Borosil Limited

Stock Opportunities
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Borosil :Market cap : 250 crBook Value: 2100CMP: 850p/e : 6.5Equity: 3cr

The company has cash over twice of it’s market cap. The glass industry is currently a morose lot but even with the cash in hand, the company quotes cheaper than the competition and the brand comes for free. They are actively looking for acquisitions and spending more on advertising so there may be newsflow which can get the attention of bigger players. CMP looks to be the rock bottom price as it’s been here for a year now and company is buying back shares below this price.

Need opinions from seniors and fellow boarders if it’s worth a bet. Given the current mad rush for consumption stocks, a story can be easily woven around the Marquee brand.

Below is copied verbatim from the AR.

Last year, the Company sold its property at Marol, Mumbai for a sum of Rs.830 crores.After meeting all expenses , repaying loans and payment of Interim Dividend of the Company has nearly Rs.600 crores fund. The Company is onthe look out for new business opportunities both in India and abroad. Till such time that an opportunity arises, the Company has invested the funds which envisages a reasonable return with a low degree of risk.The Company hasappointed three well known Wealth Managers to advise the Company in the matter.

The Company has invested its investible funds of around 467 crores as on 31st March, 2012 in a mixture of Debt markets, Equity/Equity Linked Instruments, Bonds/Debentures, Convertible Preference Shares, Real Estate Funds,Opportunity based Funds and Commodity Funds as well as in Mutual Funds. This includes 90 crores invested by subscribing in 90,00,000- 9 % Cumulative Non-Convertible Redeemable Preference Shares of Gujarat Borosil Limitedon private placement basis, as a Promoter Company. Further, during the year under reference, the Company spent nearly 43 crores for its new corporate office and 70.53 crores for buy-back of its equity shares.

The Company started buy back of its equity shares with effect from 19th December, 2011 at a maximum price of ` 850/- per share and till 31st March, 2012, 8,28,577 equity shares were bought back and duly extinguished, therebythe issued and paid-up share capital of the Company comprised of 31,35,351 equity shares as on the said date. The said buy back continues.

During the course of the year, the Company has further consolidated its leadership position in both the laboratory glassware as well as the microwavable glassware segments. This has been owing to enhanced focus on key customercoverage, new product introductions as well as distribution enhancements. Moreover, the Company has invested approximately 4.00 Crores on an advertising campaign in order to increase awareness of its product across thecountry. All the above activities have led to an enhancement of sales made by the Company of the higher margin products by about 20% from 100 crores to 120 crores. However, sales of low margin items have continued to bestrategically discontinued resulting in a reduction of their sale from 19 crores to ` 6 crores.

Scientific & Industrial Products Division (SIP)

The SIP division has seen a growth of 15% over the last financial year. During the year, market reports suggest that sales made by our main competitors de-grown or stayed flat. The Company had employed a strategy consulting firmto examine areas for prospective growth in the laboratory consumables industry. This study has been finalized and the Company is taking steps to ensure the implementation of the same strategy.

These steps should yield positive results in the future for this division depending on improvement in the economic climate of the country and allocation of fund(s) by the Government for scientific and industrial research.

Consumer Products Division

The consumer products division has seen a growth of 26% over the last financial year. Owing to the large presence of unorganized players in the segment, the Company has been unable to determine an accurate growth rate for thisindustry.However, when compared to the growth rates of organized peers, the Company has shown a favorable performance.The Company has taken various steps to enhance its leadership position in the microwaveable glasswaresegment. These steps include:

)- enhancement of product portfolio

)- enhancement of distribution network in south and east India

)- increased consumer awareness campaign through a marketing budget of roughly ` 4 Crores.

The outlook for the consumer products division is somewhat muted as compared to last year due to a reduction in consumer spending across all segments owing to macro-economic reasons and inflationary pressure.

Export Division

Exports during the year were higher at 4.63 crores as compared to 3.16 crores in the previous year. This represents an increase of 47%.The Company feels that further substantial improvement can be made in exports. TheCompany is already in touch with a number of potential large customers for its products and expects to do well in this division for the current year.

Other Actions

Your Company explored the possibility of acquiring some companies in the last financial year in Europe as well as in India.These could not materialize owing to a large difference in valuation offered and demanded. However, theCompany is continuing its endeavor of looking out for other such prospects in India and overseas and some proposal(s) may materialize during the current year.

The Company is constructing a modern warehouse at Village: Dumala Boridra in Bharuch District of Gujarat for its own use as well as for leasing out a portion to others.

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The way I see borosil is this.

It is a zero debt, cash surplus company with a fluctuating and low (and sometime negative) profit margin, very poor ROCE, wildly fluctuating ROE. The only silver lining is the cash they have with them, and the assurance of buying this stock upto a level of 850. This is what is keeping their share price at 550. The good thing is that it will increase the eps, as the number of share will reduce.

