Very detailed presentation put up by management for the first time explaining company’s business and customer profile.
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Points which I picked-up from presentation -
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anti-dumping duty (ADD) on chinese glass import
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SEZ imports exempted from ADD
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ADD not applicable on imports from Malaysia
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company applied to DGTR for imposition of duty on Malaysian glass imports
Business
- High performance solar glass
Capacity
- first furnance - 210 tpd (upgraded)
- second furance - 240 tpd
Capacity Expansion
- third 500 tpd furnance commission by q2cy22
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Brief notes about today’s concall
• First full quarter – both furnaces running full. 91% of installed capacity utilization. 421 TPD production vs capacity of 450TPD
• Product prices same as last quarter on overall basis. But much lower for Apr-July and started going up from Aug onward.
• Less than 3.2 mm thk solar glass sales is 24% of the overall sales.
• Optimization of packing material.
• 120 Cr max quarterly sales possible.
• Current Solar power capacity in India - 37 GW.
• Plans for solar capacity additions - 9GW - 2020, 13GW – 2021
• Application for CVD by DGTR – supposed to have decision by Sept end. Postponed to mid Dec 20
• New Capex - 500TPD as brownfield project – 500 Cr. Will be funded by mix of equity, debt and internal accrual. Will be finalized in next few months. 18 months from financial closure.
• Small capex in Q3 to increase tempering capacity. Commissioning of refurbished glass tempering line – 3 cr
• Credit of electricity duty of earlier quarters – total 1.26Cr ( for 4 quarters). Hence power cost lower.
• % of exports – 14%
• Top 5 customers would be 25% of the sales
• Can maintain EBITDA margin – material costs are negotiated for the year
• Solar glass prices - 98 Rs/Sq metres. Fluctuated between 97 to 105/sq mtrs. In last 5 years.
• 67,000 sq meter/2mm per day as capacity
• Soda ash and silica sand – raw material
• Company installing 2.5GW solar power plant – partly ground and partly roof mounted – Capex 11Cr. To award contract by Nov end. Payback in 4.5 cr. 20%+ IRR
• 55 days – working capital cycle. Will reduce to 50 days from next quarter.
• Maint capex – around 50 lakh per month
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Just adding some points from conf. call here which I think are important.
- Cash flows are sustainable (similar to EBITDA margins). Means that wc days will remain constant even on this newly added business.
- Power and fuel cost reversal implies to about just 1% of EBITDA. (super small off item in this quarter)
- Large Chinese manufacturers have higher margins vs. Borosil. Means we can expect margins to increase with projected increased scale (considering Rs 500cr capex)
- New capex of Rs 500 to have asset turnover of ~1 times. This will mean Rs 500 crore of annual sales will start coming in once this capex is finished.
- Current India TAM is about 650 tons per day, until last year it was fulfilled by 70% imports and 30% Borosil. This year it has been 60% imports and 40% Borosil (there is no other Indian glass manufacturer)
- If 500 TPD capacity runs for 365 days - that glass production will be equivalent to glass to be used for 2.5 GW of solar capacity. (looks like the size of opportunity is HUGE)
- Solar glass module manufacturers are expanding their capacities, I think they also called out names of Adani, Vikram etc. That means end market customers have plans to expand rapidly.
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120 Cr sales per quarter with 28% EBITDA would give EPS of 1.25 per quarter (assuming no further negative surprises in Covid). So annualized EPS for the year would be 5. This shows huge runway for the stock from current level.
Management on yesterday’s concall mentioned that they are working with their financial advisor to decide mix of debt/equity/internal accruals to fund 500TPD furnace capex. This seems like a smart a strategy knowing stock price is undervalued right now. Post this results, stock has started (20% up yesterday and 10%+ up today) getting rerated. For company to garner more money in the rights issue, they would like to wait for market to understand company’s potential and value the stock appropriately before coming out with rights issue (at right price 
)
As of now, it seems FY21 would be great year for the company and then FY 22 would be flat year (as compared to FY 21 as no new capacity would get added) and then H2 FY 23 (18 months for new capacity addition) would be great for the company due to further doubling of the capacity.
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What PE would you assign to it ? With 5 EPS annualized isnt it priced to perfection? Any more triggers left ?
