Borosil Glass Q3FY18 Concall Summary

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 Financial Highlights

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  • FY 2018 has resulted in about a 15.7% growth of sales turnover compared to the same  months last year
  • The growth has been aided by revenue from Klasspack in which Borosil acquired 60.3% in July 2016
  • If this added revenue is adjusted for a like to like period from Klasspack, the growth rate stands at 12%
  • The organic growth in the scientific products division was flat during the 1st half of FY18 and now there is a growth of 5.2% YTD FY2018
  • The long-term or medium term guidance is of 10-12% growth for the lab division
  • Klasspack has got 10 more customers on board and many more in the pipeline
  • Combining the scientific products division as well as Klasspack the growth in labware was about 17% and 8% on a like to like basis after adjusting for Klasspack
  • The EBITDA from operations has grown by about 70% to about Rs 49 Crores which is a really good performance
  • The operating margin expanded to 15.7% during the 9 months and it was led by a more profitable product mix
  • With the introduction of new SKU’s next year the margins are expected to be expanded further, as the company gets scale benefits and overheads are absorbed on a larger base
  • The margins tending towards the market leader will probably happen from Q1 of next financial year
  • In Q3 the production was not there but the fixed costs are almost all the same, and thus decreased the EBITDA margins
  • Borosil has registered a PAT of about Rs 38.5 Crores in the 9 months
  • The PAT last time was higher due to a one-time gain on land acquired by Municipal Corporation of Greater Mumbai which was an exceptional item
  • If the exceptional item is removed, the growth rate in PAT is at 45% over the same period last year
  • The company has a cash surplus of about Rs 190 crores and will be investing approximately Rs 40 to 45 crorein the new warehouse
  • The board approved the further sale of non-core real estates of approximately Rs 67 crores
  • The company has obtained a current valuation of the assets from Knight Frank and engaged a broking firm to solicit interest in the property
  • Borsoil received multiple bids and the transaction is being concluded at Rs 68 crores in due course
  • The company expects to retain about Rs 200 Crores of Cash surplus, which can be used to fund further growth including acquisitions
  • Borosil have some real estate funds in the treasury, which are historical investments which will take some time to pay out
  • Upon redemption, the entire amount would be reinvested in debt mutual funds or liquid funds
  • The company has exited all equity mutual funds and directional are likely to move the entire surplus to fixed income
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GST Impact:

  • June and July were quite disruptive, from a market perspective, owing to GST and the trade had been more or less shutdown
  • But in the period post July, from August to December, there was a healthy growth in the organization across all the verticals of the company
  • GST is likely to benefit organized players like Borosil in medium term, like getting more space on the shelf and new product categories getting emerged which were more unorganized dominated
  • Borosil will be focusing on its product development in the coming year and expects to introduce tens of SKU’s (50-60) in the next year
  • The price reduction taken by Borosil is around 3-4% depending on product

Marketing and Brand Building:

  • Sales are increasing faster than the marketing expenses are expected to increase
  • Marketing expenses as a percentage of sales will reduce over the next 2 to 3 years
  • In consumer products, both the storage and Opal ware have a strong tailwind
  • Rising awareness of the advantages of glass over plastic in storage and rising aspirations of middle-class for a superior product gave Borosil participation in growing categories
  • The advertisement expenditure is about Rs 13 crores in the first 9 months

Consumer Products Division:

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  • This division has achieved a revenue of about Rs 194 crores at a growth of 15% over the same period last year
  • The Borosil branded products have grown about by 11.5% and in Opal ware, Larah has grown by 20%
  • The furnace in Opal ware business in November and December resulted in Out of stock for many products
  • The new furnace has started a few days ago and the preliminary production has been very good, both in terms of output as well as improvement of yields
  • The product is now available at probably 7000 to 8000 retail outlets nationwide
  • The growth driver and a core part in strategy has always been to sell more products to the same customer
  • Labquest is brand for bench-top instruments, has been gaining acceptance and Borosil is looking for organic as well as inorganic expansion in this area
  • The new segment of storage has been performing well and Borosil sees a large opportunity to convert customers from Plastic to glass
  • Borosil’s high-quality materials and product design which are both aesthetic as well as functional, are being quite well received
  • The TV campaign has been resulting in good feedback and YTD revenue from storage has been continually growing

Packaging Business:

  •  The idea of setting up a packaging unit through LLP (Limited Liability Partnership) with Borosil having 18% partnership is in progress
  • The place that the firm were to rent has not worked out, and had to relook a new place
  • The unit is expected to be operational in 3 months
  • This unit will not impact Borosil’s packing cost but would ensure to get packaging material supply on time
  • The partnership amount is around Rs 50 Lakh

Exports:

  • The performance in Exports has been quite tepid and 2 clients have delayed their orders, owing to issues in their home markets
  • This is expected to be a timing issue and Borosil will continue to work on building a strong vertical in exports for lab glass division over the next few years

Production:

  • The Jaipur factory which manufactures Larah, has completed its upgrade and the capacity has been expanded by over 50% and is likely to help efficiency gains as well as improve the cost structure
  • Borosil is working on a large central warehouse for operations which will help in the reduction of overall inventory as well as reduce warehousing and freight expenses
  • The warehouse is expected to be operational from Q3 of the next financial year
  • From Q1FY19 the utilization is expected to be around 75-80% on the new furnace
  • The sales of Hopewell is expected to increase from the current base of Rs100 crores to around 120-125 crores and the capacity in terms of rupees would be Rs150-160 crores
  • The CAPEX of 15 crores in Klasspack is to increase capacity probably by 15-20% by year
  • The first phase of that has already been ordered and equipment will start arriving by Q1FY19

Corporate Initiatives:

  • The company subdivided its shares from Rs 10 to Rs 1 face value each and the trading commenced on September 14, 2017
  • The board has proposed a scheme of amalgamation
  • The matter could not be heard on the specified date by NCLT and the new date has been given as 22nd of February
  • For alignment of management incentives with long-term shareholder value Borosil has implemented an ESOP policy
  • The company has also applied for its shares to be listed on the NSE and the approval is awaited
  • The diluted shares post amalgamation would be 2.5 crores shares of Re.1 each

Distribution:

  •  Borosil has been working on e-commerce strategy and expects to have a lot of room for improvement
  • Borosil also likes to expand distribution footprint more in large format stores
  • The increase in capacity of Hopewell can be absorbed by the existing distribution channels

Gujarat Borosil:

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  • Borosil currently holds 25.25% of the Gujarat Borosil equity and upon implementation of amalgamation scheme will go to 58.38%
  • Gujarat Borosil has a board meeting to consider its results on 10th of February
  • India has already imposed anti-dumping duty on chinese solar glass and anti-dumping investigations have already started on solar glass from Malaysia

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