management discussion and analysis mda.pdf · 2012-01-13 · weighing and mixing the raw materials...

30 | Hindusthan National Glass & Industries Limited

Management discussion and analysisGlobal industry perspectiveIn 2007, the global packaging industry was estimated at

US$410 billion; the glass segment comprised 8% with an

estimated size of around US$34 billion (Source: Glass

Packaging GIA Report). The hygienic product attributes had a

positive impact on the industry’s growth as organic consumers

rated glass six to eight points higher than competing

packaging materials in terms of environmental safety, flavour

retention, shelf life, form, purity and quality (Source: Newton

marketing survey).

Geographic growth

Region Total CAGR

volume sold 1998-2007

(in billion units) (in %)

North America 70 3.1

South America 46 5.5

Middle East and Africa 15 5.5

Europe 164 5.0

Asia Pacific 146 4.2

Indian perspectiveIndia’s Rs 60,000-crore packaging industry is growing at

around 15%. The glass segment accounts for around 10% of

the total packaging industry. The untapped potential of the

Indian market is reflected in a per capita glass consumption of

around 1.40 kg when compared with 5.9 kgs in China, 4.8 kgs

in Brazil, 10.2 kgs in Japan and around 27.5 kgs in the

developed countries of the West. The double-digit growth in

downstream segments, catalysed by enhanced branding, will

accelerate the industry growth.

Growth and requirements of the end-user

segments

Applications Type of glass Percentage

catering to

application

Beer Amber 70

Pharmaceutical ( < 60 ml) Amber 30

Indian made foreign liquor Flint 42

Soft drinks Flint 21

Pharmaceutical ( > 60 ml) Flint 21

Cosmetics Flint 6

(Source: www.indiamarkets.com)

Growth drivers Economy: GDP growth drives consumer offtake, which, in turn,

accelerates the demand for container glass. In this respect, the

economy has performed attractively: average 8.8% growth in

four years (2003-04 to 2006-07) with 9.6% (in 2006-07) being

the highest in 18 years followed by 9% in 2007-08. This makes

India the fastest-growing economy in the world and the

second-fastest growing country.

India’s glass industry

� Organised market with 18 players

� 80% of the production controlled by the top three players

� Installed capacity 14,66,000 tonnes per annum

� Production of around 11,10,400 TPA of flint glass bottles,

8,35,650 TPA of amber glass and 2,74,750 TPA of other glass

bottles

Hindusthan National Glass & Industries Limited | 31

GDP growth %

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

4.4 5.8 4.0 8.5 6.9 8.4 9.4 9

[Source: CSO]

Disposable incomes: India’s per capita income strengthened

from US$460 in 2000-01 to US$825.07 in 2007-08 [Source:

Central Statistical Organisation (CSO)], widening its middle-

class, influencing lifestyle changes, evolution from joint to

nuclear families, from single bread earners to working couples.

There has been a marked increase in the use of packaged

foods and beverages, benefiting the container glass industry.

India accounts for 6% of the world’s millionaire population

(Source: Survey by Capgemini SA and Merrill Lynch and Co.),

increasing by 20.5% to 1,00,015 in 2007-08, after Singapore’s

21.2% growth. The total annual income of Indian households is

predicted to grow from Rs 23.5 trillion in 2007 to almost Rs 90

trillion in 2025.

Rising per capita income (Rs)

2004-05 2005-06 2006-07 2007-08

Per capita income 23,890 25,696 27,784 29,786

(Source: Economic Survey 2007-08)

Changing demographics: The country houses the youngest

population in the world with one-fifth of the world’s under-24

population living here. Housing one of the highest proportions

of working population (aged 15 to 64) of around 62.9% in 2006

inevitably paved the path for growing consumerism. Population

in the consuming age bracket (defined as consumers in the 15-

64 age group) as a proportion of the total population has

grown from 61.4% in 1999 to 63.5% in 2004, and is likely to

grow to 65.2% by 2009. The increase in consuming population

coupled with the 1.8% increase in general population is likely to

create a sustained demand for packaged products.

Low-cost producer: India is a low-cost container glass

producer on account of a low relative cost of skilled labour. The

country possesses an abundant source of silica sand,

limestone, dolomite and feldspar. As a result, the cost of

production per pack of glass containers is comparatively lower

in India than abroad.

