Edelweiss Investment Research

Coverage Stock: Borosil Glass Works Ltd. CMP INR 8,803 Target INR 11,856

Performs Beautifully: Market leader and strong brand to drive Rating: BUY Upside: 35%

Borosil Glass Works Ltd (Borosil) is a 50+ year-old brand, a pioneer in specialty glass and a market leader in the microwavable kitchen glassware Praveen Sahay
segment. The company is present in two segments — consumer products division (CPD) and scientific and industrial products (SIP). Borosil has Research Analyst
acquired two businesses in FY16: (a) Hopewell (CPD segment), and (b) Klasspack (SIP divison). Also, restructuring of Borosil’s businesses will result in Praveen.sahay@edelweissfin.com
Gujarat Borosil becoming a 58% subsidiary. Borosil has a strong distribution network of over 200 distributors/10,000 retailers in CPD and a healthy
5,000 active customers and 170 distributors in SIP. Borosil focuses on growth via the organic as well as the inorganic route. Its strong balance sheet Bloomberg: BRSL:IN
and cash surplus affords investment in brand building and acquisitions to supplement organic growth. Further, the recent GST implementation will
support organised players. Increasing market share, a vibrant product portfolio and wide distribution reach should enable Borosil to clock 32% 52-week range (INR): 9,666/ 3,880
earnings CAGR, teeing off healthy cash flows and robust return ratios. At CMP of INR 8,803, the stock is currently trading at 32x FY18E EPS of INR 272,
28x FY19E EPS of INR 311 and 24x FY20E EPS of INR 371. We initiate coverage with a ‘BUY’ recommendation. Share in issue (cr): 0.2

Strong, steady, SIP business should support growth in CPD business M cap (INR cr): 2,045
Borosil’s SIP division has a target market of ~INR 5,000cr and focus on three key segments – laboratory glass, laboratory instruments and
Avg. Daily Vol.
pharmaceutical packaging. The company is a market leader in the domestic lab glass market with 60% -share. With acquisition of Klasspack and 5,000
introduction of LabQuest, Borosil is expected to explore the ~INR 700cr market opportunity in the pharma packaging and lab instrument segments. BSE/NSE :(‘000):
Borosil’s SIP division is expected to grow at 20% CAGR over FY17-20E with entry into a new market of pharma packaging products via acquisition of
Klasspack as well as organic revenue growth of ~16%. Borosil’s CPD has three major focus product businesses – microwavables, storage and
opalware. Borosil is the market leader in microwavable glass products with 60% share and continues to penetrate the market. The storage product
business has reached meaningful sales in the last three years and is expected to double in the next couple of years owing to the opportunity
market of INR 1,000cr. With acquisition of Hopewell, Borosil has entered the opalware market; and significant improvement in Hopewell’s financials
(sales doubled, margin improved, excluding one-off expense in FY17) post acquisition, is a clear indication of Borosil’s strategic focus. Borosil’s
Public, 25.7
strong pan-India distribution network, geographic presence and channel loyalty will lead to scale the consumer business and due to this sales and
distribution synergy, we expect higher throughput and significant margin improvement. Borosil’s CPD revenue is expected to clock CAGR of 19%
over FY17-20E driven primarily by the acquisition of Hopewell - improvement in utilization, introduction of new products and investment in brands.
Promoter,
74.3
Improvement in product mix and backward integration will boost operating margin
We envisage Borosil’s EBITDA margin to jump to 16% in FY20E from 10.7% in FY17 riding multiple levers:
 The change in product mix in favour of consumer-ware is bound to boost margins. Borosil has prudently metamorphosed from B2B to B2C.
 SIP division expected to improve margins on account of consolidation of Vyline Glass Works and diversification in products.
 Utilisation of acquired entities is expected to improve significantly, resulting in operating leverage. 440
390
Outlook and valuation: Consumer and brand focus intact; earnings growth story; initiate with ‘BUY’ 340
Increasing market share, vibrant product portfolio and wide distribution reach amply equip Borosil to clock 32% earnings CAGR over FY17-20E, 290
which in turn is bound to propel healthy cash flows and robust return ratios. We initiate coverage with a ‘BUY’.
240
Year to March
FY16 FY17 FY18E FY19E FY20E 190
Consolidated) 140
Rev enues (INR cr) 415 557 674 827 970 90

Rev growth (%) 27.4 34.2 21.0 22.7 17.3 40

Aug-16

Dec-16
Sep-16
Oct-16
Mar-16

Mar-17
Jun-16

Jun-17
May-16

May-17
Jul-16
Apr-16

Apr-17
Nov-16
Jan-16

Jan-17
Feb-16

Feb-17
EBITDA (INR cr) 22 59 93 130 154
PAT (INR cr) 28 133 69 82 97 Borosil Glass Sensex
P/E (x) 69.8 15.0 32.4 28.3 23.7
EV/EBITDA (x) 94.5 34.9 22.4 15.9 13.5
Date: 12th July 2017
RoACE (%) 0.2 3.1 6.6 9.2 10.0
RoAE (%) 4.5 6.5 8.0 8.5 9.4

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Borosil Glass Works Ltd.

Borosil’s is expected to clock revenue CAGR of 20% over FY17-20E primarily driven by consumer-ware division with the acquisition of Hopewell -
improvement in utilization, introduction of new products and investment in brands. Borosil’s SIP division expected to grow at 20% CAGR over FY17-
20E with the entering to new market of pharma packaging with the acquisition of Klasspack and organic revenue growth of ~16%. We envisage
Borosil’s EBITDA margin to jump to 16% in FY20E from 10.7% in FY17 riding multiple levers to result in a PAT (excluding one off) CAGR of 32% over
FY17-20E.

Borosil SIP division has target market of Higher free cash flow generation &
~INR 5,000cr and CPD have more than lighter balance sheet to help further
Multiple levers for margin expansion
2,500cr opportunity market excluding growth
appliance market

FY17 FY18E FY19E FY20E Proj Multiple

FY17 FY18E FY19E FY20E Business (FY20E) Adj EPS (INR) FY20E
PER (x)
Revenue 557 674 827 970 RoACE (%) 3.1 6.6 9.2 10.0
Borosil - CPD 172.0 35x 6,019
EBITDA 59 93 130 154
EV/Sales (x) 3.8 3.1 2.5 2.2 Borosil - SIP 150.1 25x 3,754
EBITDA Margin 10.7 13.8 15.8 15.9
PAT 43 69 82 97 Guj. Borosil 70.1 20x 1,403
Cash 681.3 681
Value per share (INR) 11,856

PAT CAGR of 32%

over FY17-FY20E to
Entry = INR 8,803
lead to exit multiple
of 32x FY20E P/E

Total
Return of
35%

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Borosil Glass Works Ltd.

We have done sum-of-the-parts valuations to value the company, we have arrived at a target price of
INR 11,856 by assigning 35x/25x/20x FY20E earnings to the CPD/SIP/Gujarat Borosil businesses,
Price Target INR 11,856 respectively, resulting a 32x P/E multiple to Borosil’s consolidated FY20E EPS of INR 371. Borosil’s revenue
is expected to clock CAGR of 20% over FY17-20E driven primarily by the consumer-ware division and
inorganic expansion alongside improvement in utilisation.

