Company Name – Borosil Renewables Limited (Borosil Renewables) Current Share Price – INR 512 (January 1, 2023) Market Cap – INR 6,683 cr |
1. What is interesting about the stock?
Growth & Development. This is the prime objective of most countries in the world today. The biggest factor determining and denoting growth and development in the world is undoubtedly energy usage. The more developed the country, the more energy it uses per capita. This rule has been seen in all the major economies today given that all the advanced technologies, gadgets, and other hallmarks of development are essentially more efficient uses of energy to complete various tasks.
The sun is the biggest source of energy known to man. Thus, solar energy has the biggest potential as a renewable resource especially for. Given the rising energy requirement of our planet and the environmental destruction caused by fossil fuels, solar energy looks to be the go-to choice for energy generation.
Solar energy has a lot of potential in India especially given the tropical nature of our country and the usage potential of non-agricultural land in India which gets high sun exposure throughout the year.
But how do investors look to invest across this sector? Is it necessary to go for large companies like Adani Green Energy or Reliance Industries only?
The answer is no. Just like how investors can get exposure to the auto sector indirectly through auto ancillaries, it is also prudent to invest in the solar sector through companies that make critical components for this sector.
Borosil Renewables is one such company.
Borosil Renewables is part of the Borosil family which is the market leader in the consumer glassware space in India. Borosil has been synonymous with heatproof glass for a long time now. It is still making consumer glassware like food containers, coffee jugs, tiffin boxes, and others along with glass vials and tubes for use in the pharma sector.
X factor for the group is undoubtedly Borosil Renewables which makes glass for use in solar cell assembly. The company was established as recently as 2010 as the 1st and only solar glass-producing entity in India. It has a wide product portfolio consisting of numerous industry-first innovations like
The world’s 1st antimony free solar glass
2 mm fully tempered solar glass
India’s 1st anti-glare solar glass
India’s 1st matt finish solar glass
The Company has a wide product range covering requirements of all sizes from retail consumer requirements for solar roofs to industrial-grade solar projects.
Borosil Renewables has over 100 domestic customers. The company has a good international presence as well with over 20% of revenues coming from exports. The majority of this comes from Western Europe and the company is looking to expand its presence in the Americas and the Middle East.
Borosil is said to have a dominant 40% market share in the domestic market. But the rest of the market is mainly serviced through cheaper imports from China, Malaysia, and others.
To encourage domestic makers to step into this solar space, the Government of India announced a PLI scheme for solar cell making of INR 24,000 cr last year which is expected to benefit the entire industry including part makers like Borosil Renewables. Local glassmakers like Asahi Glass are also entering this space to carve out a slice of this expanding pie.
Despite all its potential, Borosil Renewables is not without its own set of problems. Although the company has a high market share of 40%, it has almost no pricing power and must stay close to imported product prices. The Government of India had instituted anti-dumping duty in this space to promote domestic manufacturing which has been reversed in August 2022 leading to a 10-15% fall in the selling price.
Borosil Renewables is firmly concentrated on preserving its 1st mover advantage and is looking to expand from its current capacity of 450 tons per day to over 2100 tons per day by the end of 2024. This is mainly to consolidate and possibly expand its domestic market share along with entering new exports and expanding its export presence much more from current levels.
Other than the proposed organic expansion plans, the company is also set to fully acquire the Interfloat Group, Europe’s largest solar glass manufacturer, which is also expected to consolidate its presence in Europe and add a further 300 tons per day to its total capacity.
Will the company be able to stand out on its own and combat the threat from imports in the future with its larger scale? How will the rising domestic competition in this space affect Borosil’s growth trajectory? Will the company be able to ride the solar wave in India effectively in the next decade? Let us see what the future has in store for Borosil Renewables.
Industry Overview
India has seen a meteoric rise in solar capacity since FY15 highlighting the momentum for the solar energy space in the country.
This momentum is expected to continue as India looks to achieve the target of 300 GW solar installation by 2030.
Several factors are driving the solar industry in India including:
The only listed direct competitor of Borosil Renewables in India present in solar glass is Asahi India Glass. It also has an unlisted domestic competitor in Gold Plus Glass Industries which is backed by Premji Invest.