Capacity relocation: European and American container glass

capacities are being relocated to developing countries. India is

attractively placed to capitalise on this reality due to its

strategic geographical location. The landed price of our

container glass in Europe and the US is competitive with

alternative supplies from other country.

Demand-supply gap: The demand for glass containers

outweighs supply in India on account of growing downstream

consumer segments like food processing, liquor, beer and

pharmaceuticals growing at 20%, 12-16%, 15-20% and 6-8%,

respectively.

Consumption preference: Discerning customers are selecting

glass as a packaging option because it is a pure packaging

choice, the only packaging material for foods and beverages

that is chemically inert. Glass provides a barrier to oxygen and

moisture, protecting a product’s taste and shielding it longer

and better than any other packaging material. When a product

is packaged in glass, it communicates a premium image, taste

and quality.

Safety: Glass is the only packaging material categorised as

‘generally recognised as safe’ by the US Food and Drug

Administration.

Environment friendly: Glass is 100% recyclable. Glass bottles

don’t lose their quality, purity and clarity even after continual

recycling. They can go from recycling bin to the store shelf in

30 days. Using recycled glass (cullet) in the manufacturing

process saves raw materials, lessens energy demand and

reduces air emission. For each 10% of recycled glass used,

melting energy reduces by approximately 2.5%.


Downstream industry drivers

FMCG

India's fast moving consumer goods (FMCG) sector is the

fourth-largest sector in India. The country’s FMCG market

expanded by 18% to US$18 billion in 2007-08 and is expected

to reach US$33.4 billion in 2015 (Source: IBEF). The FMCG

growth story is optimistic on account of an increase in rural

demand for branded products (rural India has a large

consuming class with 41% of India's middle-class and 58% of

the country’s total disposable income, according to

Assocham), rise in modern trade and health and wellness

awareness.

Liquor

Indians consume 350 million cases of alcohol and 250 million

cases of country liquor a year (Source: All India Distillers’

Association). With an increasing trend towards social drinking,

India has emerged as one of the fastest-growing alcohol

markets (9-10% annually) with the organised sector sales

crossing Rs 6,000 crore in 2007-08 (Source: SSKI). An annual

growth of 30% enabled the Indian wine market to cross a

million cases in 2008. A growing Indian market has attracted

large global players like E&J Gallo, Moet Hennessy, Vuove

Cliquot, Diageo and Pernod Ricard India to enhance their

Indian exposure.

Beer

With a growing acceptance of beer as a non-alcoholic drink,

India’s beer consumption grew 14.5% in 2007-08 and beer

shipments increased from 137 million cases to 158 million

cases (7.8 litres each) in 2007-08. The low per capita

consumption of beer in India (0.8 litres as opposed to 22 litres

in China) leaves substantial scope for increase in demand. The

high price of Indian beer has catalysed the use of robust glass

containers.

Food processing

The food processing industry is estimated at US$70 billion. The

sector’s growth nearly doubled to 13.7% in only four years and

is estimated to grow by 20% by 2015 (Source: Ministry of State

for Food Processing Industries). With proposed investments of

US$23.5 billion in the pipeline and only a mere 1.3% of food

processed in India (80% in the developed world according to

India Food Report 2008), there is a huge industry opportunity.

Further, an adoption of stricter government norms and rising

industry standards in quality will boost glass packaging.

Currently, only 6% of the entire country’s food is packed in

glass. An interesting observation on the demand-supply gap is

that small and medium players in industries like confectioneries

and pickles had to shut production because of a shortage of

glass containers in 2007-08.

Carbonated drinks

Growing at 6-8% per annum, the carbonated soft drinks

segment accounts for Rs 6,000 crore of the Rs 9,500-crore

packaged beverages industry (Source: Business Standard).

The per capita consumption of soft drinks in India is a mere 6

bottles, compared with Pakistan's 17, Sri Lanka's 21, Thailand's

73, the Philippines 173 and Mexico's 605. The demand for soft

drinks in India is expected to grow at an annual rate of 10% per

annum between 2006-12, with demand at 805 million cases by

2011-12 (Source: FMCS;IBEF report). The low capita

consumption, coupled with the projected demand, indicates

ample room for additional bottling units.

