In interaction with Sandeep Sikka, Group CFO, Somany Impresa Group (HSIL Ltd)

Our current market position and a well-defined growth strategy will help the company to unlock value for all the shareholders, believes Sandeep Sikka, Group CFO, Somany Impresa Group (HSIL Ltd)

What is your outlook on India’s packaging sector? What are the emerging trends you are witnessing? 

In India, packaging is the fifth largest sector and is one of the highest growth sectors in the country. The sector is set to grow at a CAGR of 22 per cent to 25 per cent as per the Packaging Industry Association of India (PIAI). The total size of the Indian container glass market is Rs 7,000 crore and the same is expected to grow at a 7 per cent CAGR over the next 5 years. We believe the growing consumption of spirits and beer, food and beverages, FMCG, and pharmaceuticals will help in accelerating the demand for packaging solutions, especially glass containers. Other factors such as economic growth recovery, market formalization, economic growth recovery, profit linked tax incentive for food packaging, and adoption of the national packaging initiative will further help in the growth of this sector. 

HSIL reported a total income of Rs 645 crore in Q3FY22, registering a growth of 18 per cent on a Y-o-Y basis. What factors have contributed the most to help you outperform? 

HSIL delivered strong revenue growth driven by increased demand for glass bottles in the beer and wine industries in the packaging products division. Our glass container business continues to see good traction owing to improved realizations, better product mix, and increased sales volume. With the completion of relining of the furnace, glass container capacity utilization during the quarter was 92 per cent as compared to 83 per cent in the same quarter last year which further helped in sales.

In Q3FY22, revenue from operations of building products was Rs 243 crore, registering a growth of 35 per cent on a Y-o-Y basis. Revenue growth was primarily due to sustained demand in the real estate sector with supportive interest rates. Currently, we are under the process of completing the slump sale which is expected to close with customary closing date adjustment on or before March 31, 2022, and subject to necessary approvals. Building products division operations post slump sale will be part of Brilloca Limited (a wholly-owned subsidiary of Somany Home Innovation Limited (SHIL)).

With widespread commodity inflation, input costs are surging for companies across the board. Are you implementing any cost rationalization measures to safeguard profit margins?  

The total fuel and power cost for glass container manufacturing increased by 48 per cent per metric ton on a year-on-year basis for the quarter which put pressure on the margins. But we are expecting the revival of the margins due to strong operational efficiencies in the manufacturing process and we also plan to pass on the increased cost to the market in the coming quarters.  

How much capex is planned for FY23? Also, what are your debt reduction plans?  

Our capital expenditure will be around Rs 300 to Rs 350 crore over the next 12 to 18 months owing to our new speciality glass facility expansion, furnace rebuilt and debottlenecking of capacities.  As you are aware, recently in January 2022, the Board of Directors have approved the slump sale of assets and liabilities of the BPD division of HSIL to Brilloca Limited, a wholly-owned subsidiary of Somany Home Innovation Limited, for a cash consideration of Rs 630 crore (subject to closing date adjustment). The sales proceeds will be utilized towards pre-payment of existing bank borrowings and will enable headroom for accelerated growth. We have a total debt of Rs 1,200 crore today and it will come down by around Rs 630 crore based on the current debt valuation. 

What are your growth levers? 

Looking ahead, we are expecting incremental growth from the high-value products segment as we will soon operationalize our speciality glass manufacturing unit at Bhongir, Telangana, which is capable of producing 154 tons of glass per day. With the slump sale of building products business, packaging products division will be core operations of the company and supported by numerous favourable factors such as the dedicated focus of management, strong capital structure, new product offering, strong operational efficiency and the improving macro-economic environment will propel the next phase of the company's growth. 

What is your earnings outlook for the upcoming quarters?  

Over the past few years, HSIL has emerged as the most profitable glass packaging company in India. Our current market position and a well-defined growth strategy will help the company to unlock value for all the shareholders and stakeholders.