The Hindu Business Line : ‘Time is right to invest in another float line’

An investment in a float line has to be viewed from a 15-year perspective. It is now a good time to invest because even if the business cycle comes down a little, by the time the float is up and running, we will be back to some growth.

B. SANTHANAM, MD, SAINT-GOBAIN GLASS INDIA

N. Ramakrishnan

Not for nothing is it called the “hot end.” It is quite hot — the outside temperature itself is high and the heat radiating off the furnace is adding to the temperature inside. We are at the second float line of Saint-Gobain Glass India, near Chennai. Saint-Gobain employees are explaining the glass-making process.

The basic raw materials — silica sand, calcite and dolomite — are mixed in the requisite proportions and to this is added cullet, powdered broken glass, before the mix is fed into the furnace. Temperatures inside the furnace go up to 1,610 degrees centigrade. As we walk down the float line, we step into a control room where the entire process is tracked on computers.

The molten glass floats down a line and, once out of the furnace, the temperature gradually comes down. It is at this stage that the thickness of the glass is determined. Saint-Gobain can make glass from 2 mm to 12 mm thickness. We watch on computer screens machines along the line grip and stretch or compress the still molten glass, depending on the thickness programmed.

As the glass sheets come off the line, they are scanned for flaws, the brand and other manufacturing details are imprinted. The sides are scoured and, then, with a loud clanging noise, the marked out area of the glass sheet breaks and falls down only to be re-used as cullet. The glass is packed, loaded into containers and shipped to the customers. The process continues.

It is such a dynamic commodity, says Mr B. Santhanam, Managing Director, sitting in the cool confines of his office. Two walls of his office room are of glass, enabling him to see the outside world or “participate,” as he describes it.” Look at the glass, it blocks the outside heat, lets in some of the natural light and cuts off the noise”, says Mr Santhanam.

An alumnus of IIT-Madras and of the Indian Institute of Management, Mr Santhanam believes that the growing emphasis on energy-efficient buildings and putting in place a building safety code will spur the demand for high performance glass. He foresees increasing use of glass in the residential segment over the next few years. Saint-Gobain has just announced a Rs 1,000-crore investment in Rajasthan on a new float line.

Addressing the press at Taj Coromandel hotel in Chennai to announce the investment in Rajasthan, he remarked that if the Taj were to be built now, it would have to use more glass to conform to various specifications.

In this interview, at his office and at the hotel prior to the press conference, he discusses the proposed investment, the market scenario and the company’s prospects.

Excerpts from the interview:

Why Rajasthan?

There are parts of our business that are highly raw material- and logistics-intensive. The part of the business that is really sensitive to both is the basic float manufacture. Even when we invested in the second float line at the Sriperumbudur plant we looked at other locations. The cost of logistics is so large…a third of our sales comes from the northern markets.

The new investment is at Bhiwadi, 65 km from Delhi airport. It is an ideal location on the Delhi-Mumbai industrial corridor. We looked at Uttarakhand, Haryana, Gujarat and Andhra Pradesh.

There is a fairly large part of our business that is growing rapidly and which is neutral to both logistics and raw materials. This is the processing part — automotive processing, coating, high performance products, advanced glass processing. We now can decide on future investments based on the opportunities available at both the complexes — the existing one near Chennai and the new one that will come up at Bhiwadi.

You are more or less considered a Tamil Nadu company. How do you think the Government will accept this decision? Nobody sells Tamil Nadu as well as Saint-Gobain does…

We will continue to do that. We have had considerable discussions and dialogue with the Tamil Nadu Government. I think they understand the logic and the reasons for our decision. The Sriperumbudur plant is far from saturation. At this point, we are in discussion with the Tamil Nadu Government for further investments, which will be substantial over the next three years.

With logistics cost at something like $70 a tonne (for moving glass from the Sriperumbudur plant to markets in the northern region), I don’t think that can be supplemented by any kind of incentive that a State can provide. Logistics costs will come down probably to half.

How is the market? There is talk of a slowdown…

We have not seen a significant deceleration in growth. The industry growth over the last year was 12-13 per cent. The energy conservation code is spurring demand for high performance, energy-efficient products in buildings. There has been a rapid shift in the use of glass in buildings in the last three-four years. Leading architects are pushing that. The business is changing quite dramatically. The high end is really growing.

The automotive business too has been surprisingly robust this year. Because of the introduction of new models — in the Rs 3 lakh to Rs 7 lakh bracket — in the second half of last year, I expect the passenger car industry to buck the trend and grow. Towards the end of this year, we will see the Nano launch. Since we are the only suppliers to Nano, that will kick in some growth.

What has happened is that since the time we came in 2000, the perception of glass has changed. Glass was a product that did not attract much attention. There were no codes, there was not much standardisation. High performance glass was a luxury that only a few could afford. All that has changed. It is a seismic change comparable to what we saw with the arrival of Tatas, Hyundai in the A segment (of cars).

We see energy-efficient high performance glass as growth sector; we see building safety code coming in, that again will drive growth. We also feel that the residential segment will slowly begin to adopt double-glazing.

In many countries, we see window grills being replaced by double-glazed windows, which provide safety, security, protection against noise, heat and dust. I don’t think any one of us would have envisaged it in 2000.

You have always talked of there being an over-capacity in float glass. By adding another 300,000 tonnes a year, are you not adding to the excess capacity?

This industry is still in the embryonic stage in India compared to other countries. You will find that every new float line will add a huge disturbance in the market in the initial period. In the early years of a float line, our strategy has always been to export, even if that export is not attractive from a margin point of view. That strategy continues.

Timing is everything. When we announced the second float, the situation was the same. We are now into the third year of operations of the second float line; we are close to capacity utilisation there. I think it is the right time.

It may be a coincidence. When we took a decision to invest in 1997, it was a bleak year. The next decision we took was in 2002-03, which was again a low growth period, when the confidence levels were not strong.

An investment in a float line has to be viewed from a 15-year perspective. It is now a good time to invest because, even if the business cycle comes down a little, by the time the float is up and running, we will be back to some growth.

We are 40 per cent of the industry (about Rs 3,000 crore). If we don’t take the leadership position and invest, we will be doing two things: One, letting the industry import; two, allowing players to grow under your feet. Both are important. It is okay to play the waiting game when you have a 15 per cent or 20 per cent market share. I don’t think the waiting game is possible for a leader.

We are gaining market share; we are gaining a more valuable mix into our portfolio, and this gain is coming not at the commodity end, but at the value end. There will be a disturbance (in the market) when we start the new plant. We hope that it will be minimal.