the pharmaceutical industry in India is expected to continue its double-digit growth, and glass being one of the most preferred packaging materials in this sector, HNGL expanding its capacities in this space has had a positive impact. “The actual impact is expected to be visible this year,” he said. The equity research arm of rating agency Crisil Ltd had in November said in a report that while HNGL is a dominant firm in the glass container industry, its market share had last year fallen from 65% to 55% due to capacity expansion by rivals. “But its mid-term plans to add higher capacity than competitors will help restore its market share,” the report said. Being the leader in the glass bottle market with a domestic share of 55%, HNGL earns nearly 95% of its revenue from its local business. “Further growth in revenue should come from foreign markets,” Somani said.