TGL plans another expansion

Tariq Glass Ltd (TGL) and ICI Pakistan Ltd (ICI) are exploring a potential Joint Venture in Float Glass industry, which is presently in feasibility stage and subject to corporate and regulatory approvals.

Initial Impressions

  • The greenfield JV is being explored with a capacity of up to 1,000 tpd float glass which will take the total capacity of TGL to 2,050 tpd and total in Pakistan to 3,050 tpd (at present Ghani Glass has 1,000 tpd capacity).
  • We think the JV will take a minimum of two years to come online as it is a Greenfield project and based on past execution timelines of TGL.
  • We understand that the previous expansion by TGL – of Float Glass Unit-II (500 tpd) – had an outlay of over PKR6.0bn (c.US$35-40mn based on the average PKR/USD of c.155). On that assumption, a new Float Glass project of 1,000 tpd capacity will likely incur a cost of US$70-80mn, in our view.
  • We expect that TGL will finance the project with a combination of rights issue and debt. TGL has recently deleveraged significantly (D/A fell from c.61% in FY20 to c.44% in FY21), and thus it has greater ability to raise additional debt for the project. However, the project will also increase the leverage of TGL and make it more susceptible to future monetary tightening, in our view.
  • We expect the JV will set up the new plant in the North region majorly due to easy access to suppliers (Silica sand mines). TGL also has majority of its customers based in the North region, which makes it a prudent choice for plant location.
  • ICI is the largest supplier of Soda Ash in Pakistan, with around 70% domestic market share. Soda Ash constitutes around 10% of the COGS of TGL; thus this project can prove to be a strategic investment for both companies.
  • Note that ICI is presently expanding its Soda Ash capacity by 135,000 tons pa (present capacity 425,000 tons pa), which will be commissioned by Dec’22. The new capacity (light soda ash) can partly be converted into dense soda ash (used in glass production) to cater to the JV, if ICI decides to go ahead with the project, in our view.

We await further clarity on the project – firm plan, capex outlay, and timelines – before incorporating it in our estimates for TGL.

We reiterate our liking for TGL, for which we have a Buy rating with a TP of PKR168/sh.

Courtesy – Intermarket Securities Limited.

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