Cosmetics

The domestic cosmetics and toiletries segments have been

growing at 15-20%, touching US$950 million. With increased

awareness, the industry size is expected to grow to US$1.4

billion in three years (Source: Assocham). This optimism is

derived from the fact that despite a growing penetration of

cosmetic items and entry of new foreign brands, India's per

capita consumption of cosmetic and toiletries is lower than in

other Asian countries: US$0.68 as against US$40 in Hong

Kong, US$10 in Malaysia and Taiwan, US$12 in Japan and

US$1.5 in China.

Pharmaceuticals

India is among the fastest-growing pharmaceutical markets in

the world. The domestic pharmaceutical market recorded sales

of US$7.3 billion in 2006 with a growth of 17.5% over the

previous year. Average consumer spending doubled over the

past decade and per person spending on prescription drugs is

expected to double from US$761 in 2007 to US$1,537 by 2016.


Around 75% of the Indian population is under 40 and

employable, creating an optimism of sustainable industry

growth.

Operational reviewHNGIL at work

Manufacturing

The Company is the largest manufacturer of container glass in

India with a cumulative capacity of 2,575 TPD across six

manufacturing units.

Installed capacities (MT per day)

FY07 FY08

Rishra 720 720

Rishikesh 365 365

Bahadurgarh 710 710

Neemrana 140

Pondicherry 320 320

Nashik 320 320

Total 2,435 2,575

Manufacturing glass is technically challenging, involving the

balanced use of over 10 raw materials to produce a mix

conducive for a particular container type. Even as the raw

materials are fed in batches, the manufacturing process is

continuous.

From raw material to glass

Production planning process: The raw materials offloaded

from incoming trucks are tested for chemical suitability in the

laboratory. Based on its chemical composition, the raw material

batch is prepared for onwards manufacture either as flint,

amber or green glass. A raw material batch is prepared after

weighing and mixing the raw materials in the right proportion,

according to the type of glass to be manufactured. Raw

material is fed into the furnace and is melted into molten glass

at temperatures ranging from 1600-18000C, which, in turn, is

fed into the individual section(IS) machines to be converted into

bottles (mould management process).

Mould management process: The molten glass is poured into

the IS machines fitted with moulds to provide the desired

shape. The mould is customised and designed according to

the customer specifications received, varying for every bottle.

Thereafter, the hot bottles are moved into the annealing lehr

where the bottles are cooled and heated concurrently, reducing

the chances of stress being developed due to extreme

temperature conditions.

SQC process: The cool bottles are passed through human

sorters who discard those containers which do not match the

specifications mentioned on the sheet. The remaining bottles

form the final product called the ‘pack.’ The discarded bottles

are reused in the production process as raw material (cullet).

There are about 140 possible defects and the sorters are

trained to detect the defective bottles from the resulting pack.

HNGIL has a ‘draw-to-pack’ ratio of 90%, an industry

benchmark in India, and we aim to improve it to the

international best of 93%.

The sorted product is finally packaged for storing and dispatch.

We offer three kinds of packaging depending on customer

needs. One, where the bottles are packed into cardboard

boxes, sealed and dispatched to customers. Second, the

bottles are packed on cardboard trays and then shrink-wrapped

through the heating systems installed at the packaging centre.

Some products like beer bottles are packed in gunny bags as

manufacturers wash the bottles before filling them.

An in-house ceramic printing division allows us to use glass

colours to print labels on the glass containers. Generally used

for reusable bottles like soft drinks, the glass colours ensure

that the colours do not fade after repetitive use, reducing the

subsequent packaging cost of the customer.

Our efficient stacking system on pallets reduces breakage due

to storing to hardly 0.1% of the production.

The high demand for glass containers helps liquidate our

finished goods inventory within 15 days of production. The

warehouses are located in the factory precincts itself, from

where the bottles are dispatched to customers directly.

The national demand for amber glass is fed from our factory at

Rishra and Bahadurgarh. We maintain warehouses in Mumbai

to feed our customers in the western region.


