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Sunday, Sep 15, 2002

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Floatglass India: Buy

B. Krishnakumar

THE recent pick-up in automobile production has improved the business environment for companies dependent on the auto industry. Floatglass India is one such company that has seen its earnings improve, owing to the recent recovery in the automobile sector.

The company's share price too has seen a steady uptrend over the last few months. Given the sustained improvement in automobile production this fiscal and the improvement in financials over the recent quarters, investors willing to wait for at least a year could consider equity exposure in Floatglass India at the current level of Rs15.10.

The company's performance in the earlier years was affected due to relatively low capacity utilisation, mounting competitive pressure and huge debt burden. However, the recent acquisition of 80 per cent stake by Asahi India Safety Glass has helped the company stage a turnaround in the previous fiscal.

After reporting a net loss of Rs 13.24 crore in 2000-01, the company reported post-tax earnings of Rs 4.37 crore on a turnover of Rs 243.85 crore for the year ended March 2002. The recovery in demand owing to higher offtake from Asahi India appears to be the primary factor behind the improved performance.

Asahi India is a dominant player in the automotive safety glass market. Asahi India's primary raw material is floatglass which is the main product produced by Floatglass India. The acquisition of 80 per cent stake in Floatglass India by Asahi India and the steady increase in automobile production has had a positive impact on the financials of both the companies.

Besides pick-up in demand, the drop in interest cost has helped Floatglass India report a net profit of Rs 2.55 crore, compared to Rs 0.85 crore in the corresponding previous period. Turnover increased about 9 per cent to Rs 60.77 crore during this period.

With the company now under the control of Asahi India, the performance of Floatglass India is likely to improve as long as the automobile production continues to remain steady. Though there is no firm indication as of now, there is also a possibility of a merger of Floatglass India with Asahi India at a later date.

From an investment perspective, the huge equity base of Rs 78.02 crore is probably the only major deterrent. Taking into account the recent improvement in performance and the acquisition of controlling stake by Asahi India, the long-term prospects for Floatglass India appear positive.

Investors willing to take that extra bit of risk could include the company in the portfolio.

Alternatively, price dips could also be used to enhance equity holdings in the company.

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