Bull INR 14,440 Assuming higher revenue growth in the SIP and CPD divisions at 24% and 22% respectively, we expect
36x Bull Case FY20E EPS Borosil to generate an EPS of INR 396 in FY20E. Assigning a multiple of 36x P/E in FY20E.

Base INR 11,856 Assuming lower revenue growth in the SIP and CPD divisions at 20% and 19% respectively, we expect
32x Base Case FY20E EPS Borosil to generate an EPS of INR 371 in FY20E. Assigning a multiple of 32x P/E in FY20E.

Bear INR 9,186 Assuming even lower revenue growth in the SIP and CPD divisions at 15% and 17% respectively, we
26x Bear Case FY20E EPS expect Borosil to generate an EPS of 349 in FY20E. Assigning a multiple of 26x P/E in FY20E.

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Borosil Glass Works Ltd.

Average Daily Turnover (INR cr) Stock Price (CAGR) Relative to Sensex, CAGR (%)
3 months 6 months 1 year 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
2.4 1.9 1.1 112% 66% 60% 31% 18% 10% 13% 8%

The automation in pharmaceutical – R&D, education and health segments have led to increasing tests and analysis volumes resulting in
Nature of Industry an exponential increase in the requirement for labware glass products. Also, multifactor opportunities are driving the demand for
consumer-ware glass products. We expect this structural advantage to prolong for a few more years.

Opportunity Size The target market for the entire product basket of Borosil’s CPD division/SIP division is pegged at ~INR 2,220cr/INR 4,870cr, respectively.

The company envisages engaging in a two-stage capex for Gujarat Borosil. In the first stage, the INR40-50cr spend for the
Capital Allocation manufacturing process will arise from internal accruals; and in second stage, the capacity increase from 1.2GW to 2.3GW will be funded
(capex of INR 250cr) through mix of debt and equity.

The growth in consumer-ware segments and transition from plastic/steel to glass table ware and storage segments is difficult to predict.
Business Value Drivers

Predictability Also, it is tough to gauge the opportunity size for entry into the export/international lab ware market as well as competition with global
players such as Bormioli, SGD Pharma and Gerresheimer.

The largest player in the domestic lab ware market and expansion in pharmaceutical packaging and lab instruments will continue the
Sustainability growth in the scientific ware division. Also, the strong brand in microwavable and storage consumer goods along with Larah brand in
tableware will boost growth momentum in the consumer business.

The focus on consumer business on the strong base of inorganic growth, backward integration of scientific ware business and exit from
Disproportionate Future non-core assets/investments, will likely ensure that the future performance in terms of earnings growth and return ratios will be better
versus the past as asset turnover and margins should improve.

Business Strategy &

Current focus is ramp up in utilization of acquired entities, distribution channels and market penetration.
Planned Initiatives

Strong visibility of 32% CAGR bottomline growth (including one-off income) along with 520 bp improvement in operating margin from
Near Term Visibility
FY17-FY20E.

To remain one of the biggest glass consumer-ware and scientific-ware players alongside being a dominant solar glass producer with a
Long Term Visibility
big opportunity in the solar power sector.

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Borosil Glass Works Ltd.

Focus Charts – Story in a nutshell

Hopewell – Opalware to drive growth

Borosil’s CPD division – Opportunity ahead Distributor network – Healthy channel mix
(contributions move to ~40% from ~10%)
25% 90%
12
Glass 80%
20% Microwavables 87 105 126 151 70%
Tumblers 60%
15%
Growth %

50%
40 48 55 66 73
Melamine 103 40%
10% 130 153 181 213 30%
Opalware
20%
5% 10%
Tea/Coffee (incl
ceramicware) 0%

FY18E

FY19E

FY20E
FY11

FY12

FY13

FY14

FY15

FY16

FY17
0% Large Formet Ecommerce Retailers + others
-50 0 50 100 150 Storage Stores
Borosil CPD Revenue (INR cr) Consumerware (BGWL) Hopewell Borosil - CPD La Opala

Borosil’s SIP division – Huge opportunity ahead Borosil’s SIP division – Continues to grow Borosil’s SIP division - Strong entry barriers
14% 300 50%

12% Lab Glass (Domestic)

250 40%

10% 200 30% SIP Division - Strong Barriers to Entry

Lab Glass
Growth %

8% (International) 150 20%  Single supplier convenient for laboratory for

Meeting wide product multiple critical yet low ticket SKUs
range customer need
 Not easily replicable by competition
6%
100 10%
Lab instruments
 Investment in inventory, 6 warehouses & dealer
4% (Domestic) Quick & on-time delivery of network
50 0% SKUs range  Well managed Inventory more than offsets loss of
sale
2%
Pharma Packaging - -10%
(Tubular Glass)  Quality control across diverse disciplines –
FY18E

FY19E

FY20E
FY11

FY12

FY13

FY14

FY15

FY16

FY17

Products meet International

0% quality benchmarks
Pharmaceutical, Food & Soil testing, Microbiology,
Biotechnology etc.
(50) - 50 100 150 200
Borosil SIP Revenue (INR cr) Scientificware Revenue % growth
Strong customer  Low propensity of customer to switch
relationships

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

I. Consumer Product Division: Expanding from microwaveable Borosil’s CPD: Initiatives to grow faster vs sector
glass to storage,tableware and appliances
New product
Growth coming from sector drivers capabilities
- New product
Strong channel Investment in brand
range has received
Borosil is the gold loyalty building
wide market
standard on quality – Proven by quick – Few established
acceptance
Lifestyle change acceptance of brands in the
– New Products
towards convenience Rise of the middle Larah category
(introduced in last 3
& improved class aspirational Opportunities in years) share of Total
presentation - customer base - Focus multiple distribution
on hygienic & healthy Innovation possibilities Sales ~20%
Upgrading from steel channels (E.g.:
products, movement in product categories
& unorganized / Modern Retail Outlets,
unbranded market from plastic to glass E-commerce etc.)
towards premium
products

Revenue growing
400 100%

300
Total opportunity market size – CPD segment
200 50%
The target market of the entire product bascket of the CPD division is pegged at
~INR 11,220cr. 100

- 0%
80 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Glass Microwavables
400 440 Consumerware % growth
300 1,000
Tumblers
300
Appliances
Hopewell – Opalware to drive growth (contributions move to ~40% from
Melamine
~10%)
Opalware
12
Tea/Coffee (incl
87 105 126 151
ceramicware)
Storage
40 48 55 66 73 103
9,000
FY11 130 153 181 213

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E
Consumerware (BGWL) Hopewell

Source: Company, Edelweiss Investment Research

Source: Company, Edelweiss Investment Research
Note: Value in INR cr

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Borosil Glass Works Ltd.

