AGI Greenpac- on the cusp of growth?

Stock Opportunities Untested - but worth a good look
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Long track record with strong market position
AGI Greenpac, incorporated in February 1960 to introduce vitreous China ceramic sanitaryware in India later diversified into the manufacture of glass containers through the acquisition of Associated Glass Industries Limited (AGI) in 1981. AGI Greenpac holds a leading market share in all the business verticals of its presence. Post Demerger in 2019, AGI Greenpac was housing the entire packaging products division (PPD) and was also engaged in the manufacturing of buildings products for its group company; Hindware Ltd on a cost-plus basis. With the slump sale (with effect from closing of business hours of March 31, 2022), the building products division’s entire operating facilities of AGI Greenpac was transferred to Hindware Ltd, leaving apart some land parcels on which Hindware Ltd. Continues to pay lease rentals to AGI Greenpac.AGI Greenpac is one of the leading manufacturers of glass containers in India in the organised liquid packaging industry, catering marquee clients in the packaged beverages, food, beer, liquor, chemical and pharmaceutical industries.
Diversified product portfolio with long standing reputed client base
The company has over the years built a wide-ranging portfolio of packaging products for both glass and PET, along with synergic product business of security caps and closures. The company is positioned as one of the significant glass container manufacturers in the country, offering packaging solutions to multiple sectors. The company’s products cater to a large reputed diversified customer base (which includes names like Abott, Coca Cola, Bacardi, Carlsberg etc.) with a product range covering flint, amber and green containers. The company’s plants are equipped to manufacture 5 ml to 4,000 ml of glass bottles and 10 ml to 10 ltrs of PET bottles in various shapes, sizes and colours. The company is selling packaging products as a brand portfolio; under AGI Brand for Glass Containers, GP Brand for PET bottles and plastic products and AGI Clozures for security Caps and Closures.

Market Share
The Co. is the second-largest glass container company in India and accounts for ~20% market share of India’s organized glass packaging industry.

Brand Portfolio
1. AGI Glaspac: The Co. manufactures glass containers and specialty glass under this brand.
2. AGI Plastek: The Co. manufactures PET Bottles and products under this brand.

3. AGI Clozures: Under this brand, the Co. manufactures counterfeit resistant security caps and closures, with a primary focus on the alco-bev industry

Manufacturing Capabilities
The Co. has 7 state-of-the-art manufacturing units located across Telangana, Uttarakhand and Karnataka. It commenced trial production at its speciality glass including decorative glass manufacturing facility at Bhongir, set up at an investment of ~Rs. 270 crore. The facility has a manufacturing capacity of 154 tonnes per day, with five manufacturing lines spread across 15 acres. Total capacities under various brands are as follows -
AGI Glaspac - 1,754 tonnes per day
AGI Plastek - 10,256 tonnes per annum
AGI Clozures - 780 Mn pieces p.a. (Small caps); 132 Mn pieces p.a. (large caps) [[9]]
Marquee Clientele
The Co. has 500+ diversified institutional clients across industries such as - Abbott, Coca Cola, Glenmark, Bacardi, Carlsberg, Nestle, HUL, etc.
Foray into New Business
The Co. ventured into the cosmetic and perfumery segment, which is one of the most profitable market segments in the country

Risk Analysis
some of the Risk are
1.Availability of Raw Material Inability to obtain a consistent supply of raw materials at a reasonable price might have a negative impact on operations
2.Acquisition of HNG not going through
3.Working Capital Management Short-term liquidity requirements can impact growth and profitability

Financials
YEAR Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020 Mar 2021 Mar 2022 Mar 2023 TTM