Like it or not, market don’t know how to value a cash in hand. They hate the most when you have invested it somewhere else. The uncertainty increases with not knowing where exactly the money is invested. Fluctuating ratio is another thing which the market hates the most. Using land sale money to build a new office. Investing in companies whose price has fallen 66% what was year ago, raises very big questions on the investment decisions/capability of the management?

So many questions from my side by thinking just 5 minutes? I would rather avoid such investments.

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i was also looking into borosil and got interested due to cash in bs and the brand value. But inspite of having a decent brand,the past growth is dismal whereas other consumption stocks have done well. I took it as an indication that the mgmt is not upto the mark.

i would wait for the stock to deliver better roce.

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Hmm… I looked a bit more as the sales seem to be rising and the management seems to be doing the right thing by selling off land, concentrating on higher margin products, increased ad spending, buyback, not jumping into acquisition at any cost etc.

Looks like the son and daughter have taken over before all this turnaround started. Here are their credentials:

Mr. Shreevar Kheruka , son, joined in 2009, has a dual degree of B.Sc. in Economics and B.A. in International Relations from the Wharton Business School of the Universityof Pennsylvania, USA. After completing his studies, he worked with the Monitor Group, a multinational strategic consulting firm in USA, during which he gained valuable experience in re-structuring some Fortune 500 companies. Upon his return to India, he joined Borosil Glass Works Limited as Vice-President for a period of three years before becoming Director of the Company.

Mrs. Priyanka Kheruka,wife of son joins as Marketing Consultant , has obtained dual degrees in Bachelor of Science in Economics with concentrations in Marketing & Management from the Wharton School & the College of Arts & Science, of the University of Pennsylvania, USA. Thereafter, she joined New York â Bain and Company, a top consulting firm as Associate Consultant in the private equity group, where her work included due diligence resulting in a major acquisition. She also worked in the general strategy group, providing inputs on operations, capacity management, market share growth strategies and competitive landscaping.

Here is a note from the 2009-10 AR detailing the losses. In reading the ARs, it does not look like the company is trying to hide anything or painting an unduly rosy picture.

The Company is in the process of setting up a modern borosilicate glass melting furnace at a site in the Bharuch District of Gujarat and till this new plant is commissioned, market demand is being met from its own stock and by sourcing from imports as well as from domestic market.

Sales during the year under review were higher at Rs.9109.07 lacs as compared to Rs.7127.11 lacs in the previous year. Inspite of improved performance by both âScientific & Industrial Divisionâ and âConsumerware Divisionâ, the Company incurred losses amounting to Rs.2479.14 lacs (which includes Extraordinary Loss of Rs.1869.98 lacs) as compared to loss of Rs.940.84 lacs (which included Extraordinary Loss of Rs.500 lacs) during the previous year.

The reasons for losses are attributed to the following factors:

1). An amount of Rs.1869.98 lacs paid under Voluntary Retirement Scheme (VRS) to the workmen at Marol Plant has been treated as extraordinary loss. On the top of this, the Company has to service the loan taken for the purpose. All these, however, helped the Company in freeing its land at Marol for development / sale.

2). Since the Company is in the process of setting up of new plant in the Bharuch District of Gujarat, although there is no production right now after discontinuation of manufacturing in the Marol, Mumbai Plant, the Company has been incurring fixed costs on its technical and other staff to be eventually deployed in the new project. The Company has in the interregnum period, been importing products from abroad in order to maintain its market share, inspite of lower margin. The Company has also suspended its operations at Maraimalai Nagar, Tamil Nadu in view of obsolescence of the products being manufactured there.

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Here is what they are looking at for acquisitions:With its strong distribution channel and brand, the Company has an opportunity to grow beyond glassware in boththe SIP and consumer products division. The Company is seriously looking for some opportunities in the new areassuch as plastics, filtration products and chemicals.

As long as they dont diworsify, the premium borosil branding can surely help.

It seems one has nothing to lose but opportunity cost.

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These folks have done undergraduate course from Wharton, which is pretty different from the much sought after, prestigious Wharton MBA. To me it seems like doing under graduation from any foreign school, with parent’s money. It doesn’t sound too much credential to me. Those experience from working at consulting company at a very lower level is doubtful to work in running a company. This may looks good at their resume though.

Universityof â âScientific & Industrial Divisionâ and âConsumerware Divisionâ,

1).

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The company has announced that they may consider a buyback.

Since the promoter holding is already 74.18%, how does the buyback work ?

  1. Some shares tendered by public and promoter holding goes to 75%
  2. Shares tendered by promoter and public both so that overall equity goes down but shareholding percentages remain more or less the same.

Views requested

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Can we find out more about the new Home Appliance Products of Borosil.

Is it gaining market traction. Whether the products are good or not etc ?

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Few points to consider at current rate/ time -

  • At CMP Price to Book Ration ~ 1
  • Coming from retail side, am aware how large retailers are blocking Borosil new inventory. Most of players are looking to ride on new range including new home appliance product.