Borosil’s CPD division – Opportunity ahead The size of the organised opalware market in India, of more than INR
25%
400cr (excluding ~INR 700cr/INR 1,000cr of Bone china/Steel market) , is
20%
Glass Microwavables dominated by La Opala with revenue of INR 250cr; and the company
foresees an opportunity for a second player to come in and grow this
Growth %

15% Tumblers

10% Melamine
category by investing and growing Larah into a strong brand, the target
5%
being customers with daily usage needs.
Opalware
0% Tea/Coffee (incl ceramicware)
-20 0 20 40 60 80 100 120 In FY17, Larah recorded revenue of INR 87cr (near double since its
Storage
Borosil CPD Revenue (INR cr) acquisition) and EBITDA was around INR 1cr. The EBITDA was lower due to
INR 11cr expenses towards investments in advertisement and sales
Source: Company, Edelweiss Investment Research
promotion (compared with ~INR 2cr in FY16), INR 5cr towards one-time
claims and write‐offs pertaining to the period prior to acquisition and
Storage products: Growth driver
~INR 4cr write-down of stock valuation due to increase in production
The company has three key focus product businesses – microwavables, storage
efficiency. The operating margin has improved to ~18% for FY17
and opalware. The storage product business has attained meaningful sales in
excluding one-off expeneses.
the last three years and is expected to double in the next couple of years. We
foresee a huge opportunity for the glass storage business if we consider the steel
The company’s strong pan-India distribution network, geographic
and plastic storage market, which is around INR 5,000cr, and of this, around 20%
presence and channel loyalty will lead to scale the consumer business
is the organised market. Thus, even if we consider the opportunity size of merely
and due to this sales and distribution synergy, a higher throughput and
the organised segment, i.e. the INR 1,000cr opportunity, this is by itself a huge
significant margin improvement is expected. The company also has
one for Borosil. The company is adopting measures such as increasing
plans to expand capacity with a new furnace and other machinery by
distribution channels, creating more health awareness compaigns, focusing on
H2FY18 with capex ~ INR 55cr. This measure is expected to enhance sales
product development (i.e. using scientific glass for CPD storage products which
by 50% with yield improvement and reduction in wastage. Further, the
is comparatively tougher), increasing presence in the e-commerce space
company has plans to create additional warehouse space, which will
(currently merely 6% of sales and has a target to reach 20%) and also started
optimize truck utilization by combining Larah and other Borosil products.
own web store.
After acquisition, Borosil has reduced the price differential between
Larah and the competitor from a 30% discount to 10%. The long term
Inorganic growth and expansion
objective of the opalware business is to record INR 1,000cr sales
Hopewell acquisition (Larah brand)
On January 29, 2016, the company acquired 100% equity share in Hopewell
Tableware Pvt Ltd. (Hopewell), marketing its products under the brand ‘Larah’.
Hopewell Tableware Pvt. Ltd. was established in CY10 as a joint venture
between Mr. Swapan Guha (recipient of the Padma Shree award for his
contribution to the ceramic industry) and Shri Prem Singh Bajor. With Larah, the
company has gained entry into the fast growing opalware market in India
under which it sells microwavable, light, strong, chip resistant opal dinnerware.

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Borosil Glass Works Ltd.

Entire process of cooking and serving

Prepare Cook Serve Store Anti-dumping duty to help gain market share
The Indian government has imposed anti-dumping duty on Chinese
porcelain and other ceramic-ware including bone China. This measure
Cut Chop Grind Mix Cook Bake Serve Store Reheat will help Borosil to increase sales of opal glassware as the price points of
Chinese porcelain and bone China will increase, which will likely move
customer sentiment in favour of opalware.
Source: Company, Edelweiss Investment Research

CPD – Sales through major modern trade partners
The company conducts sales through all major modern trade channel partners
viz. Big Bazaar, D-Mart, Reliance Retail, Walmart, Metro, Lifestyle, HyperCity etc.
and some institutional customers such as Samsung, LG, Whirlpool etc who
undertake cross promotional sales along with Borosil’s product range. Sales
through this channel account for ~30% of CPD sales.
Borosil also sells its products through various E-commerce platforms like its own
Website, Flipkart, Amazon etc. Sales through E-commerce platforms account for
~ 6% of CPD sales and target to reach 20%.
The anti-dumping duty announced in 2011 for a period of five years was
extended by a year and is now valid until August 2017. The management
is hopeful that this duty will be extended for another four years. This
notwithstanding, Borosil is yet confident of surviving in the absence of
such a duty owing to its robust distributor and retailer network apart from
strong brand recall.
CPD – Key modern trade partners

The consumer division has a distribution network of 200 dealers and 10,000
retailers comparable with 200 distributors and ~12,000 retailers for La Opala.
And is expected to increase its reach to ~12,000 retailers and has plans to
increase large format sales in the forthcoming years.

.
Distributor network – Healthy channel mix
100%
80%
60% Source: Company, Edelweiss Investment Research

40%
20%
0%
Large Formet Stores Ecommerce Retailers + others

Borosil - CPD La Opala

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

II. Scientific & industrial products (SIP) division Borosil’s SIP division – Huge opportunity ahead
14%
Opportunity Lab Glass (Domestic)
12%

10%
Lab Glass (International)

Growth %
8%

Offers Scientific & Used in Pharma, Markets to scientists Lab instruments (Domestic)
6%
Laboratory Biotechnology, Introducing (end users) as
equipment Microbiology, Food & Laboratory tools & consumers of Lab
4% Pharma Packaging (Tubular
- Glassware, Soil equipment under the products Glass)
Instruments, Liquid testing, Educational brand "LABQUEST" - Not a typical B2B / 2%
handling systems Institutions etc institutional business
0%
(50) - 50 100 150 200
Borosil SIP Revenue (INR cr)

Source: Company, Edelweiss Investment Research

The target market of entire product basket of SIP division is pegged at ~INR
5,000cr. The domestic business expected to grow at ~12% and the international
lab glass is expected to clock ~2% growth every year. The major revenue
contribution is from pharma companies in Borosil’s SIP division.
Market opportunity – SIP division
Borosil’s SIP division – continues to grow
Borosil’s SIP division focuses on increasing its product range with
diversification in its segments. Currently, 60% of SIP sales arises from the
sales of lab glass to pharmaceutical sectors. Thus, to reduce its revenue
concentration, the company is diversifing towards different product
offerings e.g. lab instruments, HPLC vials, packaging etc.

INR 220cr
300 50%
INR 150cr INR
Lab Glass (Domestic) 250 40%
500cr
200 30%
Lab Glass
(International) 150 20%

Lab instruments 100 10%

INR 4,000cr (Domestic)
50 0%
Pharma Packaging
(Tubular Glass) - -10%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Scientificware Revenue % growth (RHS)

Source: Company, Edelweiss Investment Research Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

Inorganic growth – Klasspack acquisition Exploring growth opportunity

Borosil has acquied Klasspack Ltd. to enter the pharma packaging (tubular Borosil is working on the opportunity areas shown below to increase
glass) market which is pegged at ~INR 500cr. Klasspack Ltd has a market share growth
of ~6% currently and this is expected to increase in the forthcoming year.