Sales 1,312 1,538 1,708 1,817 1,959 2,072 2,250 1,605 1,859 1,260 1,430 2,281 2,318
Expenses 1,061 1,278 1,440 1,476 1,635 1,779 1,977 1,431 1,588 994 1,165 1,820 1,816
Operating Profit 251 260 268 342 324 292 273 174 271 266 265 462 503
OPM % 19% 17% 16% 19% 17% 14% 12% 11% 15% 21% 19% 20% 22%
Other Income + 7 28 3 4 13 1 3 39 20 -13 119 39 45
Interest 39 64 68 74 41 33 56 59 73 33 28 57 67
Depreciation 57 85 106 119 114 111 114 131 143 95 99 126 134
Profit before tax 163 139 98 152 182 150 106 22 75 126 256 317 347
Tax % 32% 29% 42% 32% 36% 31% 29% 32% 35% 30% 24% 17%
Net Profit + 110 99 56 104 116 103 75 15 48 88 193 262 259
EPS in Rs 16.68 15.02 8.52 14.41 16.08 14.25 10.34 2.11 6.70 13.61 29.88 40.44 40.09

Acquisition:

  • The HNG acquisition is still pending approval and is expected to be completed in Q3.

This acquisition has potential double its revenue.
Invested and biased

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I see some of the clear growth levers from here for AGI Greepac:

  • Post HNG acquisition, likely to double volumes and hopefully revenues in FY25 as new capacities come on board.
  • Margin expansion to sustain from 18% to 24% in FY24
  • Favourable product mix opportunity: 154 tons plant commissioning for high end cosmetic perfumery and high-end liquor, a very high-end segment
  • Soda Ash (one of the major RM) prices seem to be heading down, which could again aid margins

In terms of anti-thesis, high debt could become a major issue.

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Key Points from Q2 Concall Summary

  • Acquisition of HNG is going to be debt funded; Later on focus will be debt rationalization; In two years from acquisition the debt levels are targeted to be normalized to Rs.2,000 - 2,200 Cr.
  • With HNG capacity getting added, 2-3 year down the line, company will be able to achieve revenue of 5,500 Cr. per year. Current market cap is ~ 5,600 Cr.
  • Confident to maintain the margins between 20-22% for AGI business. The fluctuations in raw material prices are adjusted in contract with the customers will help to keep the margins. For HNG capacity, there is a likelihood of having the margins lower than that for AGI. Later the optimization and efficiencies will be required to be driven
  • There are several cases at High Court, Supreme Court and NCLT level against the resolution plan of HNG acquisition by AGI
  • 15-18% revenue growth is guided by the management
  • They are optimistic about the benefits of premiumization in alcohol businesses due to demographic and economic evolution of the country
  • The current capacities can support the business of about Rs2,500 Cr per year.
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Street might be vary about the HNG acquisition.
Otherwise nothing negative. Rest cyclicality might be there coz of winters kicking in as beers sell less during Winters

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I understand that the next hearing on SC is on next week ( on HNG acquisition). Let’s see if case can come up for hearing.

Anyway this HNG acquisition has unnecessarily created a big overhang on AGI.
Mu estimation is that even without HNG acquisition, AGI should organically do very well.

The HNG furnace are old and inefficient. They haven’t undergone servicing for quite long time now resulting in unfortunate fires.
The recent fire in HNG’s Nashik plant (650 tpd) (link below) has knocked out the supply chain of many customers and they may shift to alternate suppliers like AGI.

With incentives to wine Industry in Maharashtra kicking back in (see Sula’s) rally last week, growing beer demand in summers, food and Pharma shifting to more healthy and environmentally safe glass packaging, AGI is bound to gain. AGI is one of the largest and most efficient glass manufacturers not only India but globally.

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One quick information on relative valuation for Glass packaging company in India,
Piramal Glass was taken over in late 2020 by Blackstone for a $1 Billion deal. FY20 full year EBITDA was 624.2 Cr. So late 2020 exchange rate , INR 74 per dollar. 11.8 times to EBITDA was provided in the deal. AGI Greenpac is having TTM EBITDA at Q2 FY24 at 552 cr. AGI valuation should comes to 6500 cr at same multiple of 11.8 times , AGI is trading at almost 1000 Cr discount. Which is justified as Piramal has better margin and speciality business than AGI. But AGI margin is also increasing and hitting 20%+ region and cashflow getting deployed to reduce debt yoy.
Piramal Glass is now known as PGP Glass. It had FY19 consolidated EBITDA margin of 17% , FY20 24.2% and latest FY22 EBITDA margin of 24.08%. Like AGI , PGP currently operate 1600 TPD facility.
Cosmetic and Perfumery(C&P) is its main segment. C&P accounts for 40% of the total revenues.Pharmaceuticals packaging contributing 25% of revenue , Specialty,Food & Beverages segment contributed 34%. Piramal Glass before takeover was a world renowned company on glass packaging , every third nailpolish bottle manufaturer in the world.