� The manufacturing process has two ends. The hot end

beginning with the raw material batch mix entering the furnace

silos and ending with the annealing process. The cold end

starts at the sorting stage and ends with product dispatch

� Production planning process involves a wide range of

activities from procuring the raw material to converting the

same into molten glass

� Mould management process involves activities ranging from

converting the molten glass into bottles as per customer

specification to cooling the same in annealing chambers

� SQC process comprises activities from sorting the cooled

bottles to dispatching the same to customer bottling units

Outlook

The Company is reinforcing performance through the following

initiatives:

� Redesigning of furnaces nearing obsolescence

� Installation of a ‘clean room’ so that bottles can pass through

the cold end of the manufacturing process without any contact

with the external environment

� Proposed increase in furnace capacity through booster loads

to improve the draw; proposed increase in machine capacity

through enhanced machine speed (cycles per cavity)

� Proposed acquisition of a pelletiser to automate packaging

1952 1999-2000 2000-01 2001-02 2004-05 2006-07 Present

Together constitute ACEcontainers

GR

OW

TH

Acquisition ofassets of Neemrana

plant – capacity2575 TPD

Capacity at2435 TPD

L&T plantacquisition –capacity at2150 TPD

Capacityat 1800 TPDfrom OwensBrockway acquisition

Expandedcapacity

to 1100 TPDInstalledcapacity

of 30 TPD


� Superior management techniques resulted in an increase in

performance, productivity and profitability

� A successful rollout of TPM techniques at Bahadurgarh and

Rishra led to a 300 basis points increase in productivity

� Testing 11 lean Six Sigma projects

� Initiated the process of implementing a SAP ERP to

streamline operations and ensure real time data availability

HNGIL at work

Management practices

At HNGIL, we recognise the importance of superior

management tools that enhance performance, productivity and

profitability. The Company implemented a number of such

tools and techniques, strengthening its shop floor

effectiveness.

Total Productivity Maintenance: Based on the eight principles

of productive maintenance. This comprises quality

maintenance, kaizen, autonomous maintenance, etc. and is a

productivity enhancing tool rather than being a cost centre.

Each machine operator is given the responsibility of running

the machine at optimum levels; any increase is incentivised.

TPM was implemented at Bahadurgarh and Rishra, improving

the draw-to-pack efficiency by around 300 basis points.

Lean Six Sigma: Combines the best practices adapted from

the lean management system of Toyota and the Six Sigma

practices of Motorola. This helped reduce non-value added

time (between production completion and revenue generation).

Six Sigma practices helped minimise deviations from

specifications leading to superior product quality and

productivity. The Company adopted 11 projects for enhanced

performance.

ERP rollout: The first phase of the Company’s ERP solution will

be rolled out in Bahadurgarh, Rishra and the head office by

December 2008 across the sales distribution, production

planning, plant maintenance, materials management, quality

maintenance, warehouse management and engineering chain

management (ECM) and data management systems (DMS).

This will facilitate real time information management for timely

decision-making, superior inventory management, elimination

of data mismatch and redundancies and uniform multi-unit

design changes.

HNGIL at work

Quality

At HNGIL, quality is defined as all the product attributes that

enable a bottle to resist breakage during transportation and

filling.

At HNGIL, our quality commitment comprises the ability to

produce according to demanding customer dimensions with

checks across 140 defect parameters and well within tolerance

limits defined by customers.

Raw material vigilance

At HNGIL, quality control comprises the following processes

and stages:

� Random sampling for chemical composition of incoming raw

materials and onward mixing as per batch needs

� Regulation of furnace temperature, resulting in appropriate

glass viscosity and distribution

� Analysis of molten glass across characteristics like glass level,

raw material mix, glass viscosity and temperature, influencing raw

material and chemical consumption


Quality management

The moulded glass is monitored hourly across 15 dimensions

by the production and quality departments, the deviations

reported and the mould redesigned. The bottles are cooled in

the annealing lehrs and thereafter subjected to alternate

cooling and heating spells to minimise bottle stress. Thereafter,

the bottle is passed through a lighting station where sorters

examine bottles; the defective bottles are discarded for use as

glass cullet in the manufacturing process. The quality of shrink-

wrapped packaging minimised in-transit contamination and

breakage. The Company is tightening its process discipline in

line with ISO 22001:2000 certification, which will make it a

preferred vendor for the food processing industry.

� The Company is ISO 9000: 2000-certified

� Quality control is ensured across two stages. One at the raw

material stage handled by glass technologists and the other at

the production stage handled by engineers and the quality

control department

NNPB technology vs. Blow and Blow technology

The Press and Blow Process is an improvement upon the Blow

and Blow process for the following reasons:

- The parison facilitates precision in control

- Enhanced glass distribution throughout the bottle

- Lighter in weight, hence a lower consumption of molten glass

- Lower costs

HNGIL at work

Research and development

At HNGIL, we are engaged in a continuous exercise to

enhance our product and process efficiency, reflected in lower

costs, better product, stronger quality and enhanced

productivity.

