Nicholas Piramal India Ltd is planning to divest its 53.76 per cent stake in the Rs 247 crore Gujarat Glass Private Ltd, a leading manufacturer of glass packaging for pharmaceuticals in the Rs 100 billion Indian packaging material market. The company is waiting to get the right price for the subsidiary, it is learnt.

When contacted, a spokesperson for NPIL said, "NPIL is focused on pharmaceuticals and health care. The group has built strong value in the glass business with hugely competitive positions in the export markets. Any decision on Gujarat Glass will keep in mind the best interests of both Gujarat Glass and NPIL and will be based on maximizing the value that could accrue to NPIL."

Gujarat Glass was a division on NPIL till 1998. In 1998, NPIL spun it off into a subsidiary company and then divested 46% to various private equity funds. At present, 54% of the equity of Gujarat Glass is reflected in the books of NPIL, as an equity investment of Rs 9.3 crore, NPIL says.

Singapore-based Citicorp Investment Bank and two Mauritius-based companies Indra Pvt Equity Fund and Indocean Packaging Ltd hold the remaining 46.24 per cent stake in the NPIL subsidiary. The Foreign Investment Promotion Board had in March 1998 approved Nicholas Piramal India Ltd's proposal to divest the 46.24 per cent stake to these companies.

While one analyst said the company has been wanting to make the sale for quite some time now, but was not finding any buyer for the glass business because of the heavy debts, another analyst said the deal has not happened as NPIL has not been able to get the right valuation for GGPL, and it had got nothing to do with the debts. On the contrary, the company has turned around from a loss-making one to profit-making. The promoters are expecting a good valuation for GGPL, he says.

The company produces around seven million glass containers a day and is among the few companies that manufacture and markets the entire pharma range of glass bottles and vials in both the domestic and export market. It has plants at Kosamba (Surat) and Jambusar (Bharuch), and the latter makes soda lime amber glass containers, mainly for pharmaceutical applications.

The pharma business of NPIL is doing well and if the subsidiary is sold off, the stock market will be impressed, the analyst said.

The subsidiary company's annual interest liability stands at Rs 40.98 crore. The secured loans are worth Rs 277.25 crore and the unsecured loans come to Rs 94.64 crore, taking the total to Rs 371.88 crore. Seventy one per cent of the total liability of GGPL as on March 31, 2002 is due to borrowing.

GGPL has a Sri Lankan subsidiary, Ceylon Glass Company Ltd, in which GGPL has an 83.76 per cent stake.

The Rs 983.89 crore parent company NPIL (as per the March 31, 2002 results) has an interest outgo of Rs 31.98 crore. The company's secured loans amount to Rs 84.72 crore and the unsecured loans are Rs 252.18 crore, taking the total debt to Rs 336.90 crore.

NPIL has reduced borrowings by Rs 43.39 crore during H1F03 due to strong cash accruals from operations. In the same period, interest cost as a percentage of net sales has declined from 7.6 per cent to 5 per cent, indicating the partial retirement of borrowing, the company said in the half yearly report.

According to the analyst, the divestment will help the NPIL group to partially clear the heavy debts on its books. However, it is very difficult to say if the glass company would fetch a good price, he said.

The book value of each Rs 10 equity share is Rs 72.63 which is arrived at by dividing the net worth by the number of shares. By virtue of its 53.76 per cent stake in GGPL, the parent NPIL can get a minimum compensation of Rs 67.54 crore.

Sale of GGPL can only partially retire the debts of NPIL. At the same time, the sale of GGPL may result in a rise in the packaging material expense of NPIL, thus increasing the overall expenditure.

The company had this month come out with debentures for Rs 50 crore at interest rates of 6.9 per cent and seven per cent which has been fully subscribed. Thus the debt burden will go down further, a company source said.

As per NPIL's consolidated report dated March 31, 2002, the secured and unsecured loans amount to Rs 713.51 crore. According to NPIL's recent half yearly report, the net interest outgo stood at Rs 11.69 crore.

According to NPIL's recent half yearly report, GGPL's income grew at the rate of 12 per cent for the first six months ended September 2002. While the half yearly sales stood at Rs 141.27 crore and the profit was Rs 5.87 crore, the company posted a profit of Rs 9.3 crore in the year ended March 31, 2002.

While maintaining its domestic leadership in flaconnage market for pharmaceutical operations, GGPL is widening its base in the cosmetic/fragrance segment globally by setting up offices in Latin America and the US. The GGPL office in Brazil was set up about one-and-a-half-years ago, while its New York office was set up in October 2002. An office in Europe should be in place by December 2002, the company said. Another pharma analyst said this was being done to rope in buyers for the company.

"While GGPL has not added any manufacturing capacity, we have widened our manufacturing portfolio to include glass container manufacture for the cosmetic / fragrance segment of the market, especially for export," NPIL said.

The growth in exports for the H1F03 was 52.4 per cent, up from Rs 15.8 crore in the previous half year to Rs 24.17 crore in the current first half year.