Am sure post Diwali we can see more traction in this script.

Dis-closer - Invested

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i have not seen this in depth but any idea why the return ratios are so bad for this company?

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I didnt understand “large retailers are blocking inventory”

Are they not buying borosil products or have they booked large quantities in anticipation of rush in forthcoming festival season.

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Return ratios are subdued because the company sold a large parcel of land and the cash is lying in the books. Also, compared to its size, the company has significant investments in Gujarat Borosil which has just turned the corner and should do well from here on.

The company has 2 main divisions. Based on March 2015 results, annual EBITDA/Capital employed for both of them are as follows

Scienteficware : 76%
Consumerware : 27%

Out of total capital employed of 697 cr , Borosil has made investments of 637cr ( out of which 485cr is cash or cash equivalent ). Net of these , the return ratios are through the roof.

The management seems to be aware of the investing communities fascination with return ratios, hence they are meeting to announce a buyback on 11th Sept 2015. If the buyback price is reasonably good, we should see shrinking of the balance sheet and all return ratios will climb.

disl : invested at cmp
mcap when posted : 727cr

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Retailers are blocking means they are buying or asking company to block if they get stock on consignment or equivalent to liquidate the stock during peak season sales (Read Diwali)

Thanks

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Borosil Glass Works approves buyback of equity shares @ 2500

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An interesting developement. Borosil owns 75% of Gujarat borosil, which has moved 100% in the past 3 months.

The value of Borosil’s stake is now 460 cr. Also , cash and cash equivalents are 190 cr.

If you reduce these from Borosil mcap, you are getting India’s leading consumer glass and scientefic glass manufacturer for only 70 cr.

Discl : Invested and increasing position at cmp.Mcap when posted 720 cr.

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Well I was also holding the Borosil but it is not touching even Rs 2500 which is a buy back offer price. while Gurjat Borosil is going on northwards from last 6 months. I feel a promoter or operator play in Borosil

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@brajeshrawat

Sir, that is a very casual comment to be made in a public forum. Just because the stock didn’t move you are saying its operator driven. I wonder what you would have said if it had moved !!

On the contrary, I believe this to be a very ethical management because not only did they announce a buyback, they also had the transparency to announce that the promoter would be participating in it. This is unlike many promoters who just took cash out of the company ( I dont need to explain the 105 ways to do this )

This forum is revered by may investors and any loose comment may lead to them missing out on a great stock . Maybe you have some solid proof behind your comment, in that case it will be highly appreciated if you could share.

Discl : Invested earlier. Recently moved from Gujarat Borosil to Borosil Glass as see better value. mcap when posted was 734 cr.

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Hi. Just wanted to point out that your calculation is wrong. Gujarat borosil promoters are: - borosil glass-25.25%, fennel-33.13%, broadfield-17%. Borosil glass owns ~46% of fennel and 0% of broadfield. So borosil glass total ownership in Gujarat borosil= 25.25 + (33.13x46%) + 0 = ~40.5%.

Disc: - exited.

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i stand corrected @Akshayag. thanks. It was an oversight from my behalf.

On a separate note, the company announced that it is buying a tableware company called Hopewell Tableware today. The announcement came out as this

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/3B1E874A_F8AC_45D0_AC37_22B9B4C17248_150132.pdf

On the face of it looks like a brilliant transaction. They are investing 37 cr to get 100% of a 70cr topline company ( for FY15 ). Compare this with La Opala which trades at 15 times revenue.

Hopewell seems to have decent products ( am going to order some…its available on flipkart ) and a fairly large infrastructure. I visited the Hopewell website www.hopewelltableware.com and came away impressed. Do check out their shop now feature, which lands on a dedicated page in flipkart,

With Borosil leveraging their distribution strength, selling this product should not be a challenge for them.

Borosil promoters seem to be doing the right things…the current acquisition along with the buy back is going to see return ratios be among the top in the listed space.

Discl : invested in borosil glass. Forms 12% of my portfolio
Mcap when posted : 726 cr.

Footnote : the stock didn’t participate in the recent panic fall in the market.

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I used to meet one of the Hopewell promoters in a Ceramic Tableware Company in Jaipur regularly since about a decade ago. Have tracked Hopewell’s progress.

The initial investment in Hopewell Tableware was approx. 75 crores.

Sales were growing at scorching pace 1 cr - 15 cr - 70 cr in 3 years.

I heard that there was some conflict between the promoters and/or liquidity squeeze that led to the premature sale at the value of paltry 27 crores.

One needs to also understand the quantum of debt / liabilities of the company transferred to Borosil Glass, if any by Hopewell, apart from infusion of 10.89 crores declared by Borosil.

Certainly this can be a good and scalable opportunity for Borosil Glass.

Disc: Not invested, however, planning to take a tracking position.

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