Over the years, the Company worked closely with furnace

technology providers with the objective to increase furnace

load (more material can be generated through the same power

consumption) and the use of technically advanced shervo

gobs to minimise deviations.

The Company selectively introduced the narrow neck press

and blow (NNPB) technology in 2007-08 – superior to the

conventional blow and blow process used for narrow neck

bottles, leading to a saving of molten glass per bottle without

compromising product strength. This technology facilitates

superior glass distribution. In turn, this superior distribution

reinforces the bottle’s resistance to pressure on the filling line,

suited for carbonated and beer brands; the concurrent weight

saving implies savings for the Company and customers – a

reduction in logistics cost and increasing consumer

acceptability. The first successful bottle rollout of the new

technology was the dextrose glucose bottle, used in

intravenous applications.

The Company’s R&D efficacy also translated into direct

benefits. The Company leveraged its deep understanding of

the product, technology, aesthetic and end-customer

applications to offer customers suggestions in enhancing line

efficiency, enabling them to accelerate their filling speed,

reduce breakages and strengthen their overall viability.


� The introduction of a lighter, stronger dextrose glucose bottle has enabled us to capture the entire market for that product

� Light-weighting has led to a 35 gms saving of molten glass per bottle in this particular case

� Fuel costs are being optimised by increasing the furnace load.

HNGIL at work

Marketing and distribution

In the business of container glass, products must be made and

marketed to enhance their preference over competing

packaging alternatives as well as competing container glass

competitors. The Company’s edge was conclusively

showcased in its market share in excess of 65% in 2007-08.

During the year under review, the Company has faced the

following challenges: growing competitiveness from alternative

packaging materials and an increase in material costs, making

it imperative to absorb costs, enhancing the price-value

proposition and preventing a shift to alternative materials.

The Company retained its share of a growing market through

the following initiatives:

�Growing adaptation and customisation of the end product with

the objective to reduce costs

� Progressive graduation from mere product delivery to complete

packaging solutions

� Integration of line friendliness, customer friendliness, consumer

friendliness and environment friendliness into the overall value

proposition

� Proactive light-weighting of bottles – a win-win for the Company

and customer – resulting in lower material and logistics cost

�Quicker sale through the complement of the Company’s scale,

versatility, product flexibility and a pan-India presence

� Stable pricing of end products as opposed to a volatile raw

material environment

The highlights of the Company’s achievements in 2007-08

comprised the following:

� An increase in installed capacity at a time when demand

exceeds supply, reinforcing customer relationships

� A growth in market share across most product segments

� A decline in the cycle time required to service customers from

the design to market stage

� An increase in realisations in line with cost push inflation and

global benchmarks

� The launch of light-weight bottles, resulting in lower costs and

better value for customers

� A growing ability to service multi-locational, multinational

customers through our multi-locational units

The Company reinforced its price-value through relatively

stable pricing even as raw material contracts were revised on

four occasions during the year under review. HNGIL reinforced

its position through the prudent graduation from vendor to co-

product developer through technical consultancy services.

We are optimistic of our prospects on account of glass

container demand growing faster than supply. Besides, an

increase in disposable incomes, nuclear families, processed

food purchases and beer consumption will drive bottle offtake,

reinforcing the Company’s prospects.

The Company expects to capitalise on this reality through a

greater proportion of NNPB products, increased sales,

enhanced realisations derived from value-addition, superior

service and a growing proportion of exports.


� Air emissions are the only form of pollution

� Alternative fuel choices like natural gas have made HNGIL

eligible for carbon credits

� The demand for container glass is higher than supply

� HNGIL is acquiring plants at periodic intervals to increase

capacity, instilling confidence in its large portfolio of clients

� India is the lowest cost producer of glass in the world and is

poised to grow globally

� With renowned brands switching to Indian-manufactured

glass containers, the Company has room to enhance volumes

� Despite a slowdown in the consumption of non-essential

items, the Company is confident of its growth as it caters to the

top 10 companies in each of the segments in which it operates

� No person-days were lost due to safety failures

�Management practices for enhancing safety for employees are

being developed

HNGIL at work

Technical consumer services

In the business of container glass manufacture, the marketing

team works closely with the research and development team to

develop technical consumer services. The latter comprises

consultancy to clients on how to improve bottle design with the

objective to enhance the filling-line efficiency, accelerate

payback and translate a one-off transaction into an ongoing

relationship.

