Borosil Ltd: Investing Analysis !

Borosil Limited is one of the leading players of Laboratory Glassware and Microwavable Kitchenware. It was established in Gujarat as a Public Limited Company in 1962 to acquire the existing business of Industrial & Engineering Apparatus Company Private Limited.

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• Family Structure
• Executive Management of Borosil
• Change in Borosil Structure due to Amalgamation & Demerger
• Products Classification
• Revenue Structure
• Borosil segment wise recent quarter performance
• Distribution Network
• Manufacturing facilities & supply chain
• Estimated market share of Borosil
• Subsidiaries of Borosil
• Expansion activities
• Borosil Management Discussion Highlights
• Growth Opportunities & Risks/Concerns
• Valuation Parameters

(A) Brief History

Borosil was started by an Indian scientist, Dr. Lele, in Technical and Financial collaboration with USA’s Corning Glass Works. Company began to sell its products under the "Borosil" brand. The name is inspired by Borosilicate Glass, the company's main product category. Later, Corning Glass Works became the majority Shareholder of the company and Borosil started using the Corning brand as well.

Then in 1988, Corning divested its shareholding and Mr Bajrang Lal Kheruka, owner of a Glassware business in Kolkata, bought a majority shares from Corning Glass Works, and Kheruka family became the majority owners of Borosil. Thereafter, Mr BL Kheruka moved to Mumbai with his family and started looking at the ways to make Borosil a well known brand in India. Kheruka family has been in the Glass business for more than five decades and responsible for managing and directing a successful international business of Borosil. Today, Kheruka family's 3rd Generation is also involved in the business.

Later, on 18 November 2019, Mr. Bajrang Lal Kheruka, Executive Chairman, stepped down from the management passing on his legacy to his son Mr. Pradeep Kheruka, Chairman & his grandson Mr. Shreevar Kheruka, Managing Director & CEO.

(B) Family Structure

(C) Executive Management

i) Mr. Pradeep Kumar Kheruka - Chairman

Mr. Pradeep Kumar Kheruka is the Son of Mr. Bajrang Kumar Kheruka, who acquired Borosil Limited in 1988. He holds Bachelor's Degree in Commerce (Hons.) from St. Xavier's Collegiate School, Kolkata. After Completing his Graduation, he joined Window Glass Limited, his Father's owned Company in Kolkata, at the age of 17. He worked as Managing Director of Borosil Glassworks Limited from 2008 to 2011. Then in 2011, he became the chairman of Borosil Glassworks Limited. Now he continues his position of the Chairman of Borosil Ltd (Entity formed post scheme of amalgamation & arrangement) .

Mr. Kheruka has been in the Glass Industry since 1961 & has a vast experience of about 40 years. He has been on the Board of the company since 1988. Age of Mr. Kheruka is 69 years.

ii) Mr. Shreevar Kheruka - Managing Director & CEO

Mr. Shreevar Kheruka is the grandson of Mr. Bajrang Lal Kheruka & son of Mr. Pradeep Kheruka. He holds dual degree - B.sc (Economics) & B.A. in International Relations from The Wharton School of University, Pennsylvania, U.S.A. After Graduation, he worked for 2 Years in Monitor Consultant (now Monitor Deloitte), Boston, MA, US, before joining the family-owned business of Borosil Glassworks Limited.

Mr. Shreevar joined Borosil Glassworks Limited as Assistant Vice-President in 2006. At that time, Company faced substantial crisis, because Maharashtra State Electricity Board doubled the price of electricity and the company started making losses. Soon the production declined and labour problems arose. Mr. Shreevar determined to solve this crisis. Therefore, he visited numerous Glass factories in US, Europe, South East Asia and China to explore new business opportunities for importing Raw Materials and to learn formulation of a new business model. He visited around 100 factories and then identified suitable vendors to supply raw Material to the company. The main reason of importing Raw Materials was to reduce the Manufacturing Cost.