Growth in End User Industry Market share gain

The The company acquired 60.3% equity shares in Klasspack Pvt Ltd., a Nasik
based supplier of glass ampoules and tubular glass vials. Hitherto Borosil was
marketing lab glassware to pharmaceutical companies for their research labs • Growth in the customer
• Import substitution
industries in India (Pharma)
and quality control lab requirements. It complements Borosil’s analytical vials’
range and currently, there being only one strong player viz. Schott Kaisha
operating in this segment, and the product being a raw material for the pharma Growth
Opportunity
Industry, it provides its pharmaceutical customers, a credible second alternative
for their packaging needs. The revenues in FY16 were INR 28cr and for August Inorganic opportunity Export
16-Mar’17 was INR 20.5cr with EBITDA of INR 2.6cr. The company expects a lead
time of 6-12 months to convert a customer to a purchaser in this segment
because the Customers undertake a lot of testing and certification so that it • New product to same
• Exports to ME/SEA/Africa
customers (LabQuest)
adheres to stringent quality benchmarks. The company is dealing with all
leading players in the Pharma Index viz. Cipla, Mylan, Lupin, Ranbaxy etc. for its
product range.
Source: Company, Edelweiss Investment Research

Borosil SIP division - Revenue contribution

100%
21 32
90% 28 45 60
80%
70%
60%
50% 76 75 78 87 102
139 161
40% 119 187 217
30%
20%
10%
0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Scientificware (SIP) Klasspack

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

SIP division - Strong barriers to entry Borosil’s SIP division – Key customers
Borosil’s SIP division has around 5,000 active customers and 170 distributors

SIP Division - Strong Barriers to Entry

 Single supplier convenient for laboratory for

Meeting wide product multiple critical yet low ticket SKUs
range customer need
 Not easily replicable by competition

 Investment in inventory, 6 warehouses & dealer

Quick & on-time delivery of network
SKUs range  Well managed Inventory more than offsets loss of
sale

 Quality control across diverse disciplines –

Products meet International Pharmaceutical, Food & Soil testing, Microbiology,
quality benchmarks Biotechnology etc.

Source: Company, Edelweiss Investment Research

Strong customer  Low propensity of customer to switch
relationships

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

III. Strong brand and wide network of channel partners
Borosil enjoys strong brand equity in both the segments and has a wide network
of distributors and retailers/clients which envisages sustained growth momentum
and margins. The consumer division has a dirtribution network of 200 dealers and
10,000 retailers comparable with 200 distributors and ~12,000 retailers for La Opala;
and this number is expected to increase its reach to ~12,000 retailers with plans to
increase large format sales in the forthcoming years. Similarly, SIP division has wide
network of 5,000 active clients and ~170 distributors.
Sales channel mix
Large Formet
Stores
20%
IV. GST implementation could support organized players
Implementation of GST will support organized players enabling them to
gain market share. To this end the company has plans to spend INR 20cr to
build a new warehouse in Jaipur to cater to its north India business in CPD.
The warehouse expansion will help optimize logistics and will also aid Borosil
to reduce the amount of stocks which need to be kept in different
locations. Borosil’s products come under the 18% GST category; and
consumers shifting from the unorganised to the organised will benefit
Borosil particularly in the CPD business.

Ecommerce
7%

Retailers + others
73%

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

V. Restructuring of business to bring synergies, whilst monetization
of non-core assets should uplift RoCE
In order to restructure the business and reduce cross holdings, the company has
proposed to merge the acquired company – Hopewell, Vyline Glass Works Ltd
(this is a promoter company, that conducts third party manufacturing for Borosil),
and Fennel Investments & Finance Pvt Ltd . The restructuring would reduce related
party transactions, reduce cross holdings, introduce cost synergies and simplify the
structure. Further, the company has started monetizing its non-core assets, that
coupled with the earnings upmove will likely uplift RoCE.
Rationale for the transaction are:
• Reduction in related party transactions
• Reduction in legal and regulatory compliances
• Reduction in cross holding and simplicity of structure
• Synergies of business under a single entity by reduction in
administration, operational and marketing costs, greater administrative
efficiency and optimum utilization of resources.
• IND AS framework

Exit from non-core business

As per our calculations, shareholders will lose ~3% effective share in Borsosil,
The company has reported a one off gain of ~INR 90.9cr in FY17 from sale of non-
while gaining 25.4% effective share in Vyline Glass Works, ~12.4% effective
core assets. The Municipal Corporation of Greater Mumbai has acquired land
share in its associate company, Fennel Investments, and ~3.35% effective
from Borosil. This was surplus land, which the company had on its books and this
share in its subsidiary, Gujarat Borosil. We expect the merger swap ratios to
has been a part of Borosil’s strategy to reduce the number of non-core assets in its
be beneficial for the shareholders of Borosil Glass Works.
books and generate cash, which can then be used for its business activity.

The company has proposed a draft scheme of merger with its related companies
as advised by PwC, the valuation was done by SSPA & Co. and the valuation
report was prepared by Keynote Corporate Services Pvt Ltd.

• Hopewell Tableware: A 100% subsidiary in the consumer products business.

• Vyline Glass Works Ltd, a promoter held company and 3P (Production,

Preparation and Process) manufacturing company producing SIP and CPD
products solely for Borosil. Out of total purchases of INR 130cr for Borosil,
purchases from Vyline amounted to INR 76.2cr.

• Fennel Investments, an associate company with cross holdings.

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Borosil Glass Works Ltd.

Shareholding
On Paper Effective

Pre Post Pre Post

Promoter 66.80% Promoter 74.60% Promoter 70.91% Promoter 74.60%

Borosil Public 27.70% Public 25.40% Public 28.38% Public 25.40%

Fennel 5.37%

Hopewell Borosil 100% Borosil 100% Borosil 100% Borosil 100%

Promoter 45.85% Borosil 100% Promoter 86.66% Promoter 74.60%

Fennel Borosil 45.85% Public 13.01% Public 25.40%

Vyline 8.30% (Through Borosil)

Promoter 100% BOROSIL 100% Promoter 100% Promoter 74.60%

Vyline
Public 25.40%

Promoter 16.57% Promoter 16.57% Promoter 63.18% Promoter 60.12%

Public 25.05% Borosil 58.38% Public – Borosil 11.48% Public – Borosil 14.83%
Gujarat Borosil
Fennel 33.13% Public 25% Public – Guj. Borosil 25.05% Public – Guj. Borosil 25.05%

Borosil 25.25%

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

Liquidating non-core assets
• The company surrendered a vacant land admeasuring 4,237 sq mt in Andheri
(East), Mumbai upon reservation by MCGM in their development plan for a
recreation ground against compensation of INR 94.44cr out of which it is
required to pay to MCGM INR 3.56cr towards expenses. The company
accounted for an after tax extraordinary gain of INR 87.1cr for this transaction.
• The company is also reducing its non-core non-trade investments.
Land sold in FY11; Plans to sell its flat in Samundra Mahal
The company sold its Marol property for a total consideration of INR 830cr.
After paying income tax (MAT) of INR 159cr, meeting all expenses
pertaining to the said deal, repaying loans and payment of interim
dividend of INR 11.55cr with tax thereon, the company is left with a fund of
nearly INR 600cr. The company also has plans to exit from its non-core
investments such as the 1,706 sq ft, three-bedroom duplex apartment in
Samudra Mahal etc.

Particulars (INR Cr) FY15 FY16 Fund details (INR cr) – Received from land sale (FY11)
Equity shares- Hindustan Composites Ltd. 25.6 0 Received 830
Preference Shares- Ravindranath GE Medical Tax (159)
10 0
Associates
Quoted and unquoted debentures 26.2 7.6 Interim dividend (12)
Tax free bonds 60.5 15.3 Borrowings & other liabilities (59)
Property 5.0 5.1 Net received 600
Others 48.0 45.0
Uses of Fund
Total 175.3 72.9
Buyback (in FY13 & FY16) (331)
The company utilized the cash flow generated from this sale to fund its inorganic Flat in Samudra Mahal (21)
expansion by acquiring 100% equity shares in Hopewell Tableware Pvt Ltd. worth Inorganic expansion (54)
INR 27.13cr and 6% optionally convertible non-cummulative redeemable
preference shares in Hopewell for INR 22cr. Other investment (113)
Property bought (45)
Dividend (36)
Total (600)

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Borosil Glass Works Ltd.

