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Borosil LTD

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About Company

Borosil Limited is a supplier of laboratory glassware, microwaveable kitchenware, and opal ware in India. It sells and markets microwavable and flameproof kitchenware and glass tumblers through more than 15,000 retail outlets, and has three manufacturing facilities. The company conducts its operations in two business segments—namely, scientific & industrial products and consumer products.

Detailed Results:

  1. The company had a poor quarter with revenue increasing by 8% while PAT decreasing by 6% YoY.
  2. EBITDA before exceptional items stood at 7.6% Vs 18%.
  3. The scientific division saw- 
  1. The consumerware biz saw-

Investor Conference Call Highlights 

  1. The Company received an insurance claim (net of WDV) of INR 9.3 crores as a full settlement of the claim in respect of the loss of property due to a fire at the Company’s warehouse in Bharuch. During the corresponding period in the previous year, it had made a provision of INR 6.5 crores for the loss of property at the Company’s warehouse due to fire and flood. During the third quarter, the Company also disposed of one of its non-core assets which were held for disposal the gain on the same is INR 13.5 crores, and the same is recognized under the head of other income.
  2. The company had an annualized operating ROCE of 17.2%.
  3.  The decline in EBITDA margin in the consumer ware division was due to a shifting in product mix towards non-glassware products which comprise about 63% of sales of the Borosil brand, which excludes Lara, which traditionally has lower margins,  higher marketing expenses, fixed costs & EBITDA margin on Lara which is its Opalware range of products was much lower than normal.
  4. The Company is expanding its capacity from 42 to 84 tons per day by putting up an additional furnace. This furnace will go onstream from 2nd January of 2023 from a commercial production point of view.
  5. Due to a lack of operations of its own furnace, the company in its LARA segment did higher procurement of large volumes of whiteware from outside leading to lower margins. However, this was a strategic move to retain the customers & both the furnaces will be operational in Q4FY23 leading to the restoration of margins.
  6. The company continues to enjoy about 70% of the lab glass organized market and expects to get a fair share of any growth in demand from the pharma and educational institution sectors. 
  7. The new products introduced include filter papers, QR-coded glassware, and multi-port caps which have got good traction.
  8. In the LabQuest division, it achieved a sale of INR 16.5 crores while it expects the addressable serviceable market to be about INR 225 crores and grow at 10% to 12% a year. Recent products introduced by the Borosil Technologies teams include pilot lab reactors, bottle-top dispensers for hazardous acid, as well as products in the nutrition and environment category. 
  9. The 18.7% decline in Klasspack sales was due to a higher base because of Covid-led buying. The margins also faced issues with input price increased by over 25% and this necessitated price increases which have also had a negative impact on sales
  10. The company also took a decision at Klasspack to go for camera inspections for all its products which led to higher process rejections as it continues to raise the bar on specifications and the automated camera-based quality control will help improve its customer outreach in the future.
  11. On the capex front- The expansion in Lara capacity at an estimated project cost of INR 195 crores was commissioned on December 22 and commercial production started in January ‘23 while The new Borosilicate Pressware facility of 25 tons per day at an estimated investment of INR 115 crores is estimated to be commissioned in the second half of Q2 FY 24.
  12. The management expects the Demerger process to get completed by June’23.
  13. The company is quite confident about the opal ware division despite the capacity of competitors increasing & plans to scale the exports biz which has a tailwind in the form of high energy costs in Europe.
  14. The management believes believe the worst is over in terms of cost pressures.
  15. In the opal ware biz, post completion of the capex &  100% ramp-up, the revenue can go to 400-420 Crs.
  16. The marketing spending on the consumer ware division stood at 7%.
  17. The total capex of 625 Crs will get completed by March 2024.
  18. The new furnace will get utilisations of 40-50% from day 1 & the company targets 100% utilisations by FY24-25.
  19. The turbing costs have now been reduced substantially owing to the cooling of freight costs.
  20. The glassware division has seen low growth in the last 3 years owing to very high input costs which are being passed on to the customers leading to lower growth. However, management expects the value proposition to improve post-production in its own facility.
  21. The company expects to achieve the previous level of margins within a few quarters, however, the margins will grow further post higher utilisations of its new facility.
  22. The tailwinds for Opalware include the revival of HoReCa, replacement demand in the form of change from steel and plastic to melamine & shutdown of its competitors in Europe.

Analyst’s View

Borosil Ltd is one of the market leaders in all its respective segments which are also witnessing strong growth respectively. The company had a very poor quarter with sales growing by a meager 6% while margins crashed down from 17% to 10%. It remains to be seen how the company will be able to scale up its new capex, clock back its past margins, defend against cost pressures & grow its biz given the large operational leverage/ deleverage that plays out in the biz. Nonetheless, given the strong heritage of promoters, competitive strengths of the biz, strong tailwinds & expected rationalization of cost pressures, it remains an interesting stock to keep track off.