Margin-Strains Mar Hind Glass Bottomline

Hindustan National Glass & Industries, the flagship of the Somany Group, recorded a drop in profit growth in 1997-98 despite of a significant increase in sales turnover. The company reported an all-time high production as well as record turnover. Sales turnover increased by 13 per cent against a 3.6 per cent climb the year before. However, the company's net profit fell 17 per cent in 1997-98 compared with an over 10 per cent climb the previous year. According to the company's chairman and managing director, C K Somany, the profits could not increase proportionate to its turnover as margins came under severe strain from stiff competition and a general recessionary trend in the local as well as the overseas markets.

 

This resulted in increased inventories and interest cost and depreciation which climbed nearly 44 per cent and 13 per cent, respectively. This turned the marginally increased operating profit of Rs 26.6 crore into a net profit of only Rs 7.8 crore. Due to this loss, all profitability ratios recorded declining growths during the year. In first quarter of the current year, the company performed no better. It recorded a net loss of Rs 90 lakh on a sales turnover of Rs 49.5 crore. At the 1997-98 annual general meeting of the company Somany had said the recessionary trend was likely to continue. The company was originally incorporated on February 23, 1946, under the name, Hindustan National Glass Manufacturing Co. The name was changed to the present one on November 22, 1971.

The company started manufacturing in 1952 with one furnace and three glass forming machines at Rishra near Calcutta. To meet the increasing demand one more plant was installed in 1962 at Bahadurgarh which went into production in 1964. At present its installed capacity is 2,30,000 metric tonnes of glass bottles, tumblers and vials, utilising nearly 75 per cent of its capacity. The company is a market leader in the glass container business with nearly 30 per cent market share in glass bottles. Its customers include Glaxo, Nestle, Brooke Bond Lipton, Pepsi, McDowell and Shaw Wallace. It is the largest Asian producer of the popular green-coloured 7UP bottles which also are used for bottling in Hong Kong, Thailand, Middle East and Australia. It also supplies bottles to Coca Cola India. It has undertaken technological upgradation and modernisation schemes to meet global standards, and, simultaneously cut production cost. The total capital outlay on such schemes is estimated around Rs 30 crore. One such ongoing scheme is the setting set up a 6.2mw power generating set at the Bahadurgarh plant at an estimated Rs 15 crore to overcome the problems arising out of erratic, poor quality and ever-increasing cost of power supply from the state grid. The project, however, has suffered a setback due to damage to the cargo during transportation. The generating set was sent back to its overseas manufacturer for necessary repair. This delayed the project for nine months and is now expected to be commissioned by December.

As the projected capital investments have a comparatively longer gestation period, the board of directors proposed to finance these investments through debt and equity. The company proposes to increase its capital through issue of equity shares on a right basis in the proportion of one for every two existing shares at premium of Rs 30 per share. Details of this issue would be discussed in the forthcoming annual general meeting of the company to be held on August 24 in Calcutta. In 1995-96 too, the company issued 12.27 lakh right shares at par to the existing shareholders in the ratio of 1:5.