Sejal Glass – Turnaround

I recently attended the annual general meeting and con-call. The company is currently going through a transitional phase, and the previous promoter agreed to provide management support for the following three to four years.

Brief Profile: The Company is into architectural glass which is a commodity business and has an element of cyclicality. Due to stringent minimum quality criteria, the automotive glass segment enjoys greater operating margins, often between 18 and 24 percent, compared to the fiercely competitive architectural glass business, which has relatively lower margins, between 12 and 18 percent.

Company is mainly into 3 categories of products:
a) Insulated glass, [India capacity 1.8 lac sq. mtr p.a., UAE 6 lac sq. mtr p.a] – 17%
b) Laminated glass, & [India capacity 1.08 lac sq. mtr p.a., UAE 1.50 lac sq. mtr p.a] – 10%
c) Toughened glass [India capacity 7.8 lac sq. mtr p.a., UAE 21 lac sq. mtr p.a] – 73%
Considering the product profile, the company is highly concentrated into toughed glass product since toughened glass is the first process which can be utilized in Insulated glass and laminate glass, and it can be sold as a product itself.

The company might generate a topline of Rs 400cr at current capacity. The factory in Ras Al Khaimah, United Arab Emirates, operates in two shifts, as I observed during my visit. The unit is located on a 20-acre plot, of which 40% is used for built-up space and the remaining 60% will be used for future expansion.

I have asked the question from the management being an only player in architectural glass, why the company is not able to perform?
Management replied:

2 major risks were highlighted: It’s a high working capital requirement business and price reduction by foreign players.

Going Forward:

• Govt. has announced an anti-dumping duty on import of Chinese glass for next 5 years.
  Link: Govt recommends anti-dumping duty on imports of Chinese glass for 5 years – Hindustan Times
• Hence, given the strong demand in the real estate sector and the restriction on the import of cheap glass, Sejal Glass may continue to do well domestically.
• In UAE the company has an order book of approx. AED 60Mn (i.e. 120cr) at present. They are targeting a topline of Rs 200cr plus from UAE and Rs 70-80 cr from India in FY 24-25.
• It seems they are on the right track and company is very cautious now to extend credit to their debtors.
• In UAE; almost 30% to 40% business is backed by LC, 10% to 12% business is on cash basis and the rest is on the basis of PDC. Further, they are also exploring to obtain credit insurance.
  

Risks:

• Working capital intensive business.
• Debt to equity is at 4.2x (Rs 100cr loan is extended by Aarti group (new promoters) @8-9% and rest 20cr from bank)
• Old promoter still running the show.
• Foreign currency risks
• Related parties’ transactions.

Disc: Above study is for educational purpose only and not a buy sell recommendation by any means. Invested from lower levels.