VIII. Gujarat Borosil Ltd (GBL) – Solar energy play
GBL is engaged in low iron solar glass production for application in the solar power
sector. Solar Photovoltaic market has faced tough times internationally in view of
the extraordinary capacity increase in China since 2011, resulting in an
international market crash. In India, the present Central Government has given
enormous momentum for the use of solar power. The objective of achieving 100
GW of solar energy is now proposed to be realized by 2022.
Gujarat Borosil will become a 58% subsidiary after the scheme of amalgamation.
Gujarat Borosil has also posted healthy results in the previous year with an EBITDA
margin of ~22% on net sales of INR 183cr. We foresee big momentum for solar
energy in India and the Union Budget has reduced customs duty on solar glass,
but has increased the countervailing duty (CVD), As a consequence, Gujarat
Borosil benefits as it will get input tax credits. Previously, Gujarat Borosil had an
inverted tax structure, which restricted the company from getting the credit of
input taxes. Now, since Gujarat Borosil is able to get tax credits, the profitability of
the company per year will improve by about INR 3.5cr.
GBL is the only producer of solar glass in the country and it is constantly evaluating
growth in this sector in the domestic market to remain a dominant player. Its
natural advantage of offering a shorter lead time is helping it to secure business.
With patterned glass in exclusive designs being an attractive product, it is adding
newer applications in the architectural glass segment and expects to continue to
grow in niche segments.
Competitive advantages (format)
• Market leadership in Indian solar glass market
− Cost competitive with China’s supplies
• Preferred brand of high quality solar glass
− Lowest iron content, world’s only antimony-free glass
− Anti-reflective coating
− Superior light transmission and highest glass efficiency
− High resistance to potentially induced degradation
• State-of-the-art manufacturing with strong testing and R&D
infrastructure
− High degree of product innovation to drive down total cost of
ownership for end customers
− Implementing a facility for tempering thinner glass that has growing
domestic and international demand
• Filed for anti-dumping duty; the investigation is currently ongoing.
Key customers – Domestic

In solar glass production,there are two parts to the manufacturing process – first, to
melt the raw material and make flat glass; and second, to make the glass tough
i.e. to strengthen it by heating and coating it with an anti-reflective coating. GBL’s
toughening capacity was not commensurate with its manufacturing capacity. So,
GBL is allocating INR 60cr as the initial capex to H1FY18 to increase the
downstream toughening capacity to cater to the entire production. This is
expected to improve yields and add ~15% to 17% to revenue in FY18. The other
initiative is to reduce the average thickness of solar glass to 2mm from the current
Source: Company, Edelweiss Investment Research
3.2mm without sacrificing product quality or efficiency. So, this is expected to
increase business volume and enhance profitability. The total capex will be ~INR
225cr.

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Borosil Glass Works Ltd.

Key customers – International EBITDA & EBITDA margin

90 30
80
25
70
60 20
50
15
40
30 10
20
5
10
0 0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E

EBITDA (INR cr) EBITDA margin (%) (RHS)

PAT & PAT margin

50 15%

40
10%
Revenue growth driven from efficiency and capacity increase 30

20 5%
350 45%
40% 10 0%
300
35%
250 0
30% -5%
200 25% -10
150 20%
-20 -10%
15% FY13 FY14 FY15 FY16 FY17 FY18E FY19E
100
10%
50 5% PAT (INR cr) PAT margin (%) (RHS)
0 0%
FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, Edelweiss Investment Research
Net Sales Sales growth (%) (RHS)

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

Valuation and peer comparisions

We expect healthy growth in operating cash flows with improvement in margins across businesses. We expect 20% CAGR in revenue over FY17-20E and 520bps
improvement in margin to result in 32% earnings CAGR over FY17-20E. We believe that the current level is attractive for the medium to long term investment
horizon with the prospect of sales growth and RoCE improvement. At CMP of INR 8,802, the stock is currently trading at 32x FY18E EPS of INR 272, 28x FY19E EPS of
INR 311 and 24x FY20E EPS of INR 371. We have done sum-of-the-parts valuations to value the company, we have arrived at a target price of INR 11,856 by
assigning 35x/25x/20x FY20E earnings to the CPD/SIP/Gujarat Borosil businesses, respectively, resulting a 32x P/E multiple to Borosil’s consolidated FY20E EPS of INR
371. We have valued Borosil’s SIP business at 25x FY20E earnings, versus global peers that are trading at an average of 20x to 25x forward earnings. Given the
huge opportunity in the Indian pharmacetical labware, glass instrument and primary packaging segments and Borosil’s positioning as one of the largest players;
with the improvement in return rations on account of lower requirement of capital employed and further improvement in margins (owing to expansion in product
mix) we believe assigning 25x the forward multiple will be a fair multiple. Similarly, we have valued Borosil’s CPD business at 35x FY20E earnings, versus its domestic
peers that are trading at an average of 33x to 35x forward earnings.

Peers Comparision – Valuation SOTP valuation

Company CY16 CY17 CY18 CY19 Adj EPS Projected
Business (FY20E) FY20E
SHANDONG HUAPENG GLASS CO 67.9x 56.0x 42.0x 35.6x (INR) Multiple PER (x)
SHENZHEN BEAUTY STAR CO 134.9x 72.5x 46.7x 101.1x Borosil - CPD 172 35x 6,019
SHENGXING GROUP CO LTD 55.5x 49.5x 41.3x 32.6x Borosil - SIP 150.1 25x 3,754
LA OPALA RG LTD* 48.3x 51.8x 37.1x 28.9x Guj. Borosil 70.1 20x 1,403
PIRAMAL GLASS CEYLON PLC 11.3x 9.8x 7.2x 4.5x Cash 681.3 681
BOROSIL GLASS WORKS LTD* 69.8x 15.0x 32.4x 28.3x
Value per share (INR) 11,856
XINYI GLASS HOLDINGS LTD 10.1x 8.9x 8.1x 8.1x
CSG HOLDING CO LTD 12.7x 9.2x 8.0x
ASAHI GLASS CO LTD 23.6x 16.1x 15.6x 14.7x
COMPAGNIE DE SAINT GOBAIN 18.6x 16.0x 13.9x 12.3x
Average 45.3x 30.5x 25.2x 29.6x
Median 36.0x 16.1x 24.0x 28.3x
Note: * FY

Huge opportunity market and improvement in profitability justify higher valuation

CMP MCap Sales (INR cr) EBITDA margin (%) PAT (INR cr) RoCE (%) PER (x)
(INR cr) (INR) (INR cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
La Opala 512 2,844 263 315 380 33.2 37.5 38.2 55 77 98 21.7% 25.3% 26.5% 52 37 29
BOROSIL 8,803 2,033 557 674 827 10.7 13.8 15.8 43 69 82 3.1% 6.6% 9.2% 15 32 28
Source: Bloomberg, Edelweiss Investment Research
:

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Borosil Glass Works Ltd.

