Price Slide Distorts Glass Units Image Further

Fibre glass manufacturers are none too happy with the current state of affairs. Low offtake of fibre glass has forced the inventory pile-up and compelled the players to slash prices.

FGP Ltd, a fibre glass major, cut average prices from around Rs 125-Rs 130 per kg last year to Rs 80 per kg. Binani Zinc followed suit by slashing prices to Rs 50 per kg. Industry circles are apprehensive over the price-cutting war as it may lead to lower bottomlines or even losses.

The only solution lies in the user sectors demand picking up for different types of glasses. The Rs 1,200-crore strong Indian glass industry that turns out about 12 lakh metric tonnes a year is eagerly hoping for the same. Glass exports are estimated to be around Rs 300 crore in 1996-97.

 

The industry is anxiously waiting for demand to pick up so that a glut can be avoided.

The glass market is flush with a supply of around 117 million square metres on a 2mm basis tonne as against demand of 77 million square metres. Major user sectors, automobile and construction are stuck in a groove.

The sluggish demand from these sectors has adversely affected the profits and profitability. Just a couple of years ago, the glass industry was in a good nick as demand from the user sectors had been on the rise.

Sluggish demand from the user sectors is not the only bane of the industry.

Many domestic glass manufacturers are uncomfortable with liberalisation of the industry as the competition from foreign players has shot up to the discomfiture of the Indian glass manufacturers.

Some of them accuse the foreign players of price undercutting to eliminate competition.

An important facet of the controversy is that the price war is between the sheet glass and float glass manufacturers. The sheet glass manufacturers fear that if the price war is continued for any longer without the prospect of the market turning up, it may well spell the death knell for them.

Float Glass and Gujarat Guardian are the two major float glass manufacturers in India.

Both these companies are facing heavy losses in the current year. Gujarat Guardian attributes the loss to the falling prices in the domestic market as a consequence of a slump in international prices.

Market sources feel that the price variations, usually within a span of 15 to 30 days, creates uncertainty in the buyers minds.

At present, sheet glass of 5mm costs Rs 20 per sq ft, while float glass costs Rs 22 per sq ft. The coloured ones are more costly with the 5mm coloured sheet glass costing Rs 31 and the coloured float glass also costing Rs 31.

The price varies with the thickness of the glass.

The 12 mm sheet glass is for Rs 70-75 per sq ft and 12mm float glass costs Rs 85 per sq ft. Coloured 12mm float glass is available for Rs 110 per sq ft, while there is no sheet glass in this variety.

Bharat Glass House, a retailer of glass, feels that the demand for glass is higher during the festival season - mainly during Diwali and before the monsoons.

The Indian glass industry also has a Rs 100 crore worth unorganised sector mostly concentrated in and around Faridabad.

The units in Faridabad account for nearly 70 per cent of the total production of small scale glass output in the country.

The major problem for the industry is the power intensive nature of the sector.

Irregular and inadequate supply of power affects the profitability of the companies. Sales of 16 major glass companies rose by 23.7 per cent to Rs 489.6 crore (Rs 395.8 crore) during the first half of 1996-97. Yet, the uncontrollable expenses ate into the operating profit of the companies. The operating profit rose by a minimal two per cent to Rs 64.3 crore (Rs 62.9 crore). Mounting interest burden pushed the companies into a crisis. Gross profit of the 16 companies nosedived by 51 per cent to Rs 9.6 crore (Rs 19.5 crore).

The rising expenses forced the 16 companies into the red.

They reported a loss of Rs 29 crore from Rs 9 crore earlier. Float Glass, Excel Glasses, Gujarat Borosil, and three other companies were the worst hit.

Only Haryana Sheet Glass, Hind National Glass and La Opala Glass managed to increase their net profit.

The margins of the 16 companies lowered further.

Operating profit margin of the companies fell to 13.1 per cent (15.9 per cent), while gross profit margin fell to 1.9 per cent (19.5 per cent).

Glass has multiple uses despite competition from plastic.

The country turns out a variety of glass like flat glass, cover sheet glass, figured glass, wired glass, toughened glass and float glass.

Float glass is a close substitute to sheet glass. It has advantages like uniformity of thickness and is energy efficient. Floatglass has multiple uses - it is used for exteriors like window glazing to beautify structures, for controlling noise pollution and myriad other reasons.

The use of laminated windshield glasses has been made mandatory in all vehicles with effect from March 1996. Asahi India Safety Glass has already established a capacity of 7.5 lakh laminated windshields.

The fibre glass manufacturers, now in a bad patch may see happy days ahead as the market for fibre glass is slated to grow by 15 per cent a year.

By 2000, demand may reach 20,000 tonnes per annum.

The demand for glass from the consumer sectors may be affected by substitutes like plastic, blister packs, PET bottles, polysacks and china ware that bear low or a negligible excise duty.

The excise duty on tinted and non-tinted glass is 18 per cent in the 1997-98 budget.

There is little doubt that there is tremendous growth potential for the glass industry in the country.

Sensing this fact, many foreign players are taking a keen interest in setting up joint ventures with the domestic players. Saint Gobain, the leading French conglomerate, is taking over Pune-based Maharashtra Glass.

It has also signed a memorandum of understanding with the Tamil Nadu government for setting up a Rs 450-crore project to manufacture float glass.

At present, the glass industry is reflecting a distorted image as it is struck with falling prices and rising costs.

It awaits the recovery from the users sectors to refurbish its image.