On 16.08.2012, he became Managing Director and CEO of Borosil Glassworks Limited and continued in this position till the merger of the BGWL into Borosil Limited. After this merger, he is working as Managing Director and CEO of Borosil Limited. He has an experience of 14 years. He was inducted into the Board of the company in 2009. Age of Mr. Shreevar is 38 years.

(D) Pre Amalgamation-Demerger Structure of Borosil

Companies' Brief :

1) Vyline Glass Works Limited: Engaged in manufacturing of Glass and Glass products as the only customer of company.

2) Fennel Investment and Finance Private Limited: NBFC

3) Gujarat Borosil Limited: Engaged in manufacturing of low Iron textured Solar Glass for application in Photovoltaic panels, Flat plate collectors & Green houses.

4) Borosil Glass Works Limited: Laboratory Glassware, Microwavable Kitchenware & also other Consumerware items.

5) Borosil Limited: Manufacturing as well as marketing of Opal Tableware items.

6) Klasspack: Pharma Packaging business.

7) Borosil Technologies Limited: Design, develop & assemble laboratory bench top equipments & instruments such as shakers, stirrers, mixers, centrifuges, digestors etc.

8) Acalypha Realty Limited: Unlisted wholly owned Subsidiary (formerly known as Borosil International Limited), ARL intends to venture in real estate business. The company had not commenced its operations till March 2019.

9) Borosil Afrasia FZE: Engaged in the business of marketing the Company’s products in the Middle East and African markets.

(E) Post Amalgamation-Demerger Structure of Borosil

Amalgamation and Demerger Details:

• Vyline Glass Work Limited, Fennel Investment & Finance Pvt. Ltd. and Gujarat Borosil Limited merged with Borosil Glass Works Limited.
• Borosil Glass Works Limited name changed to Borosil Renewables Limited.
• Demerger of Scientific and Consumer business from Borosil Renewables Limited to Borosil Limited (earlier known as Hopewell Tableware Pvt. Ltd.). The Promoter’s shareholding in Borosil Limited reduced to 70.5%.
• Borosil Renewables Limited is engaged in Solar glass Business.

(F) Product Categorization

(i) Science and Industrial Product Division

Company offers Scientific & Laboratory Equipments & Accessories & a wide range of Laboratory Tools under the Brand "LABQUEST". Company supplies its Lab Products & Accessories to all leading Pharmaceutical companies & also to R&D Labs and Scientific, Health and Educational institutes in India. Borosil also exports its wide range of Laboratory Products to over 50 countries worldwide.

(a) Laboratory Equipments and Accessories :

(b) Laboratory Tools and Equipments

(ii) Consumer Products Division

Borosil's Consumer Division includes products for daily cooking, serving as well as storage needs of the consumers. In recent times, Borosil expanded its Consumer Division by introducing Opalware, Stainless Steel Kitchenware and Kitchen Appliances.

(a) Glassware

(b) Microwavables

(c) Stainless Steel Kitchenware

(d) Opalware

(e) Appliances

(f) Accessories

(iii) Pharmaceutical Packaging

Borosil provides well designed and tested Glass products for Pharmaceutical Packaging to some of the top Pharmaceutical companies in India and in more than 50 countries through its Subsidiary Klasspack Limited, one of India's leading manufacturers of Pharmaceutical products.

(G) Revenue Segmentation

(i) Segments Revenue

Note - (a) Figures till FY19 are not exactly comparable because of impact of Amalgamation & Demerger.

(b) FY19 figures pertain to Scientific & Industrial Product business and Consumer Product business for the period from October 01, 2018 to March 31, 2019 and Opalware business for entire financial year 2018-19.

Growth of Revenue of Acquired Divisions:

• In last 3 years, the acquired brand under Scientificware i.e. Klasspack has performed well. Revenue of Klasspack grew at CAGR of ~22% in last 3 years.
• Similarly, revenue from Larah brand also grew at CAGR of ~15% in last 3 years.

(ii) Segment Revenue Contribution

(iii) Year-on-Year Segment Revenue Comparison

(iv) Quarter on Quarter Segment Revenue Comparison

* Scientificware : Includes manufacturing & trading of products used In Laboratories and Pharmaceutical Packaging

* Consumerware : Includes manufacturing & trading of products for Domestic Use.