Key Management

Name Designation Profile

Mr. B. L. Kheruka has 53 years of experience in various functional areas of business and industry. He has been an Executive Chairman at
Borosil Glass Works Limited since December-2010 and has served as its Chairman. Previously, he served as the Managing Director of Gujarat
Executive Borosil Limited from August 1, 2007 to March 17, 2011. He serves as non Executive Chairman at Gujarat Borosil Limited. He has been a Non
Mr. B. L. Kheruka
Chairman Executive Director at Gujarat Borosil Ltd since December-1988. He serves as a Director of Window Glass Ltd., Gujarat Fusion Glass Ltd.,
General Magnets Ltd. and Croton Trading Limited. He served as Executive Chairman of Gujarat Borosil Limited from August 1, 2005. Mr.
Kheruka is a B. Com Graduate.

Mr. Shreevar Kheruka, grandson of Mr B. L. Kheruka, has been the Managing Director and Chief Executive Officer of Borosil Glass Works
Managing since August-2012. He has been working in the company from June-2006, first as Vice President and then as Chief Financial Officer. He has
Mr. Shreevar
Director & obtained dual degrees in Bachelor of Science and Economics with specialisation in Entrepreneurship & Finance and Bachelor of Arts in
Kheruka
CEO International Relations from Wharton School and the College of Arts & Sciences of the University of Pennsylvania, United States of America
(USA).

Source: Company, Edelweiss Investment Research

Key Risks
• Failure of acquisition – Not able to exploit the “Borosil” brand, distribution reach and innovation.

• Unfavorable government policies could affect sectoral growth: India imposed an anti-dumping duty on the import from China and UAE for five years,
effective from August 2011. Any reversal or non-continuation of the same by the Government of India may negatively impact the profitability of the
company.

• Rising competition from organised players e.g. CELLO and unorganised players. The tableware industry is dominated by small unorganised players. Though,
Indian consumers are gravitating towards the organised segment that offers branded products, any increase in the competitive intensity from the
unorganised segment may be detrimental for the company.

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Borosil Glass Works Ltd.

Business Overview
Company Brief
Borosil Glass Works Ltd. (BOROSIL) is the market leader for laboratory glassware and microwavable kitchenware in India. The company operates through two segments. The
company operates primarily in 3 business segments (post restructuring of subsidiary, Gujarat Borosil): Scientific and industrial products division (~28% of revenue), Consumer products
division (~37% of revenue) and Gujarat Borosil (~35% of revenue).

The company has 4 segments.

1) Lab ware
Business Model 2) Consumer ware
3) Pharma packaging
4) Solar glass

The company is the leader in laboratory glassware and microwavable kitchenware segments in India and is also a key player in the glass
Strategic Positioning tableware market and the domestic pharmaceutical packaging segment. Borosil has also entered into the international lab ware market,
recently.

 Brand with a 50+ year legacy

 Consumer product division: Entire product range from microwaveable glass to storage, tableware and appliances
Competitive Edge
 Diversified product portfolio

The company is focusing on the high-margin consumer-ware Opalware market which it entered, with the Hopewell acquisition; it is also exiting
Financial Structure
from non-core assets. The operating margin is expected to improve

Key Competitors La Opala, Year, Ocean Glass

Industry Revenue Drivers Opportunities across the domestic market (Consumer and scientific glass market) as well as in the international pharmaceutical segment

Shareholder Value
The company will likely record an EPS of INR 371 in FY20E. A 32x valuation should give a price target of INR 11,856 which offers an upside of 33%.
Proposition

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Borosil Glass Works Ltd.

Borosil Glass Works - SWOT Analysis

Strengths Weakness

• Strong Distribution Channel & Brand Name • Demand can be adversely impacted by a shift
in customer and consumer preferences
• Expansion through inorganic way and new
product lunches • Low entry barriers, there could be an increase
in the number of competing brands
• Market leader in lab glassware &
microwavable kitchenware • Counter campaigning and aggressive pricing
by competitors- May lead to Disruption to its
market share
Growth
Opportunity

Opportunities Threats

• Competition from organised sector in trading of

• Pick up in consumption may create a virtuous cycle
of higher demand-improved capacity utilization –
higher manufacturing investment – higher job and
income growth – higher consumption
• Pay revision by the Central Government
• Demographic shift
scientific and microwave glassware.
• Use of Plastic as a substitute
• Substantial erosion of global demand
• Uncertainties in Government policies

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Borosil Glass Works Ltd.

Scientific and industrial products (SIP) division

Borosil’s entire range of scientific and laboratory glass products includes laboratory glassware, instruments, disposable plastics, liquid handling systems and
explosion proof lighting glassware. The company’s products have acceptability in over 2,000 different products and applications, in areas as diverse as
microbiology, biotechnology, photo printing, process systems and lighting. Borosil has a strong distribution network of 170 dealers country-wide. The range of
laboratory glassware includes nearly all the items items required for general laboratory usage. The company’s expertise in melting and forming low expansion,
chemically inert borosilicate glass for over 50 years has made its products preferrable globally.

Due to BOROSIL brand acceptability and reputation, leading pharmaceutical companies, R&D labs scientific, health and educational institutions have been
loyal customers for the last 50 years. As a testament of its quality, to get ISO 9001 certification, it is recommended that a laboratory use BOROSIL certified A-class
glassware. Its apparatus for measurement of volumes rank amongst the most accurate in the world.

The company has a 60% market share in the laboratory glassware market in India. In FY17, the company acquired 60.3% stake in Klasspack Ltd, which is a leading
manufacturer of glass ampoules and tubular glass vials for pharmaceutical packaging. It complements Borosil’s analytical vials product range and provides a
viable second alternative to its pharmaceutical customers for their packaging needs. The company has a 10% market share in HPLC vials market in India. Under
its LabQuest brand, the company has recently introduced a range of laboratory tools and equipment.

Product range – Laboratory glassware, volumetric flasks, laboratory bottles, pipettes Key customers

Source: Company, Edelweiss Investment Research

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Borosil Glass Works Ltd.

Consumer products division (CPD)

The consumer products division has a wide array of products in the microwavable, flameproof kitchenware range as well as in glass tumblers supported by a
strong distribution network of over 10,000 retail outlets. Borosil’s consumer products fulfill all cooking, serving and dining needs. To cater to changing lifestyle
needs, the company also offers a range of small appliances which include mixer grinders, juicers, salad cutters, oven toaster grillers, pop up toasters and
induction rice cookers. Major product categories offered by the company include glass microwavables, tumblers, appliances, opalware, tea/coffee crockery
and storage products.

In FY16, the company acquired Hopewell Tableware Pvt Ltd. which manufactures a range of fine opal glass dinnerware under the brand name ‘Larah’. The
Larah range is known for its immaculately designed products with an impeccable finish. Borosil’s expertise in glassware has made the products stronger and chip
resistant. The company has a market share of 60% in the glass microwavable market.

The glassware products market has been one of the rapidly growing markets in the Indian kitchenware industry.

The glassware products market has been one of the rapidly growing markets in the Indian kitchenware industry.

Category Market Size (INR cr) Market Growth (%)

Glass Microwavables 80 10%
Tumblers 440 10%
Appliances 9000 10%
Opalware ~400 20%
Tea / coffee 400 (incl. ceramicware) 15%
Storage 1,000 15-20%
Melamine 300 15%
Source: Company, Edelweiss Investment Research

Some of the leading glassware manufacturers operating in this market are:

• Borosil Glass
• Yera
• Ocean Glass
• La Opala

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Borosil Glass Works Ltd.

