Agree, I kept everything constant. Even with equity dilution its a 3x candidate within 3 years. Potential CAGR of 60-70%.
One thing I struggle to understand wrt borosil renewables is about the margins due to supply glut. Even in the dhanda interview on YouTube the promoters themselves say that China is coming up with Much larger capacity addition, and there is capacity addition in Vietnam. Then in that case couldn’t we go back to fy20 and earlier type of single digit operating margins and thus no profitability?
@Tar @Marathondreams your thoughts?
For reference: https://youtu.be/oSZyRewtUkI
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Thanks Tar for your views. I had done similar calc.
The only gap in my mind is how to arrive at a PE estimate? Since its a monopoly, there is no domestic player to compare with. And the chinese leaders are operating at a much higher scale and have different local dynamics wrt. tariffs, subsidy etc.
I tried to look at Earnings power value (EPV) as an alternate valuation methodology, assuming the 1000 TPD capex in, and that value comes in the range of 125-150. Considering that the next set of growth (greenfield expansion) can take 5-10 years, how to put an estimate to it?
Disc- invested
Earlier Operating Margins were subdued as the company was forced to sell at a cheaper cost due to dumping of solar glass in India via Malaysia into SEZ. Now with anti dumping duty prices company can make around 25-30% margins as China and Malaysian firms can no longer dump solar glass in India.
With new capacity coming online the margin should expand from here due to operating leverage of larger facilities.
Another tailwind for margin expansion is the high demand for solar glass all over the world. USA has announced their own renewable strategy and aims to catch up with China. Europe is focusing heavily into renewables. So demand all over will keep on rising.
The risk with Borosil Renewables is that they are a price taker. So when and if China figures out a way to get their costs of production even down further and somehow starts supplying solar glass at a cheaper rate even after import duty, BR will have to accept those prices. At this stage, this risk is low.
Edit: another area to help BR is SECI is giving out tenders to Adani, Renew etc which are linked to domestic manufacturing starting 2022. So any new solar park developed with these tenders will be forced to get their glass from BR.
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I take a 25 times EPS multiple to be conservative with my estimates. Market may choose to give it a higher multiple. My focus and reason to valuation is to get a ballpark idea for potential upside even at the least possible multiple. 25 times seem conservative for a high growth, sunrise sector monopoly company. If there is sufficient upside at 25 times earnings, with earnings visibility and runway for growth then it’s worth investing in for me.
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If you see the video you’ll see that they have already figured out a way: this is that they have set up manufacturing in Vietnam. So the ADD wrt Malaysia won’t apply here. Also, the ADD is only for 2 years. The profitability is dependent on the whims and fancies of the government. Management has indicated in interviews that government primarily only view panels and solar cells as strategic manufacturing which must be done in india otherwise they would have announced PLI for solar glass which they haven’t. I would say the 25% OPM you have built into your modelling can easily drop to 15% after 3-5 years post the ADD expiry. If you look at flat glass company they operate at roughly 15% OPM steady state (margins are a bit high in last few quarters due to solar glass shortage which is benefitting borosil renewables too).
All in all the supply glut risk seems quite pertinent to me. Unless government is going to support solar glass manufacturing the china supply glut sword is always hanging over borosils head.
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Since BR never ran on full capacity (due to ageing 1st Furnace in first half of FY 20 and then starting up of 2nd furnace), true reflections of its profitability can be seen from Mar 20 quarter (even that was complete due to lockdown in March 20) or Sept 20 quarter which was before price increase benefits came in. So I believe 22-25% EBIT is normal EBIT for this business.
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That’s an open risk but something that may happen in next 3-4 years. We have a clear run way for growth for next 3-4 years and maybe that’s why even BR’s has announced capacity expansion twice within months.
Another point that highlighted in the edit earlier, is tenders linked to domestic manufacturing by SECI. So for those tender (and they are big ones like 10GW in Rajasthan etc) all components have to be sourced domestically including solar glass.
I think Govt has a favourable policy for the entire solar sector and they wouldn’t leave out just one part of the module (like solar glass) in the long run. We want to be completely independent from China when it comes to solar and that’s been Govt’s focus.