HNGIL’s consultancy is offered at two stages: before bottle

production (pre-consultancy stage), comprising design, line

and equipment suggestions; following bottle production (post-

consultancy stage) with a view to enhance efficiency of the

Company’s bottles on the customers’ bottling lines.

The result is that the Company has graduated from a vendor

into a technology partner, enhancing throughput on the

customers’ lines, reinforcing their viability and encouraging

them to enhance production. In one of the high points of

achievement, the Company successfully converted successful

Indian and multi-national brands who hitherto imported their

requirement of bottles into committed customers.

HNGIL at work

Safety

Some of the Company’s operations are hazardous, warranting

the need for safety. In view of this, the Company invested in

safety equipment, processes, practices and people.

The Company deputed a professionally qualified safety, health

and environment officer in each of its manufacturing facilities. It

is adopting practices necessary for the OHSAS (ISO

18001:2000) certification. It periodically reviews processes with

an eye on the probability of accidents, severity, frequency,

production loss, etc. with ratings on each according to their

occurrence and significance. These ratings are then multiplied

and the result is compared with a standard set for each

process. If the resulting figure is higher than the standard, then

that particular area is classified as accident prone; if the figure

is significantly higher, then it is classified as a danger zone.

Thereafter, scientific management techniques are employed to

reduce the ratings below standard levels for enhanced process

safety. The effectiveness of our procedures can be gauged

from the fact that despite increased production in 2007-08, the

Company did not experience any major accident.

HNGIL at work

Environment

The manufacture of container glass does not entail any

hazardous liquid or solid waste. Water used in cooling towers

is reused, as is the glass from rejected bottles as cullet. Being

ISO 9001:2000-certified, the Company monitors and

documents pollution levels, which are subsequently audited by

an external agency.

The Company consumes eco-friendly options like natural gas

and its carbon dioxide emissions have progressively declined.

It has embarked on the process to obtain the ISO 14001:2000

certification.


Internal control systems and their adequacy

The Company has an adequate internal control system, which

commensurates with the Company’s size and the nature of its

business. It has well established and documented operational

procedures, ensuring that transactions are recorded,

authorised and reported correctly apart from safeguarding its

assets against wastage, unauthorised use and removal. This is

regularly reviewed and updated.

Physical verification of fixed assets is done periodically. The

Company appointed independent and qualified external

agencies that submit detailed reports on internal control

system and their adequacy to the Audit Committee of the

Board of Directors, periodically.

� Number of saleable bottles increased as a result of enhanced manpower productivity

� Downtime declined

HNGIL at work

People management

Glass manufacture is more knowledge-intensive than most

businesses for some good reasons: the process of

manufacture is complex, the customer’s quality requirements

are becoming increasingly stringent, the cost of error is high

and the amount of individuals required to man each machine is

higher than in other industries.

At HNGIL, our primary asset is our intellectual capital,

represented in the collective knowledge and experience of our

people. The Company is the largest employer in its industry

space in India, with over 3,000 employees as on

March 31, 2008.

The Company recruits individuals from the best glass

technology colleges as well as mechanical, production and

chemical engineers from reputed institutes. Their academic

understanding is reinforced through classroom training, which

is subsequently appraised though periodic written tests.

This enhanced training is catalysed by a cross-factory sharing

of the best practices and measured in the Company’s

production efficiency, linked to monthly incentives.

The effectiveness of the Company’s labour relation practices is

reflected in its record of years of working uninterrupted by any

labour unrest.