[Invested]

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AGI is one of the best proxy to play increasing consumption of alcohol in India. If we observe the growth numbers of alcohol companies and their commentaries(I follow SDBL), it gives a very encouraging sign for AGI’s growth prospects.
In thier Q2Fy24 concall,

  1. 1700 TPD - 95% capacity utilization
  2. 154 TPD high end glass manufacturing which commenced commercial production in Jan 2023- 65-70% utilization
  3. They plan to increase capacity by 100 TPD next year when a furnace is due for realignment.

As 154 TPD utilization increases, it should reflect in thier revenue.
Company guided for 15-18% growth.

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Anyway this is good valuation to add further, 2 year market cap may triple from here based on HNG acquisition and turnaround. Seeing demand and monopolistic situation in a business which is recession free and carbon neutral may being more glass products in offing, this is a no brainer investment.

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Volumes are not high so I don’t think there’s anything to be concerned about right now. Also lets not forget the stock did 3x in the past year.

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image
image782Ă—965 152 KB

Tentatively case may be listed on 22nd Jan

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Thanks for sharing this bro! Now I understand the nervousness in stock price. It won in NCLT and CCI has no issues.

Do you think there is a chance that it might not go in AGI’s favor?

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SBI don’t see it resolving soon. Read below news

https://www.msn.com/en-in/money/news/sbi-taps-arcs-for-sale-of-hindusthan-national-glass-loan/ar-AA1ncPot?ocid=finance-verthp-feeds

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I have been adding on dips.
Don’t know the status of HNG acquisition.
Portfolio is down by 15%
Looks like catching a falling Knife.
I don’t see this HNG drama settling soon.
Does anyone think there is a chance that it might not go in AGI’s favor?

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According to my gut feeling, This also means that, If not AGI’s plan is not adopted mmediately, HNG will continue to die slow death.
The recent fire in HNG’s Nashik factory points towards that. Their furnaces are old and haven’t undergone maintenance.

This means AGI will gain market share either way.
I feel that, if unfortunately AGI’s plan is shelved then HNG may go for rebid or liquidation, which means several years of further delay.
Sad state of affairs.

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As investor, I am thinking is 770 good price for standalone business. Assuming HNG acquisition doesn’t go through, Even with current AGIs capacities if they are able to grow 15% with 15 to 18% margin, at current EV/EBIDTA below 10 i am wondering if it’s time to add more.

Btw, march is seasonally strong quarter, somebody shared on X that Soda Ash prices have come down.

Any thoughts here

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On a contrary note, there will be a capacity shortage if HNG is not acquired, will make prices higher, HNG running is crucial, after fire incidence, value offered looks high for HNG. SBI may have to take a higher cut if deals with ARC, my gut feel is this shake up is transient as it happens always in some form when a great business is available and investors want to accumulate. Have picked it at below 200 levels and will keep it as even if HNG is not acquired than more new capacities will be added.

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The banks had already approved the plan by AGI. So it’s fair to assume that all banks to whom HNG owe money are comfortable with the plan proposed by AGI and HNG has no option but to say yes I suppose.
Then Does anybody know what’s causing the delay in acquisition? is it the past litigations with HNG company or something else?

Disc: Invested

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The HNG acquisition by AGI is challenged by the Kenyan company - international sugar, who were number 2 in the bidding round of HNG. They quoted much less than AGI.
Their plea is on flimsy ground that CCI approval was given to AGI post facto.
They first filed their appeal in NCLT and subsequently in NCLAT - which they lost.

Now they have appealed in Supreme court in October.
SC is yet to hear.
My only point here is these delays on flimsy grounds defeat the very purpose of IBC wherein despite losing bids losers keep filing petitions to scuttle the process. In the end HNG, it’s employees and other stakeholders are big time losers.

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