Major brands in Opalware Acquisition details

LARAH BY BOROSIL
Larah dinnerware sets are available in two series - Opalglass and Oriole.
• Larah Opalglass — Opalglass is a specially treated glass with impurities making
it look white in colour due to the diffusion of light. Dinnerware sets made from
Opalglass come with attractive designs and finish. They are dishwasher safe,
made from 100% food grade material, chip resistant and microwave safe.
• Larah Oriole — Dinnerware sets in this series are made from melamine, a
thermostat plastic that can be moulded into any desirable shape and form.
The material is lightweight and durable. Oriole dinnerware sets comprise
saucers, plates, dishes and trays. They come in eye-catching designs and
shapes, and make use of colour and designs to give a fancy finish.
LA OPALA RG LIMITED
La Opala RG (LORL), the largest organised crockery player in India, is engaged in
the manufacture of opalware and crystalware products. La Opala basically sells
via three brands- 1)La Opala; 2) Diva further divided into: a) Ivory and b)
Classique collections; and c) Solitaire. The company’s products are spread across
the value chain where Diva and Crystal - its high-end brands - have a distributor
network of around 200-strong, covering all major towns of India. The company
also channelises its products through modern retail stores. There are ~12,000 retail
touch-points through which the products of LORL are sold.
Hopewell Tableware Private Ltd under Borosil CPD
The company invested approximately INR 50 crore towards acquisition of
Hopewell Tableware Private Ltd. Hopewell Tableware Private Ltd (HTPL)
was established in 2010 and was promoted by Mr. Swapan Guha (a
technocrat and Padma Shri awardee) along with Mr. Premsingh
Shekhawat (founder and chairman of Bajore group of companies) and
others. The company initially started with manufacture of melamine in
2011-12. Later it entered into the opalware business and decided to set up
an opal glass manufacturing facility due to greater opportunities.
Melamine production was suspended and only opal glass was being
manufactured from 2013-14. In January 2016, the earlier promoters exited
the company and entire stake was acquired by Borosil Glass Works Ltd
(BOROSIL). HTPL’s manufacturing unit is located in Rajasthan and is
equipped with a furnace capacity of 40 metric tonnes per day (MTPD),
two spinning lines and a pressing line.
Brand Larah
• Lifestyle Opal dinnerware
• Microwave, Light, Strong, Chip-
resistant for daily use
Targets mass market customers Revenue FY17: INR 87 crores
for daily use (net of excise duty)
Acquisition
of
Hopewell
(Larah)

Market dominated by a single

player Brand revenue INR 48 crores in
• Opportunity to invest & grow FY16
Larah into a strong brand

Sales and distributor channel

synergy – higher throuhput

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Borosil Glass Works Ltd.

Klasspack Pvt Ltd under Borosil’s SIP division Borosil Glass Works Ltd: Proposed Scheme of Amalgamation
Klasspack, one of India’s leading manufacturers of primary packaging materials –
glass ampoules and tubular glass vials of USP type I – for pharmaceutical Resultant Holding Structure
companies for their life saving drugs. Borosil Glass Works has acquired a 60.3%
stake in Nashik-based Klasspack Pvt Ltd, marking its foray into the primary Promoters Public
pharmaceutical glass packaging business.
76.28% 23.72%

Scientific and Industrial Products

16.57%
25.05%
Glass Ampoules & Tubular Glass Vials BGWL
for packaging pharma products
• Complements Borosil’s analytical
58.38%
vilas range (used in the lab)

Klasspack
GBL
60.3%
Acquired Provide Borosil’s pharma
Revenue for Aug to Mar’17: INR 60.3% in customers credible 2nd
20.5 Crores alternative for their packaging Source: Company, Edelweiss Investment Research
July 2016 needs

Effective promoter and promoter group holding of BGWL to increase from

74.28% to 76.28% Scheme to all statutory approvals.

Long lead times to pass

Revenue in FY16 INR 28 Crores
stringent quality benchmarks, a
significant barrier to more
entrants
Swap ratio:
 4 shares of BGWL against 65 equity shares of Vyline
 10 shares of BGWL for 207 equity shares of Fennel

25 GWM
Borosil Glass Works Ltd.

Current Holding Structure

Promoters Public

68.91% 25.72%

BGWL 25.05%
100% 45.86% 5.37%
25.25% (Equity) +
100% (Pref share)

45.85% 100% 60.3%

VGWL FIFPL HTPL Klasspack GBL

8.29% 31.13%

16.57%
Source: Company, Edelweiss Investment Research
 Borosil Glass Works Limited (BGWL) and Gujarat Borosil Limited (GBL), listed on BSE.

 Hopewell Tableware Private Ltd (HTPL) is a wholly owned subsidiary of BGWL

 Vyline Glass Works Ltd (VGWL) is hel by Promoter of BGWL

 Fennel Investment & Finance Pvt Ltd (FIFPL) is held by BGWL and Promoter of BGWL and is registered with RBI as NBFC and itself a promoter of BGWL

 It is now proposed to merge/consolidate HTPL, VGWL and FIFPL with BGWL

26 GWM
Borosil Glass Works Ltd.

Financial Analysis PAT and PAT margin to improve substantially

Healthy revenue growth driven from consumer business The capex requirement in forthcoming years would be lower; greater
Borosil’s revenue is expected to clock CAGR of 20% over FY17-20E driven primarily emphasis would be placed on capacity utilization, product mix and
by the consumer-ware division with the acquisition of Hopewell (Larah) - market penetration while depreciation costs are expected to remain
improvement in utilization, introduction of new products and investment in brands. range-bound, and debt is likely to remain at a lower level; consequently,
Also, the scientific and industrial products division is expected to grow at 20% this scenario should result in finance costs being constant ahead. It is
CAGR over FY17-20E with entry into the new market of pharma packaging post envisaged that this will likely result in PAT (excluding one off) CAGR of 32%
acquisition of Klasspack as well as organic revenue growth of ~16%. This division over FY17-20E.
continues to favour the educational sector by reaching more and more schools in
India for product promotions and has set an ambitious target of approaching 120 12.0
97
1,500 schools in the near future. 100 10.0
82
80 69 8.0
60 50 6.0
1,500 150.0 43
970 40 28 4.0
1,000 827 100.0
674 20 2.0
557
326 415
500 50.0 - -
FY15 FY16 FY17 FY18E FY19E FY20E
- -
FY15 FY16 FY17 FY18E FY19E FY20E Net Profit (INR cr) (LHS) Net Profit margin (%) (RHS)

Revenue (INR cr) (LHS) Revenue growth (%) (RHS) Source: Company, Edelweiss Investment Research

Source: Company, Edelweiss Investment Research

Improvement in product mix & backward integration will boost operating margin
Borosil’s operating margin is estimated to improve to 15.9% in FY20E from 10.7% in
FY17 on account of a change in product mix towards consumer-ware and
consolidation of Vyline Glass Works to backward integrate its SIP division.
200 15.8 15.9 20.0
13.8
150 10.7 15.0

100 10.0
4.7 5.4
50 5.0

- -
FY15 FY16 FY17 FY18E FY19E FY20E

EBITDA (INR cr) (LHS) EBITDA margin (%) (RHS)

