Sharp increase in Covid-19 vaccination led pharma demand and expected healthy growth in end-user sectors like automobiles and construction is expected to drive revenues up by 12% on-year for domestic glass makers in fiscal 2022.

The recovery, already visible since the second half of fiscal 2021, is expected to continue in this fiscal, albeit some headwinds of second wave of Covid-19 in first quarter of current fiscal, an analysis of 25 Crisil-rated glass-makers shows.

Glass is sold in two forms: flat and container. Flat¹ glass accounts for ~55% of total glass sales (~Rs 12,000 crore), mainly to automotive and construction sectors. This segment, though impacted by the pandemic-led disruptions in the first half fiscal 2021, saw a sharp rebound from September 2020 onwards and is expected to grow by ~15% on-year in fiscal 2022, from a decline of 16% in fiscal 2021.

Container glass accounts for the remaining ~45% of total glass sales (~Rs 10,000 crore). Alcoholic beverages, food, pharmaceuticals, labware, and home appliances are the major end-users and are estimated to have grown by ~5% on-year in the previous fiscal, and likely to register ~9% growth in fiscal 2022. Rise in vaccinations will support demand for glass vials and other labware (~Rs 1000 crore). This is estimated to have grown ~20% in fiscal 2021, and will increase more this fiscal, as vaccination demand rises to counter the resurging second wave of Covid-19.

The recent surge in Covid-19 positivity rate and partial lockdowns have resulted in disruptions in availability of industrial oxygen, a key process input for cutting glass. This is likely to slow down the revenue growth of glass makers in first quarter of this fiscal. However, economic activities are slowly expected to come back to normal from second quarter of fiscal 2022 as mobility improves with pick-up in construction activity. Additional tariff measures² announced on a variety of flat glass imports, by the Government of India over the past six months, will also support growth.

Says Dinesh Jain, Director, Crisil Ratings, “Strong surge in vaccination led demand for glass vials coupled with growth in automobile volumes will drive revenue growth of glass makers in fiscal 2022. Despite recent partial lock downs due to resurging second wave, the glass makers are expected to maintain their profitability in this fiscal.”

Gas prices, which forms about 25% of the total cost for the glass makers, is likely to remain supressed at around $2.5 mmBtu³ in the near term, on account to resurgent second wave. This is likely to support the input costs for glass makers in the first quarter of current fiscal. Nevertheless, the average gas prices are likely to gradually increase from second quarter of this fiscal to $2.5-3.5 mmBtu (from average level of $2.1 mmBtu in fiscal 2021) driven by pickup in economic activity. With other input costs steady, the glass makers are likely to pass through the increase in energy costs.

Higher revenues and steady profitability should result in better cash accruals, supporting incremental working capital requirements. Internal cash flows will be sufficient to meet any capacity expansion and working capital needs in the wake of demand surge.

Says Krishna Ambadasu, Associate Director, Crisil Ratings, “The gearing levels of Crisil-rated glass makers is expected to remain below 0.8 time in the near-to-medium term. Also, operating profitability of glass makers will sustain at ~12% in fiscal 2022, and interest coverage at over 6 times. That should support credit profiles.”

Onset of second wave of the pandemic and increasing restrictions can impact demand especially from construction and automobiles. Supply chain disruptions if extending to the second quarter, in the worse-case scenario could curtail the growth in glass makers’ revenues by half in this fiscal and therefore, would remain a key monitorable.

¹ Comprises broadly of float, tempered and clear glass
² India has levied anti-dumping duty on some varieties of float glass imports from Malaysia for five years in November 2020; countervailing duties were levied on imports of tempered glass from Malaysia in March 2021.
³ metric million British thermal unit