Flat Glass and Xinyi’s costs are rising due to labour as well. It’s no longer cheap in China to produce and maybe that’s one of the reasons they are moving to Vietnam and Malaysia.
A 25% margin does seem feasible to me for next 3-4 years. After that it depends on lot of variables like Govt policy, US renewable policy, natural gas prices and BR’s capacity utilisation.
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Btw thanks to both of you for patiently answering my questions as I ramp up on and study this company and sector in depth. 
Much appreciated.
How can we even talk about a normal EBIT if borosil glass is a price taker. 
If Vietnam starts exporting at 90 rs per mm m^2 then wouldn’t EBIT margins also drop to 12-15%?
Curious to know why you think this would only happen after 3-4 years and not after 12 months.
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Source: https://mercomindia.com/dgtr-oral-hearing-malaysian-solar-imports/
Applications are pending with DGTR to extend the duty till 2024. Most likely it will be ruled in the industry’s favor as Govt, ramps up production for solar in India.
Tata Power also just announced tripling of their solar module production line to 1GW after Govt announced PLI scheme for solar.
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Any idea which company would house the solar roof top retail operations which provides product & services to retail customers?
Also, which company would include EV charging infra?
No idea, most likely everything will be moved to the Renewable company. I exited because of lack of this clarity. Once this clarity emerges I will evaluate and invest again.
Very low probability that the stock will double from here. Very high probability that it will move sideways or correct another 10%.
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I think solar glass prices charged by Vietnam would be function of global demand supply dynamics as with any other commodity. With Biden govt in power in US, I expect huge push for renewable power generation which in turn can absorb additional solar glass capacity. Also depreciating Rupee will act as a natural barrier against competition from Import. So I would be more worried of any local competition to seriously erode BR’s margin profile.
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Sold 50% of my position today in Vinati Organics.
Reasons for selling
Made 100% returns in about 12 months on the investment, and exiting when valuations get too rich and when I have made more than 100% returns has worked really well for me. It gives me the fire power to invest in other areas of opportunity within the market, eliminates my risk of downside completely as now I have a free position in the stock with the remaining 50% and since my investments in the company I choose tend to be for more than 10 years, I cant care less now whether the stock underperforms or not as my position is free.
In case of Vinati, it is trading 16 times its sales and 15 times its highest every sales in a decade. Most of the triggers for the company’s earnings growth wouldn’t come for the next 3 years. Reasons for rich valuation today may include a) low float b) hype c) maybe possibility for earnings growth in near future.
There are very few good specialty chemicals businesses out there and Vinati is one of them but I wouldn’t be buying it right now. The current price doesn’t offer any margin of safety.
After today’s sell, on a valuation basis alone, Vinati still makes up for about 3% of my portfolio. But since the position is now free, I can’t care any less what it does in the short term.
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Latest Portfolio and Allocation
| Stock Name | Current Allocation |
|---|---|
| Borosil Renewables | 14% |
| Laurus Labs | 13% |
| Jubliant Ingrevia | 11% |
| Sequent Scientific | 8% |
| RACL | 7% |
| IEX | 6% |
| Deepak Nitrite | 5% |
| Syngene | 4% |
| Divis Labs | 3% |
| Biocon | 3% |
| Vinati Organics | 3% |
| Strides Pharma | 3% |
| Navin Fluorine | 2% |
The above portfolio of just 13 stocks has been outpacing all indexes at a very healthy rate. Happy with the performance so far, will evaluate again when this quarter ends.
Actively Researching
- Praj Industries
- Valiant Organics
- RPSG Ventures
- Intellect Design Arena
- Nykaa
- Zomato and Food Tech Industry
- Roblox
- Coupang
- Rajshree Polypack
- Angel Broking
- Prince Pipes, Prakash Pipes and the whole CVPVC pipe industry
Companies I liked in the Past Quarter but Didn’t Invest in
- Hikal - Couldn’t build conviction and already hold Sequent
- SAIL - Great company and opportunity but I know very little about metals and it has too many moving parts
- Hindustan Copper - Wanted to invest in it because of demand for copper in batteries, but past several governance issues kept me away. I am happy to give this a miss.