Increasing manpower training hours

Year 2007-08 2006-07 2005-06

Training hours/years (hrs) 31883. 5157 11189

Rising manpower productivity

Years 2007-08 2006-07 2005-06

Productivity (MT/person) 192 126 122

Declining labour cost

Year 2007-08 2006-07 2005-06

Labour cost/tonne (Rs) 790.00 1,931.00 1,119.00

Executive grade people skill

Qualifications %

MBA 03.70

CA/CS/ICWA 03.58

ME/MBBS/MSW 01.60

Post graduate 11.13

Technical diploma 28.90

Graduate 31.30

ITI 07.00

Inter/SSE 09.80

Below SSE 03.00


Reviewing our key numbers

Income accounting method

The financial statements of the Company were prepared in line

with the generally accepted Accounting Principles and the

Accounting Standards as per Section 211(3C) of the

Companies Act, 1956. The financial statements of the

Company were prepared under historical cost convention basis

and disclosures made in accordance with the requirement of

Schedule VI of the Companies Act, 1956 and the Indian

Accounting Standards. The Company followed the mercantile

system of accounting and recognised income and expenditure

on accrual basis. The Company made all relevant provisions as

were applicable as on March 31, 2008. The absence of any

material qualifications in the Company’s Auditors’ Report

indicates that the Company’s financials present a true and fair

view of the Company during the year under review.

2007-08 vs 2006-07

The Company’s performance is captured in the following

numbers:

� Gross revenue increased by 92.87% from Rs 59,539.68 lacs

in 2006-07 to Rs 1,14,833.90 lacs in 2007-08

� EBIDTA increased by 107.92% from Rs 10,324.87 lacs in

2006-07 to Rs 21,467.11 lacs in 2007-08

� PAT increased by 368.22% from Rs 3,424.46 lacs in 2006-07

to Rs 16,033.89 lacs in 2007-08

� Cash profit (PAT + depreciation +/- deferred tax liability)

increased by 194.24% from Rs 6927.39 lacs in 2006-07 to

Rs 208383.16 lacs in 2007-08

� EPS (basic) increased from Rs 31.01 in 2006-07 to Rs 91.79

in 2007-08

The Company’s margins strengthened across the Board on

account of superior economies of scale, widening national

presence and relevant cost-cutting:

� EBIDTA margin increased 135 basis points from 17.34% in

2006-07 to 18.69% in 2007-08.

� Net profit margin increased 821 basis points from 5.75% in

2006-07 to 13.96% in 2007-08.

� Return on capital employed increased from 12.07% in 2006-

07 to 15.63% in 2007-08

Mitigating risks at HNGIL

Industry risk A slowdown in the

downstream industries

could affect demand.

� Demand has been buoyant from the processed foods, beverages,

beer, liquor, pharmaceutical and organised retail sectors

� The Company caters to the top 10 companies present in these

segments, growing faster than the industry average

� Demand is higher than the existing supply

Competition risk The Company’s success

might attract competition.

� The container glass industry is capex and working capital-intensive

� The Company has the largest installed capacity in India

� The Company enjoys longstanding customer relationships with

multinationals

� The Company pioneered the introduction of light-weighting

technology in India

Risk mitigationRisk explanationRisk identification


Risk mitigationRisk explanationRisk identification

Raw material risk An inability to procure

adequate raw materials at

the right price may affect

the Company’s

competitiveness.

� A subsidiary company owns silica sand reserves

� The Company is already in the process of acquiring limestone and

dolomite mines on lease

� The Company enjoys extended raw material supply contracts (three

months) on account of its large volume

Environment risk Tight environment

regulatory policy could

affect operations.

� The Company’s operations were periodically certified by the Pollution

Control Board

� The waste water was re-used in the cooling towers

Quality risk An inferior quality of end

product can dent the

Company’s brand equity.

� The Company follows stringent quality control, comprising a

thorough inspection of raw materials, in-process materials and finished

products reinforced by hourly checks

� The Company possesses the ISO 9000:2000 quality certification

Talent risk The development of a

company could be stunted

without the necessary skill

sets.

� The Company continues to attract the best in the industry with

attractive growth opportunities presented for personal development of

individuals

� At HNGIL, we incentivise performance to retain the best talent

� The Company provides in-house training to enable employees to

develop skill sets specific to the glass industry, ensuring loyalty and

competence

� As a result, HNGIL enjoys one of the lowest attrition rates in the

industry

Technology

obsolescence risk

The advent of new

technologies could make

the existing processes

obsolete, threatening the

Company’s growth.

� The Company is a front-runner in technological advancements with a

consistent first mover’s advantage

� The Company pioneered the light-weighting technology and the

NNPB (Narrow Neck Process Blow) technology on a large scale

� Its insight into plant fabrication has facilitated low-cost

de-bottlenecking and asset turnaround

� Its technical skills reflected in relevant productisation for the liquor,

beverages and food processing sectors

management discussion and analysis mda.pdf · 2012-01-13 · weighing and mixing the raw materials...

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