Impact of COVID-19 for the quarter ended 30 June 2020

Company's all sales channels severely impacted. Modern trade (large format stores) remained shut through a good part of the quarter nationwide. Similarly, B2B sales experienced a large drop. The company’s e-commerce initiative over the last couple of years had been garnering some business. While sales declined in this channel as well, though the impact was not as steep.

(H) Trade Channels

In Consumer Products Division, Borosil Limited derives its revenue through 4 Trade Channels. In the First Quarter of FY21, Borosil Limited's revenue through these Channels is -

(i) Distributors & Traditional Retailers

Borosil Limited has 200 Distributors & further 14,000 Tradition Retail Outlets across India. They contributed 50-55% to the Total Revenue in Q-1 of F.Y. 2020-21.

(ii) Modern Retail Chains

Borosil Limited derived 20% Revenue through these Modern Retail Chains in the First Quarter - 2020-21. These are large format store chains.

(iii) E-Commerce

Borosil Limited has its own E-commerce website - Myborosil.com. Company's 8-10% sales come through leading E-commerce Market places.

(iv) Business-to-Business

B2B involves Institutional Customers and Canteen Stores Department. They generated 20% Revenue in Q-1 of F.Y. 2020-21.

Borosil has a pan India network of 200 Distributors &14,000 Independent Outlets.

Moreover, Borosil has 6 regional Warehouses with Floor Area more than 1,50,000 Sq. feet. These warehouses are located at Delhi, Bharuch - Gujarat, Kolkata - West Bengal, Tarapur - Maharashtra, Chennai - Tamil Nadu and Guwahati - Assam.

(I) Manufacturing Facilities

Borosil Limited owns total 7 Manufacturing Facilities in India.

• Borosil's Manufacturing Facilities for both Science and Industrial Products and Consumerware are located at Bharuch, Gujarat and Tarapur, Maharashtra
• Manufacturing Facility for Pharmaceutical Packaging Materials is located at Nasik, Maharashtra
• Borosil's Manufacturing Facilitiy for producing Opalware isat Jaipur, Rajasthan
• LABQUEST Equipment and Tools are manufactured at Pune, Maharashtra located Manufacturing Facility of Borosil.

(J) Manufacturing Capacity

Borosil's manufacturing facility at Nasik, Maharashtra has capacity of producing 500 million Glass Ampoules as well as 240 million Glass Vials annually.

The plant located at Bharuch, Gujarat has overall production capacity of 460 tonnes/day.

Supply Chain

• Due to merger of Vyline Glass Works Limited into Borosil Limited a significant portion of the lab glassware production moved in house.
• The instrumentation range under the brand LabQuest began by getting products manufactured through third parties. Then, based on the growing demand for these products, the Company commenced its own manufacturing for some of these products through its 100% subsidiary, Borosil Technologies Ltd.
• The Pharma Packaging range, under the brand Klasspack is produced at Klasspack’s own facilities at Nashik.
• On the other hand, 'Larah' range of products is manufactured at its Jaipur facility.
• The outsourced manufacturing includes Microwavable products as well as glass and stainless steel storage products.

(K) Market Share

As per Company's own estimates, Market Share of Borosil Lab Glass in India is 64%. On the other hand, estimated Market Share of Microwavables is 60%.

(L) Group Structure

(i) Klasspack Limited

Klasspack Limited is a subsidiary of Borosil Limited. The company is one of India's leading manufacturers of Glass Ampoules as well as Tubular Glass Vials in India. It is located at Nasik, around 180 kms from Mumbai. Borosil acquired Klasspack Limited with 60.3% holding in July 2016. Recently, Borosil increased its holding to 79.53%.

Klasspack is an ISO 15378 certified company and has registered products under the US DMF governed by US FDA for both Glass Ampoules and Tubular Glass Vials, and Canadian DMF (Neutral Glass Tubular Vials and Neutral Glass Ampoules) that is widely used as primary packaging materials by pharmaceutical companies for their life-saving drugs.