- Gujarat Gas - Great story and great prospects for the company in future, doesn’t really fit in to my investment strategy but can be a consistent 30% compounder from here for at least next 5 years
- Acrysil - Good company, IKEA partnership is acting as tail winds for the company. Not sure about the management and their ability to execute
- Zota Healthcare - Chain of generic medical stores, could be something here, not sure about the management quality
- Fine Organics - Great company, great management, great financials. Reason for not investing was not sure how big the Target Market is and high volatility in raw material prices for the company (palm oil)
Trends I am Reading More About
- China (Economy and Technology)
- LIDAR and Autonomous Vehicles
- Rare Earth Metals (Studying Lynas Rare Earth and companies in REMX ETF)
Books I am currently Reading
- Lifespan by David Sinclar
- Rise and Fall of Nations by Ruchir Sharma
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Even I am studying Intellect, will enter after studying the results on Monday. You are studying pipe industry for investment or for just a swing trade?
Nothing called a swing trade in my book of investing. I either buy a company for 10+ years or I stay away from them.
Lots of developments happening in pipe industry. I study not with the objective of ultimately investing in them but to a) grow my knowledge - you can always learn a lot by studying several different sectors b) sometimes insights from one sector help investments in other
Even with Intellect I ultimately may decide not to invest. My reason for studying them is cause they are among a few listed technology product companies from India.
On a personal note, investing is mainly an excuse for me to study and compound my knowledge. If I can increase my knowledge base in a structural manner, investing will automatically become easier for me and % returns on my portfolio is ultimately the effect of my efforts to increase my knowledge base.
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Prakash pipes looks very interesting to me, have also initiated a position and planning to accumulate more. But since I am relatively new to this space (investing) would appreciate your thoughts.
Also have a position in Prince.
Borosil, I had a position but I exited. No negatives about the sector or industry, have full faith that this is a sector to be in, but at current valuations PE -123, PEG -2+, I really don’t see how the stock can move much further. Growth, imho, will be slow.
I haven’t studied in detail yet, but from the initial investigation I can share this much.
The PVC pipe industry is gaining traction and what used to be imported is being manufactured locally now. There are several players in the market, some have a regional stronghold (e.g. Prakash Pipes) some are more advanced and well established (e.g. Astral).
The industry is moving to a better product (pvc pipes) and the old technology is getting replaced with new one, local players have also borrowed technology / established partnerships with international ones which is helping them and cutting the time and cost for R&D.
There are other tailwinds like Govt policies and infra spending that will help the industry.
That’s all I know for now, will add more insights as I research more.
Don’t go by PE and PEG ratios that you see, they are incorrect. Even at current price the stock is cheap. You’re using earnings and growth ratios to value a business that is undergoing heavy CAPEX (they are increasing their capacity 4x in next 2 years) and earnings have only just started to kick in from last quarter. These ratios are relevant when a business is a bit mature and earnings have stabilized. If you scroll up a bit on this thread, you will see my rough calculations for where BR can be in just a few years.
Watch how the stock will react in a few weeks when they release earnings of last quarter (the plant was running at 100% utilization all throughout last quarter as well).
D: This is not investment advice, please do not buy the stock on Monday just on my statements.
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Will be watching Borosil and RACL with great interest.
One problem in being new to this overall area is about having faith in your conviction. Theory is all very good but there is only so much theory you can accumulate in 9 months with full-time job, and your stock keeps slipping, and you have no prior experience in this field, and all indicators say ‘things not good’, its hard to hold on.
I was very optimistic about KPIT tech at 140 levels, took a tracking position, but it slipped to 130s and I let it go. It went to 200 and dipped when I bought back into it again. (insert embarrassed grin here). I am afraid a similar story may be playing out with Borosil as well, possibly RACL too.
Well at least have a few winners which are running (in fact technically, except for the IDFC twins and ITC) all are. Portfolio up by 16% in 3 months which is better than bank while indexes are pretty much where they were when I started (Jan 27) and for now I’m happy with this as I gain more experience. n fact it was your comment that kicked me off - The best day to start was yesterday, the second best is today. 
Prakash pipes - you might want to look at the performance of the subsidiary business they have started. That is what has me hooked here. I was thinking about starting a thread on that firm at VP, actually. Let me know if that is worth it.