I think PE of 30 would be appropriate considering growth potential and no local competition scenario with Atmanirbhar Bharat focus and renewable energy gaining traction. Globally , Solar/Wind may get more fillip if Joe Biden wins US elections as Democrats always favored renewable energy due to focus on environment (bad news for coal/oil etc)
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PPT Q2 FY 21
Rating updat, off RWE, positive development
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I was wondering if they are already running at around 90-95% capacity utilisation, how are they planning to improve the topline for the coming quarters? 500 TPD plant won’t be operational till fy22 I believe. Please correct me if I am wrong
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Yes, you are right. That’s why I said, FY 21 would be great year as compared to FY20 (since double the capacity) but apart from incremental gains from better prices (in case of favorable ruling in CVD case), product mix and cost reduction initiatives , annualized EPS would be around 5 for 2 years (FY 21 and FY22). 500TPD would be operational in FY 23.
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Company is doing one on one analysts/institutional investor meetings. This is the first time they will be sharing their plans with analysts. This shows they are serious about their growth plans and wants market to take notice of its performance. To improve visibility and awareness, next step may be interview at CNBC??
The company indeed looks like on the right path in the right industry, but how to value it as it’s no way cheap.
Extrapolating current qtr results it’s at a multiple of 20x.
Add another capacity expansion and it would be let’s say 10x, Fy23 PE
One could also argue that it’s a small cap in an industry with enormous potential.
Now, what needs to be seen is:
- how this story plays out among global competition and local protection?
- If there is excess global supply how will it impact margins?
- Any slowdown in procurement for a few years?
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Important paragraph in this news reproduced below -
Quote
MNRE secretary Indu Shekhar Chaturvedi said the ministry is introducing supply-side interventions to encourage domestic renewables manufacturing, including basic customs duty (BCD) for imports, a performance-linked export scheme and an interest subvention scheme which will offer credit at low, subsidized interest rates. Demand-side interventions by the ministry include a domestic content requirement on equipment provided for the Kisan Urja Suraksha Evam Utthan Mahaabhiyan (KUSUM) rural and rooftop solar programs.
Unquote
If government provides the supply side incentives(as mentioned above) to Indian manufacturers, I feel Borosil Renewables would be a major beneficiary as it can help leveling the playing field with imported solar glass, thereby increasing demand and improving margins further.
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One of the sector under PLI scheme is high efficiency solar PV modules for which Rs 4500 cr are earmarked. This will attract more solar module manufacturing in India thereby increasing market size for Borosil Renewables (imported module comes with glass so no chance to supply glass to those customers who import complete module as of now)
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With clarity in demand, I expect company to announce detailed plans (Funding - Debt/Equity, timelines etc.) for 500 TPD furnace which will further double the capacity from current levels.
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IMO To capture huge opportunity size they should be able to
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Raise capital for capex estimated 500 crore . With current Mcap ~1315cr and just 11cr Cash as of Sep’20. Most of it would be through equity dilution and debt.
Some calculations for debt raising:
Extrapolating Sep’20 quarter EBIT for full year ~22*4 =88 crore for full year. Fund raising via debt will highly deteriorate bottom line if it’s higher than 300 crore. So atleast 200crore should be raised via ~15%(220cr/1,315 cr) equity dilution. Which all looks feasible but will depress earnings for next 2 years. - High ROCE atleast 20%+ to be able to fund future capex on sustainable basis.
Expected ROCE for incremental capital employed of Rs. 500cr
88 cr. EBIT/ 500 cr capex would be 17% which is still okay and not that great.
So considering above calculation it seems almost priced to perfection and we might see good chance to buy in next 1-2 years given higher debt & interest expenses going ahead. I might be totally wrong in my analysis and open to hear counter-arguments for constructive discussion!
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I prefer to keep it simple. If by 15% dilution in equity, company can double its profit in 2 years, I think its a good deal. Also I expect economies of scale (lower RM cost due to volume, lower cost of power due to volume as well as solar power project etc) to bring in atleast 2-3% improvement in EBITDA margins above current margins.
Any favorable decision from DGTR for CVD as well as boost to global demand for renewables due to US coming back in Paris climate change agreement, provides upside to all the earnings estimates. Having said this, near term earnings would be similar to Q2 for next 4 quarters. So it is investment for longer term.
Revenues of Xinyi Solar, largest solar glass manufacturer in the world is up, margins even better.
Year ended 31 December 2019
Revenue up 18% yoy
Op Profit up 32% yoy
Costs down, margins up.
Xinyi Solar though has subsidiaries that have presence in other aspects of solar business, and has mcap of over 1 lac crore in INR as of today.
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Enjoyed reading about a month back and got invested also @72/= which is now around @113/-
Must thank you for this gain.
Col HC Sharma
9986043014
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