Key MOATs
The Company has been continuously innovative in the solar glass space. Despite being in the industry for only 12 years, the company has managed to stay competitive against imported products and make unique products like India’s 1st glare-free glass and the world’s 1st antimony free glass which stand as testaments to its strong innovation capability
1st mover advantage in the solar glass space which has enabled it to amass a good domestic market share. This enabled Borosil Renewables to be the main beneficiary when the import demand for solar glass got disrupted after the pandemic. It is also the only player in India with solar glass manufacturing capacity while other rivals like Asahi India Glass have just stepped into this space and are still setting up their manufacturing plant. The Company has a 40% domestic market share, which is expected to enable Borosil Renewables to be in a prime position to benefit from the huge momentum for the solar industry in India, especially after the entry of Reliance Industries into this space last year
2. Key Historical Financials
The Company saw its revenue growth CAGR for the last 10 years of over 18%. It has also seen a PAT CAGR of 23% in the same period.
Revenue CAGR in the past 3 years was at 44% due to the rising momentum of the solar industry in India. PAT CAGR in the same period was at 52% showcasing a good rise in operational efficiency for the company in the last 3 years.
The Company’s margin profile and earnings before FY21 were suppressed due to cheaper alternatives being flooded by Chinese and Malaysian exporters. Post the pandemic, the company has seen a resurgence in margins and revenues mainly due to supply chain issues stopping the imports in H1FY21 and the enforcement of import duties from March 2021 making imports more expensive and providing the company breathing space.
Company faced challenges with raw material and energy prices in Q1FY23 leading to a lower EBITDA margin which further declined in Q2FY23 (1-month impact) after the anti-dumping duty was reversed. We can expect margins to further fall for at least the next 1.5 years.
Net profit also has fallen for the last couple of quarters both on QoQ and YoY basis.
ROCE and ROE were at 27% and 24% respectively in FY22.
3. What is my view on Company valuation?
Borosil Renewables’ share price has seen a rise of 8x in the last 5 years. Nifty 50 has risen ~70% in the same period. This shows that the company has outperformed the general market in India.
The Company trades at a P/E (TTM) of 46x vs 29x for Asahi India Glass. The company trades at an EV/EBITDA (TTM) of 29x vs 15x for Asahi India Glass.
The wide difference in valuation between Borosil Renewables and Asahi India Glass is expected to mainly arise from the superior market position of Borosil Renewables and the fact that Asahi India Glass is still setting up its solar glass facility and 100% of its business currently comes from its legacy businesses of auto, construction, and consumer spaces.
Based on the expected future growth of the solar industry in India, the 1st mover advantage of Borosil Renewables, and the aggressive expansion plans for the company, I expect Borosil Renewables to have a steady growth momentum going forward and stay around 20% revenue CAGR for the next few years. EBITDA and net profit growth will be relatively muted.
At the current valuation, the stock appears to be very expensive with pressure on selling price (import) and raw material prices for the next 1.5 years. But given its potential and the massive scope for the solar space in India, it is a good stock for long-term investors to evaluate at significantly lower prices.
4. What are the risks to the investment analysis?
The major risks here are:
The biggest risk here comes from the lack of pricing power for Borosil Renewables. The company is a mainly B2B business making solar glass which it sells to solar cell makers in different sizes and specifications. Its margins have stayed subdued till FY21 mainly due to the presence of cheaper imported goods flooded into the market by Chinese and Malaysian competitors
The company does not have any other businesses other than solar glass. Although it has a wide variety of specifications that it can make in this space, there is a distinct lack of diversification which can hurt the company in the future once the demand for the solar industry cools down
The growth of solar opens up other challenges for the grid - power storage is needed as solar power is produced during the day and it can also create stability issues.
About the Author
I have over 6 years of experience in the Investment sector and have been an active prop trader in European Bond Futures in the past. I was working as head of Research at Smart Sync Services where we are working on simplifying and expanding financial and investment knowledge to make the investment world as accessible for everyday investors as much as possible.
I graduated from the Master of Finance Program at Cambridge University in 2016 after completing my Bachelor of Engineering program at Jadavpur University, Kolkata in 2011.
I am an insignificant public investor & have an avid interest in following emerging trends both in technology and other fast-evolving sectors. I am also a lifelong learner and relish the chance to learn something new all the time.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.