Klasspack provides well designed and tested Pharmaceutical Materials for Pharmaceutical Packaging to some of the top Pharmaceutical companies in India and in more than 50 countries which include US, Netherlands, Italy, UK, Israel, Romania, Malaysia and Indonesia.

(ii) Borosil Technologies Limited

Borosil Technologies Limited is the wholly owned Subsidiary of the company, located at Hinjewadi, Pune.

Borosil Technologies Limited produces various Liquid Handling Equipments, Sample Processing Equipments and other Tools, which is offered by Borosil Limited under the Brand "LABQUEST". Thus, this LABQUEST range of laboratory equipments includes Water Baths, Dry Baths, Nitrogen Estimation Systems, Stirrers, Vortex Mixers, Glass care equipment etc.

(M) Significant Ratios

• Debt includes secured working capital loan from bank of Rs. 48.61 crore & a term loan of Rs. 1.17 crore. Total B/S size is Rs. 851.42 crore. Total debt equity ratio reduced from 0.10 for FY19.
• Also, Company's Peak Season is from October to December every year. Thus, high revenue of the company is observed in Q-3.

(N) Investments for Expansion

• Till FY15, Borosil had only LabQuest brand under SIP segment. Then in January 2016, Borosil acquired Hopewell Tableware Pvt Ltd i.e. the brand "Larah".
• Larah brand acquired for Rs. 50 crore.
• Also, during FY16, the company returned Rs. 174 crore to investors as buyback.
• Further in FY17, Borosil acquired 60.3% of Klasspack for Rs. 22.6 crore.
• In FY18, company acquired an incorporated related entity Borosil Technologies Ltd. for Rs. 1.4 Lacs for production of LabQuest product range.
• Further during the year, company invested Rs. 64 crore for increasing manufacturing capacity of Larah products. By this year, Larah could contribute Rs 175 crore of sales increased from Rs 100 crore of sale (which was at acquisition level).
• During FY18, management stated that there will be Rs. 10-15 crore of recurring capex over next few years, including upgradation & repair of Larah factory & Klasspack plant once in 2-2.5 years.
• Then in FY19, Borosil invested Rs 17.43 crore for upgradation of manufacturing facility of Klasspack.
• Also, the company invested Rs. 64 crore towards capacity expansion of Larah plant to Rs 200 crore sales.
• Then in January 2020, Borosil commissioned fulfilment centre next to its plant in Jaipur (Larah facility) for optimization of logistics costs through reduction of inter-warehouse transfers near the manufacturing plants & also in utilizing full-truck loads. The estimated spend is around Rs 22 crore in FY20. The overall estimated expenditure for the facility amounted to Rs 30 crore.

(O) Management Discussion and Concall Highlights

Impact of COVID-19

• Borosil's Manufacturing Capacity at Jaipur, which manufactures 'Larah' Products had taken a planned shutdown for rebuilding its furnace at the end of February, 2020 and was expected to start operations just when the lockdown was announced. Company had built enough inventory before this planned shutdown for uninterrupted supply of products.
• Borosil's Plants at Bharuch and Tarapur which manufacture Lab Glassware and Vision Glasses remained Close between 25th March 2020 and 5th May 2020 and Borosil Technologies plant at Pune remained close from 24th March 2020 to 10th May due to Covid-19 Lockdown.
• Klasspack Ltd remained closed only for a limited period from 22 March to 27 March 2020 as it supplies essential primary Packaging Material to the Pharma industry.
• Company's all Plants and Warehouses has started their operations now. Also, it is expected by the company that 70% to 80% of its Distributors and 60% to 70% of its Retailers have restarted their operations.

