Borosil Glass Q3FY17 Concall Summary

Borosil Glass Log

Financial Highlights

Borosil Glass Q3FY17 Financials
  • YTD revenues grew by 71% (organic – 21%) and stood at INR 270 Crores.
  • Margins of the group were impacted due to the acquisition of Hopewell – main reason was the large advertising expenses required for the branding campaign.
  • EBITDA for the 9M period of Hopewell is about INR 56 lakhs – including one off items like expenses of about INR 5 Crores prior to acquisition. Further, other one offs were like advertising and promotion (~INR 10 Crores), which are not expected to remain at the same level.
  • Consumer division of the group registered a revenues growth of 9% for the third quarter.
  • Lab division, on the other hand grew by 17% in the third quarter.
  • The growth figures were impacted due to demonetization.
  • On a 9M basis, Consumer division grew by 26% (not including the acquisition of Hopewell) and the lab division witnessed a growth of 16%
  • The 9M EBITDA has grown from INR 16.6 Crores to INR 26.5 Crores, growing by 60% - mainly driven by margin expansion in many product categories
    The cash surplus of the company was about INR 200 Crores as on December 2016

Key business updates

  • Vyline Glass Works Ltd., will be merged shortly (subject to regulatory approvals) which has an EBITDA of INR 8.9 Crores. This EBITDA will be consolidated post the completion of the merger.
  • The two divisions of the company – consumer division and the lab division – provide a good hedge because the scientific products division in Q3 have been a good hedge with a growth rate of 16%.
  • The investments in advertising and the sales promotions have helped the company and the company has identified few issues in the manufacturing process that will enhance the capacity and improve the quality.
  • Gujrat Borosil will become a 58% subsidiary post the scheme of amalgamation is in effect. The subsidiary is expected to post a very good result with a 9m EBITDA margin of 23% and revenues of INR 135 Crores.
  • Margin expansion in the labs division was mainly driven by operating efficiencies due to the increase in the revenues & the cost below the gross profit does not increases. Even the margins are expected to be sustainable.
  • From a sales perspective the acquisitions made are doing well. However, from a manufacturing efficiency perspective the company expects to improve further which is reason why company plans to spend on capex.

Key Metric Updates: 

  • Gujrat Borosil is able to sell out its entire capacity and is increasing its market share despite stiff competition from China
  • Warehousing and freight costs together constitute for about 7 to 8% of the revenues. Going by the central warehousing structure, the company is expected to reduce by at least 3 to 4% going forward.
  • che distribution of products is very strong for the company in North and South region. Western region is one of the weak areas for the company (5 to 10% a year of the distribution expansion is what the company is planning)
  • In the SIP business, the company is looking at Middle East, Africa and South East Asia geographies because they have no domestic or local players who make laboratory glassware.
  • Akhand Diya has done well and is now an old product. The product has been there for the last three to four years and it still continues to do well.
  • Implementation of GST is going to expand the company’s margins as a large percentage of input for the consumer business comes from the imports and currently there is a countervailing duty which the company pays and do not get Cenvat credit for. Under the GST, the company will get a Cenvat credit for that – which will improve the margins.
  • CDV amount is 12% of the imports
  • A lot of money was spent on advertising and sales promotion for Hopewell – which has been the major contributor
  • La Opala sells at a price of about 10% to 15% higher than Borosil
  • Almost INR 10 Crores was spent on promoting Larah as a brand
  • Modern trade contributes to about 30% of the revenues

Capex/Expansion Plans

  • In the next year, the company is expected to spend about INR 55 Crores for expansion at Hopewell and another INR 20 Crores for establishing new warehouses in Jaipur for the consumer division.

Company Outlook:    

  • The medium term growth outlook for the consumer products division is expected to be in the range of 18 to 20 %.
  • For the scientific products division, the growth is expected to hover in the range of 12 to 15% in the short-term and about 10 to 12 % in the medium-term
  • Over the next 12 to 18 months, both the acquired companies will start contributing substantially to the bottom line of the company
  • The company targets a ROCE of about 20% going forward (currently it has an ROCE of 18% excluding the non-core asset that the company has)
  • Company is currently discussing with the boards at an informal level regarding a formal dividend policy. More clarity will be available going forward.
  • For Hopewell specifically, the company expects to achieve EBITDA margins of 20%
  • The amount spent on advertisement is expected to be at the same level of the previous year (~INR 25 Crores), however, the mix is definitely going to change next year.
  • The four major areas where company focuses on are – microwavables, Opal ware, storage (storage in the form of glass is an exciting opportunity for the company) and tumblers. These four areas will be the key areas in the next one to two year.