India's flat glass industry, comprising float and solar glass, has lined up a significant 65% increase in capacity over the current and next fiscal by spending Rs 7,200-7,500 crore, following a troika of factors - import substitution driven by favourable government policies, continued healthy growth in end-user industry demand, and high-capacity utilisation. This will mark the first capacity addition after five fiscals.

While total installed capacity of the industry will rise from 8,700 to 13,600 tonne per day (TPD), the capital structure of flat glass makers is seen comfortable because of funding of capital expenditure (capex) through a healthy mix of internal accrual, debt and equity, and strong operating performance and balance sheets.

A CRISIL Ratings study of seven flat glass makers, accounting for ~90% of the industry's revenue, shows as much.

The capacity expansion is a result of supportive government policies such as imposition of duty on clear-glass products and solar panels, mandatory BIS certification for clear flat glass, Production Linked Incentive scheme for solar cells and modules, and an approved list of models and manufacturers of solar modules.

Reduced imports from China due to closure of 25-30% of its float glass capacity over past few fiscals because of environmental concerns is also spurring capacity expansion in India. That, along with higher domestic demand, has meant capacity utilisation of Indian float glass manufacturers is now ~90% compared with 75-80% two years ago, providing another trigger for expansion.

While float glass (89% of total flat glass capacity; used in automobiles, building and industrial construction) will see capacity rising 38%, solar glass (11%; used to make solar panels) capacity will soar 3 times on a small base.

Says Mohit Makhija, Senior Director, CRISIL Ratings, "For float glass, demand is expected to grow 10-12% this fiscal in volume terms, after rising 13-15% last fiscal. India’s per-capita consumption of float glass was ~2.5 kg in fiscal 2023, compared with 7-10 kg in developed countries, reflecting significant growth potential. Rising usage of glass in buildings, consumer preference for premium vehicles and higher disposable incomes stoking demand for better aesthetics and lifestyle will aid the demand growth over the medium term. For solar glass, demand is seen surging 23-25% this fiscal on government’s sharp focus on fresh renewable energy capacities and expectation of faster substitution of imported solar glass."

With capacities going onstream from January 2024, the kicker to revenue growth will come next fiscal onwards.

Operating profitability¹ will sustain at 20-22% this fiscal (see annexure), supported by favourable demand-supply situation, timely passthrough of higher input cost to end-users, and high entry barriers (because of long gestation period; capital-intensive operations, and necessity of a wide distribution network).

Says Sushant Sarode, Director, CRISIL Ratings, "Despite the significant jump in capex over the next two fiscals, credit profiles of CRISIL-rated flat glass makers will be stable due to healthy balance sheets supported by 25% annual growth in cash accrual over last three fiscals. Gearing and interest coverage ratio will moderate marginally due to part-debt funding of capex but should remain healthy at 0.40-0.45 time and 7-8 times, respectively, this fiscal, compared with 0.30 time and ~8 times, respectively, last fiscal."

Any unexpected change in import duty structure or moderation in demand will bear watching.