Outlook

• Company's main focus is to become an everyday use brand.
• Company expects growth in its CDP segment due to reducing dependence on ordering at the cafeteria or getting meals delivered.
• As per the Management, Borosil's range of Appliances is receiving good response from consumers.
• The outlook of the company is that the market for kitchen appliances is likely to expand faster in near future as in-home cooking is increased due to Corona & it will give an opportunity to Borosil for growth.
• Borosil wants to expand its franchise with reasonable margins in near future.
• Company expects an improvement in Margin by approximately 1% to 2% by rationalization of Cost.
• Moreover, the company aims to extend its reach by about 1,000 to 1,200 outlets a year over the next few years.
• The company also has appointed Distributors to export Lab Glassware to the Markets of Middle East, Africa, South East Asia and the United States.
• Company has no Capex plans for this year as there is no clarity about the Corona & Lockdown situation.
• The view of the Company is that once the Vaccines against Corona may get developed, there will be a significant increase in demand for Vials & Ampoules for such vaccines.
• As per the Management, Company has maintained 60-60% Market Share in both Consumer Products Division and Science and Industrial Products Division.
• In addition, India imports about 70% of the Laboratory Equipment used in the country. Thus, Borosil wants to reduce country's dependency on Imports to cater the need of Lab equipments.

(P) Opportunities and Risks/Concerns

Opportunities

(a) Introduction of New Range of Products

Borosil Limited tries to launch new products line into the Market to fulfill the Consumers needs. Company recently introduced a wide range of Appliances & Stainless Steel Kitchenware. These products received a good response from the consumers as per management.

(b) Downturn in Imports

Due to this Coronavirus pandemic, Imports decreased in last few months. Due to this, dependency on Domestic Market is increasing that will lead the company to new paths of opportunities & will help in gaining Market Share.

(c) Shift in Consumer Preferences

Due to rising consciousness against plastic in the country, there is a distinct shift in Consumer preferences away from plastics. Thus, this has increased the demand for Company's products, as consumers started using more Stainless Steel & Glass products and the company has an opportunity to boosts its sales.

(d) Increasing E- commerce

During the Lockdown period, consumers' dependency on E-commerce has increased. Borosil also has improved its presence in E-commerce in the last few months. It provides an opportunity to the company to increase its Revenue by widening the network through E-commerce channels.

(e) Entry Barrier for Lab Equipment & Klasspack Range

In Lab Equipment and Klasspack range, company enjoys a dominant position in the Market because of a significant barrier to entry for future players.

Risk/Concerns

(a) Competition in Consumer Segment

Borosil may have threat of facing competition in Consumer Products Division not only from Organized players but also from Unorganized players present in the Market, as unorganized players are increasing in the Market, due to low entry barriers.

In Opalware Market, La opala is a significant player. Moreover, there are many established players like Philips, Bajaj, Prestige, LG, Usha etc. in Electronic Kitchen Appliances segment. Thus, the company faces competition from all these players.

(b) Macro Economic Factors

Company may have threat from many Economic factors such as low GDP growth, high inflation, fluctuations in Foreign currency etc. that can adversely affect the demand of the products in the Market and their sale volumes.

(c) Disruption in Transportation Network

Due to Covid-19 Lockdown, transportation network has disrupted and delivery of products and equipments has adversely Impacted. Company may have to face this difficulty for next few months because of extended lockdown in some states.

(d) Increasing E-commerce Players

In last few months, E-commerce players has increased. With this competition in E-commerce sector has also increased as consumers can easily get very similar looking products at cheaper rates and that can result in shifting company's customers.

(e) Downturn In Exports

Exports of the company has affected during this lockdown period and as there is no clarity of future situations due to Corona, company may have to rely on Domestic consumers only for Revenue and Earnings growth.

(f) Return On Investments

Acquisitions entail deployment of capital & may increase the challenge of improving Returns on Investment, particularly in the short run. This is because, integration of operations may take time thereby deferring benefits of synergies of unification.

(Q) Valuation

• ROCE of Borosil is lower than 15%. A return above 15% is considered better for assessing the company as value generation.
• Market Cap on 10 Sept 2020 - Rs. 1,722.3 crore
• Enterprise Value as on 31 March 2020 - Rs. 1768.48 crore.
• Cash & Investments as on 31 March 2020 - Rs. 122.34 crore.
• P/E (using PAT for FY20) - 48.76
• EV/EBITDA (FY20) - 20.24
• Free Cash Flow for FY20 - Rs. (2.32) crore.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications. 

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