Source: Company, Edelweiss Investment Research

27 GWM
Borosil Glass Works Ltd.

Maintain lower debt to equity Healthy cash flow from operations

Borosil’s debt to equity stood at ~.07x as the company completed acquisitions Borosil is estimated to generate healthy cash flow from operations in the
with internal accruals from sale of non-core assets. Ergo, we envisage significant coming years led by robust operational performance.
free cash flow generation, which will be available for growing the business further
and also without major borrowings. This should result in a debt to equity of merely 100
0.05x in FY20E.
50
100 0.14
0.13 -
80 0.12
60 0.10 -50
40 0.07 0.08
0.06 0.06 -100
20 0.06
0.05 0.05
- 0.04
-150
FY15 FY16 FY17 FY18E FY19E FY20E
FY16 FY17 FY18E FY19E FY20E
Debt (INR cr) (LHS) Debt to Equity (x) (RHS)
Operating cash flow (INR cr) Free cash flow (INR cr)
Source: Company, Edelweiss Investment Research
Source: Company, Edelweiss Investment Research

Return ratios to improve

With margin improvement, parameters such as profitability along with asset
turnover on account of efficient capital allocation, should aid RoE and RoCE
improvement.

12.0

10.0

8.0

6.0

4.0

2.0

0.0
FY16 FY17 FY18E FY19E FY20E

ROAE (%) ROACE (%)

Source: Company, Edelweiss Investment Research

28 GWM
Borosil Glass Works Ltd.

Financials
Income statement (Standalone) (INR cr) Balance sheet (Standalone) Ratios
Year to March FY16 FY17 FY18E FY19E FY20E As on 31st March FY16 FY17 FY18E FY19E FY20E Year to March FY16 FY17 FY18E FY19E FY20E
Income from operations 415 557 674 827 970 Equity share capital 2 2 2 2 2 ROAE (%) 4.5 6.5 8.0 8.5 9.4
Direct costs 180 206 237 291 345 Reserv es & surplus 615 763 816 874 943 ROACE (%) 0.2 3.1 6.6 9.2 10.0
Employee costs 47 72 88 99 112 Shareholders funds 617 765 816 874 943 Debtors (days) 68 61 58 56 54
Other expenses 213 292 344 405 470 Secured loans 78 51 51 51 51 Current ratio 6.5 5.4 4.3 4.1 3.9
Total operating expenses 393 498 581 696 816 Borrowings 78 51 51 51 51 Debt/Equity 0.1 0.1 0.1 0.1 0.1
EBITDA 22 59 93 130 154 Minority interest 35 56 56 56 56 Inv entory (days) 74 62 62 62 62
Depreciation and amortisation 21 32 28 34 41 Sources of funds 730 872 923 981 1,050 Payable (days) 25 24 30 30 30
EBIT 1 27 64 96 113 Gross block 460 452 497 652 717 Cash conv ersion cycle (days) 117 100 90 88 86
Interest expenses 4 8 6 6 6 Depreciation 128 160 188 223 264 Debt/EBITDA 3.5 0.9 0.5 0.4 0.3
Other income 36 43 45 32 38 Net block 332 292 308 429 453 Adjusted debt/Equity 0.1 0.1 0.1 0.0 0.0
Profit before tax 34 62 103 122 145 Capital work in progress 7 42 42 42 42
Prov ision for tax 6 19 34 40 48 Total fixed assets 348 351 368 488 512 Valuation parameters
Core profit 28 43 69 82 97 Inv estments 219 264 264 149 149 Year to March FY16 FY17 FY18E FY19E FY20E
Extraordinary items 0 91 0 0 0 Inv entories 84 95 115 141 165 Diluted EPS (INR) 126.2 588.2 272.0 310.9 370.9
Profit after tax 28 133 69 82 97 Sundry debtors 78 94 107 127 144 Y-o-Y growth (%) 10.4 366.1 (53.8) 14.3 19.3
Minority Interest 2 2 -6 -10 -12 Cash and equiv alents 9 11 8 8 9 CEPS (INR) 216.7 335.3 395.1 460.0 548.6
Adjusted net profit 29 136 63 72 86 Loans and adv ances 39 36 43 43 40 Diluted P/E (x) 69.8 15.0 32.4 28.3 23.7
Equity shares outstanding (cr) 0.2 0.2 0.2 0.2 0.2 Total current assets 210 235 273 319 358 Price/BV(x) 3.3 2.7 2.5 2.3 2.2
EPS (INR) basic 126 588 272 311 371 Sundry creditors and others 28 37 55 68 80 EV/Sales (x) 5.1 3.7 3.1 2.5 2.1
Diluted shares (Cr) 0.2 0.2 0.2 0.2 0.2 Prov isions 4 7 8 10 12 EV/EBITDA (x) 94.5 34.9 22.4 15.9 13.5
EPS (INR) fully diluted 126.2 588.2 272.0 310.9 370.9 Total CL & prov isions 32 43 63 78 91 Diluted shares O/S 0.2 0.2 0.2 0.2 0.2
Div idend per share 25.0 30.1 52.2 59.7 71.2 Net current assets 178 192 210 241 266 Basic EPS 126.2 588.2 272.0 310.9 370.9
Div idend payout (%) 19.8 15.5 19.2 19.2 19.2 Net Deferred tax -70 -74 -87 -104 -120 Basic PE (x) 69.8 15.0 32.4 28.3 23.7
Misc expenditure 54 139 168 207 242 Div idend yield (%) 0.2 0.3 0.5 0.6 0.7
Common size metrics- as % of net revenues (INR cr) Uses of funds 730 872 923 981 1,050
Year to March FY16 FY17 FY18E FY19E FY20E Book v alue per share (INR) 2,662 3,304 3,533 3,785 4,084
Operating expenses 94.6 89.3 86.2 84.2 84.1
Depreciation 5.0 5.8 4.2 4.2 4.2 Cash flow statement
Interest expenditure 0.9 1.4 0.9 0.7 0.6 Year to March FY16 FY17 FY18E FY19E FY20E
EBITDA margins 5.4 10.7 13.8 15.8 15.9 Net profit 28 133 69 82 97
Net profit margins 7.0 8.1 9.3 8.7 8.8 Add: Depreciation 21 32 28 34 41
Add: Misc expenses written off -1 -85 -29 -38 -36
Growth metrics (%) Add: Deferred tax 66 4 13 17 16
Year to March FY16 FY17 FY18E FY19E FY20E Add: Others 2 2 -6 -10 -12
Rev enues 27.4 34.2 21.0 22.7 17.3 Gross cash flow 114 88 75 85 107
EBITDA 45.8 166.8 56.5 40.5 18.2 Less: Changes in W . C. 82 13 20 31 25
PBT (47.9) 81.8 66.5 18.3 19.4 Operating cash flow 32 75 55 54 82
Net profit (45.1) 54.3 62.0 18.3 19.4 Less: Capex 97 35 45 155 65
EPS 10.4 366.1 (53.8) 14.3 19.3 Free cash flow -64 40 10 -101 17

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Borosil Glass Works Ltd.

Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200

Vinay Khattar

Head Research

vinay.khattar@edelweissfin.com

Rating Expected to

Buy appreciate more than 15% over a 12-month period

Hold appreciate between 5-15% over a 12-month period

Reduce Return below 5% over a 12-month period

Borosil 5 years price chart

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