Buy AGI Greenpac Ltd For Target Rs. 1,520 By Emkay Global Financial Services Ltd
Well-entrenched glass leader; onward to next growth phase
We initiate coverage on AGI Greenpac (AGI) with BUY and Sep-26E TP of Rs1,520 based on DCF method, implying 19x Sep-27E EPS. AGI is a leader in the Indian container glass (CG) industry with >20% market share. The CG sector has, in the last 15 years, seen multiple ebbs and flows—demand volatility, overcapacity, and input-fuel cost spikes—with several players including erstwhile market leader HNGIL being left bankrupt; however, AGI with its innovative products and processes, cost efficiencies, and disciplined capital allocation clocked 13% revenue/15% EBITDA CAGR with a current return profile of ~15%. The Indian CG sector outlook is steady, with 4-5% volume/8- 9% value CAGR amid key user industries like AlcoBev, Food & Beverage (F&B), and pharma growing healthily while the input cost environment is benign, with soda ash and energy costs well-contained. AGI is expanding glass capacity by 30% to ~2,600tpd by FY27-end with a new Rs7bn plant in Madhya Pradesh, while also diversifying into the aluminium can segment (1.6bn capacity by CY30; Rs10bn capex), which is a fast-growing (15% CAGR), 2-player market in India currently. AGI also has smaller caps & closures and PET bottle businesses, which should grow in double digits on a low base. We estimate 17% revenue/29% APAT CAGR during FY25-28E with RoE/RoCE improving to 19% by FY28E. FY26-27 would be the capex phase, followed by healthy FCF generation, with 2% yield in FY28E and growth thereafter.
Proven track record navigating challenging cycles; glass outlook healthy
Despite its under-penetration, the CG sector in India is cyclical wrt to supply-demand outlook and input/fuel (energy) cost volatility. The last 15Y saw HNGIL moving toward bankruptcy due to overcapacity, low utilization, and high leverage. AGI, with 17% market share in FY10, has outperformed the industry and expanded its market share to >20% currently, despite intense competition and adverse cycles. The outlook is healthy, with not-too-aggressive industry capex plans, and user industries steadily growing in India.
Input and fuel cost environment benign; margins should be steady
Among raw materials, soda ash is a major cost item with 15-20% share in total expenditure, while power and fuel have ~25% share. Historically, price spikes have affected margin, with pass-on being inefficient. However, input prices are expected to remain benign in the medium term due to the over-supply scenario in these markets. Minor price changes are passed on with a quarter’s lag. With the specialty glass segment ramping up, we estimate EBITDAM rising to 26% in FY28E from 24.3% in FY25.
Targeted capex plans to meet growth as well as diversification objectives
Glass, PET, and aluminium are competitors in the packaging industry. AGI’s investment in glass and aluminium strengthens its core while supporting diversification. We estimate CFO/capex of Rs36bn/21bn in FY26-30E; hence, the balance sheet would also improve.
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