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Glass industry seeks customs duty cut

Post Time:Mar 16,2012Classify:Industry NewsView:289

 

Higher cost of input particularly Soda ash, which constitutes about 30% of cost of production of glass products, is one of the major factors contributing to the higher cost of glass and glassware.

 

The Glass industry consists of four main segments-Container glasses, Specialty glass, Flat glass and Fiberglass. Container glass, which is the largest segment in the glass sector, comprises of glass packaging for consumer goods and pharmaceuticals. Next largest segment is the specialty glass, which is mainly used, in technical applications such as electronics and engineering. Flat glass segment comprises of float glass and rolled glass, which are mostly used in architectural and automotive applications.

The Indian Glass industry has been growing across all segments. This growth has been driven primarily by India's growing automotive and construction sectors in which glass is used. The container glass industry benefits from growing awareness on account of rising hygienic packaging demand, growing population, increasing per capita income of average Indians and low per capita glass consumption. Incidentally, the per capita glass consumption in India for container glass is 1.2 kg, which offers tremendous scope for rise.

 

During the quarter ended December 2011, the profitability of the Glass and Glass products sector was dampened due to the pressure on the margins. The margins of many major players were impacted mainly due to the rise in the raw material cost and power and fuel cost. HSIL, one of the major player in the container glass segment as a steps to improve their margins have taken price hikes.

 

The price of Soda ash is a major cost in the raw material segment. Higher cost of input particularly Soda ash, which constitutes about 30% of cost of production of glass products, is one of the major factors contributing to the higher cost of glass and glassware. Major manufactures of Soda ash in India are Tata Chemicals [ Get Quote ], GHCL (formerly Gujarat Heavy Chemicals), DCW and NIRMA (since delisted) and Saurashtra Chemicals (not listed). They continue to rule the Indian soda ash market by fixing the prices of soda ash based on the landed cost of imports.

 

The Akali Manufactures' Association has filed a case with the anti dumping authority for levy of anti dumping duty on imports of soda ash from China PR, EU, Kenya, Pakistan, Iran, Ukraine and USA. Production of soda ash from these countries constitutes about 80% of the world production. Prices of Soda Ash have increased by 20% during the last two years. Imposition of anti dumping will result in further increase in the prices of imported soda ash and Akali manufactures will further jack up the prices of indigenous soda ash with a view to increase their profit margin.   

 

The aggregate Net Sales of 13 glass and glass product manufacturing companies grew by 9% to Rs 1366 crore during the quarter ended December 2011. OPM declined by 340 bps to 15.6%. As a result, the operating profits declined by 11% to Rs 213 crore. The other income improved by 40% to Rs 14 crore which resulted the PBIDT to fall by 8% to Rs 228 crore. The interest cost remained flat at Rs 82 crore when compared to the corresponding quarter last year. This led the PBDT to decline by 13% to Rs 145 crore. The 2% dip in the provision for depreciation to Rs 94 crore led the PBT to fall by 28% to Rs 51 crore. After accounting tax of Rs 9 crore, the Net Profit declined 39% to Rs 42 crore.

 

Hindustan National Glass (HNG), the largest producer of glass containers in India reported 27% growth in the Net Sales to Rs 511.36 crore during the quarter ended December 2011. The OPM contracted by 380 bps to 14.8% leading the operating profits to inch up by just 1% to Rs 75.81 crore. Other income declined by 77% to Rs 0.47 crore, while the Interest cost hiked by 90% to Rs 24.36 crore and the depreciation increased by 22% to Rs 30.17 crore. As a result, the PBT declined by 45% to Rs 21.75 crore. Further, provision for taxation fell by 46% to Rs 4.3 crore. Finally, the net profit of the company stood at Rs 17.45 crore, down by 44% y-o-y.

 

HNG feels that the commodity prices have started softening and does not expect any large pressure of further price increase on commodity front. Going forward, the company also expects the interest rates are also to soften, as they have seem to be peaked out and it should only have a downward movement doing forward, in order to create further growth in the country. The company also expects improvement in margins, as new capacities that have higher operating efficiencies will demonstrate optimum utilization in the future. The price hikes implemented by the company is expected to translate into improved performance.

 

HSIL net sales grew by 22% y-o-y to Rs 337.41 crore for the quarter ended December 2011 primarily driven by the 25% growth in Container glass business and 18% growth in Building products business. At operating level margins was under pressure as they witnessed 350 bps fall to 18.7% on the back of increase in raw material costs coupled with rose in power and fuel cost, imported allied products cost (due to rupee depreciation) and rise in marketing expenses due to launch of new products and brands. This led to mere 3% growth in operating profit to Rs 64.14 crore. Moreover, there was 6% fall in PBT to Rs 38.33 crore consequent to the higher interest cost (48% y-o-y) coupled with marginal 4% incline in depreciation during the quarter. After accounting tax of Rs 12.48 crore, down by 6% compared to the corresponding quarter last year, the net profits fell by 6% to Rs 25.85 crore.

 

HSIL indicated that it has taken steps to improve margins as it increased the prices of sanitaryware and also container glass division. The company expects that with increase in realizations in both divisions coupled with rupee appreciation will reduce the cost of imported raw material and allied products. Consequent to this the company expects that there will be improvement in profit margins in coming quarters.

 

The Net Sales of Piramal Glass, leading global manufacturer of speciality glass containers, grew by 14% to Rs 227.70 crore during the quarter ended December 2011. The OPM contracted by 100 bps to 26.5% leading the operating profits to improve by 10% to Rs 60.45 crore. Interest fell by 6% to Rs 11.78 crore helping the PBDT to grow by 15% to Rs 48.67 crore. However, the provision for depreciation grew by 13% to Rs 20.81 crore, thereby resulting the PBT to inch up by 17% to Rs 27.86 crore. After accounting taxation of Rs 5.66 crore, up by 7% compared to the corresponding quarter last year, the Net Profit also grew by 19% to Rs 22.20 crore. Having achieved a consistent performance, the company is confident of maintaining this momentum and look forward to further improving the margins and sales. 

 

Industry Expectations

 

The All India Glass Manufactures Federation has put forth the following expectations for the Union Budget 2012-13.

 

Customs duty on imports of Soda ash should be abolished. 

 

Exempt glassware produced by mouth blown process from central excise duty.

 

In a tax system where the tax is levied on goods and services, CENVAT credit ought to be broad based covering all items used by the assesse for the purpose of business with a specific negative list.

 

CENVAT Credit on any goods like cement, angles, channels, MS plates etc used for laying foundations or making structures for support of capital goods must be allowed.

 

Allow full CENVAT credit on capital goods. Even though 100% CENVAT is allowed in respect of inputs at the time of receipt, only 50% CENVAT credit is allowed in case of capital goods in the year of receipt and the manufacturer has to wait till the next financial year for availing the balance 50% CENVAT credit.

 

Retrospective amendments rectifying past drafting errors or adverse judicial decisions be avoided.

 

Require clarity to the effect that services procured from outside India for use in the projects or activities carried on outside and for which payment is made by Indian company from India is not deemed to be taxable service in India in terms of reverse change mechanism.

 

Source: http://www.usgnn.comAuthor: shangyi

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