He was referring to the new entrants as they will face certain challenges as depreciation cost will be high which will impact their bottomline directly while the existing plant of borosil renewables is already 3-4 years old, their assets have depreciated and they have competed with China, Malaysia from last many years and dumping did not stop but chinese players always changed the origin from where they were dumping.
The company was not dependent on a duty to run its business - we should understand that on this forum. They had competed with China from 2011 till 2017 when there was no duty support - they also sold their volumes when Malaysia started dumping and there was no support until last year when cvd was imposed.
As far as duties are concerned, there is existing 10% bcd on solar glass imports from China (which is exempted till March-23). If that duty will get imposed then there are only 7 months of duty free window.
While we may have difference of opinion in valuations part, they have come a long way from being the only solar glass producer of India to be the largest non-chinese solar glass producer globally and this is not because of duties, this is because of consistent investments in R&D and cost optimisation.
Market will reward the stock from here on only if margin profiles improve further and growth is sustained. I doubt whether the former is happening, at least in the short run.
So while Borosil has the capability to sustain Chinese onslaught, if anyone enters Borosil at current price (or is holding it in expectation of good future returns) then risk-reward is not in the favor of the investor (at least as situation stands today).
Not exactly an apples to apples comparison, you have to put it against the demand for solar panels and new solar capacity installations in India
Post 2017, solar installations have grown at an magnitudes higher than period of 2011 to 2017
This is how margin trajectory for BR takes place
Capacity Utilization at Maximum (99%) + ADD + BCD = Max Margins (>35%)
Capacity Utilization at Maximum (99%) + BCD = 25 to 35% Margins
Capacity Utilization at Maximum (99%) + no duties = ~20% Margins
With the removal of ADD, my guess is Govt wants to leverage the cheap imports of raw material (glass, ingots etc) from China (since no one else is taking these products from Xinjiang region (US, EU have banned)) and India doesn’t have a raw material value chain for solar products yet (silica to ingots)
Chinese guys cannot dump their products in EU/US, so they will shift to India
For Borosil Renew, all sales price is based on landed imports.
Personally been bearish on this, see margin contracting but sales increasing. Not sure what valuation multiple market will add to this.
Dont think margins will reduce to 10%, but can hover between high teens to 25% range.
Whatever margins are, one thing is certain that business dynamics surrounding this have changed in the short term (~2 years) and hence you have to act accordingly.
First, the government introduces BCD, now it is about to give relaxations. In this kind of u-turn, it seems certain the government is not concerned about solar suppliers like Borosil renewables.
This is the update on the acquisition. Correct me if I’m wrong but my understanding was that the valuation was roughly 50million euros at the beginning, now they are getting 86% share for just 7.5million?? Isn’t this suspiciously cheap!?
Sales are flattish
Raw Material Cost up 33%
Power and fuel cost up 42%
Other Exp up ~30%
Margins have contracted.
Will update on the status of the new furnace that was suppose to go live initially in September’2022. The amount in Capital WiP is at 600crs meaning this plant was not operational as of 30th September.
Company was looking to raise money for the next round of capex. In my opinion after the withdrawal of import duty this is going to be very difficult.
Delay in commissioning and uncertainty on the margins are not good signs.
There has been drop in selling rates in domestic market in Sept 2022 by 10-15% after discontinuation of ADD on Import of solar glass from China from 17th Aug 2022 while costs remained high.
This means margins for current quarter will shrink further as Jun-Sep quarter has seen max 30% impact of the removal of ADD. Hence EBITDA could go as low as 23% for this quarter. Also from 1st Jan, new soda ash contract price would start which (as per various concalls of Tata Chem and other soda ash companies ) could be higher by 30% from current contract prices. Although new capacity addition would improve topline and help to absorb some fixed overheads, BR would struggle to cross 30% EBITDA margins in near future (even after new capacity addition due to new furnace and acquisition)
Commercial production from SG3 started on 23rd Feb. With this, the production capacity of the Company for production of Solar Glass has increased from 450 Tonnes Per Day to 1000 Tonnes Per Day.
The good times are over now. The stock is up for a reality check given that China is now opening up in a big way. Borosil did get some pricing advantage during Covid, which by the way is no more applicable. At the end of the day it is a commodity product subject to global pricing pressure.
I foresee atleast 30-40% correction in the stock from current levels. Margins will now start to decline. Dec quarter numbers have given us the indication. ROCE’s will go down now, margins will compress and the stock could get back to PE of less than 15x.
