Borosil Limited (BOROLTD) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Borosil Limited Q4 FY '24 Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anirudh Joshi from ICICI Securities. Thank you, and over to you, Mr. Joshi.

Yes. Thanks, Ranju. On behalf of ICICI Securities, we all welcome you to Q4 FY '24 and FY '24 results conference call of Borosil Limited. We have with us today senior management represented by Mr. Shreevar Kheruka, Managing Director and CEO; Mr. Anand Sultania, CFO; and Mr. Balesh Talapady, Vice President, Investor Relations and Business Analysis. Now I hand over the call to the management for their initial comments on quarterly as well as the annual performance and then we will open the floor for question-and-answer session. Thanks, and over to you, sir.

Thank you, Anirudh and ICICI Securities, for arranging this call. Good afternoon to every one of you. We are delighted to be communicating with you once again from Borosil. Borosil Limited's Board approved the company's financial results for Q4 FY '24 and full year FY '24 on 24th May 2024. Our results and an updated presentation have been sent to the stock exchanges and have also been uploaded on the company's website. We had earlier announced our plan to restructure the company's consumer and scientific business into 2 distinct publicly listed entities through composite arrangement scheme, the appointed date for the scheme was 1st April 2022, and the scheme has been made effective from 2nd December 2023. And pursuant to the scheme, the scientific and industrial products business of the company stand demerged into Borosil Scientific Limited. At this point of time, we still await regulatory approvals for Borosil Scientific Limited for listing on the stock exchanges which is expected to be completed by mid of June 2024. In today's call, we shall focus and discuss about Borosil Limited, which houses our consumer products business. We are very pleased that Borosil Limited had a fantastic year 2023-2024. Our consolidated revenues from operations for FY '24 was INR 942.3 crores as against INR 741.6 crores last year, which is an industry-leading growth of 27% over the same period last year. I would like to acknowledge and thank the entire Borosil team along with our stakeholders, including customers, suppliers and shareholders for contributing towards this growth. Your dedication, not just over the past year, but in the years prior, too, has built a strong foundation and enable the execution of a robust strategy that has brought us to where we are today. I'm very proud of the team's achievements and I'm also excited for the future. During the year, the company achieved a consolidated EBITDA before exceptional onetime items and investment income of INR 144.9 crores as against INR 81.6 crores last year. The EBITDA margin was 15.4% in FY '24 as against 11% in the previous year. Here, I would also like to mention that the other income includes INR 5.5 crores of shared service support income, the underlying expenses of which are reported under total expenses. That is shared service for other group companies, the cost of which is borne by Borosil Limited and is recovered by way of other income. Profit before tax during FY '24 was INR 87.8 crores as against INR 66 crores in FY '23. Last year, we had an insurance claim resulting in an exceptional gain of INR 9.33 crores and onetime net gain of INR 3.85 crores. The investment income was higher by about INR 4.32 crores during FY '24 compared to last year, whereas depreciation and finance costs are much higher this year by about INR 32.6 crores primarily due to the new Opal furnace commissioning during Q4 of FY '23. During FY '24, Borosil recorded a consolidated profit after tax of INR 65.9 crores as against -- compared to INR 51.9 crores in the previous year. Coming to our business-wide performance, Borosil consumer business comprising glassware products and non-glassware products under the brand Borosil and its Opalware range under the brand, Larah, are the 2 main separate brands that we have. Larah, Opalware is a dining and tableware range, both for contemporary designs and impeccable finish. And this has peaks our sales of INR 357.7 crores in FY '24 as against INR 260.6 crores in FY '23, marking a significant increase of 37% from the previous year. Our glassware products comprising of our microwavables, serving ware, glass tumblers and borosilicate lunch boxes as well as glass storage experienced a growth of 11.3%, reaching INR 198 crores in revenue as against INR 177.9 crores in FY '23. Our non-glassware products comprising of small home appliances, insulated bottles and flasks, cookware, this also received affective growth of 27.5%, generating a turnover of INR 386.5 crores as against INR 260.6 crores in FY '23. The strong performance across all our categories underscores the successful execution of our strategy to broaden the Borosil brands offering to cater to diverse kitchen and serving needs in Indian households. It also reflects the enduring equity and the feel of the Borosil brand across different product ranges. Over the past few years, Borosil's consumer business has successfully diversified beyond its primary focus on microwavable glass products and has established 3 robust pillars that ensure sustainable future growth. The glassware, Opalware and non-glassware verticals have all reached significant sizes and are poised for further expansion as the penetration and usage frequency increase. In FY '24, Borosil has launched thousands of new SKUs across these 3 ranges, amongst which include Borosil's new artisan series, borosilicate jars and containers, coffee mix, air fryers and gas stoves, which have been well accepted by customers. Furthermore, new designs in Opalware, Opalware lunch boxes and storage sets, kulhud mugs have gained high traction amongst users. Borosil continuously seeks to increase its digital presence and engagement and also engages in brand associations. We have entered into a brand endorsement arrangement with celebrate Chef Harpal Singh Sokhi for the hype of using steel flasks and bottles, Borosil has been the hydration partner to the Indian Olympics Association for the Paris Olympics coming up shortly. To enhance brand awareness and strengthen brand recall Borosil utilizes a diverse array of promotional and marketing efforts, including in-shop display, merchandising, advertisements in print as well as social media, retail branding and product branding. The organization has developed a strong brand identity through effective brand advertising and marketing campaign, including the Borosil OTG campaign as well as the Larah festive campaign. Borosil has a well-established stride of way, which is continuously growing at all social medial platforms. We also run automated campaigns on Google ad services as well as commence campaign across Facebook and YouTube on a periodic basis. The brand is further actively promoted through various influencers across food and lifestyle sections. Coming to the balance sheet, average operating capital employed in the business that is capital employed without CWIP and investments was INR 601.2 crores. During FY '24, the company earned operating profit, again before exceptional and one-time items and before our total investments of INR 90.9 crores, translating into an annualized operational ROCE of 15.1%. The ROCE is expected to increase going forward with improved margin as we enhance the manufacturing base as well as higher capacity utilization from our new manufacturing capacities. As of 31st March 2024, the company has a net debt of INR 159.4 crores. Investments as on date are INR 92.3 crores. Our primary goal at the moment is to expand our brand franchise. We are focusing on upgrading ad to avoid consumers from plastic and melamine to glass storage and Opalware, while also increasing adoption of glassware and microwaveable products. To broaden our collection, we continue to introduce new items including portable high-grade steel products as well as home appliances. Our aim is to establish Borosil and Larah as go-to brands in every Indian kitchen for illustrating storage, preparation, cooking, heating and serving meals. As previously communicated, new borosilicate pressware facility in Jaipur with a capacity of 25 tonnes per day was commissioned on January 31, 2024. Further, we are pleased to announce that commercial production of this facility began on March 28, 2024. This initiative will reduce our dependence on imports in product offering and need domestic as well as international demand for borosilicate glass pressware and provide a competitive edge through lower production costs. Borosil Limited is committed to adhering to sustainability principles, emphasizing on responsible business practices. In this regard, we have also developed an ESG road map setting significant targets for the company in environmental, social and governance sections. The progress is regularly monitored and reported to key stakeholders through periodic reviews. We have created, modified the various policies such as ESG policy, our sustainable supply chain policy and equal opportunity policy et cetera renewable future. We've also formulated and deployed [indiscernible]. We have communicated our ESG priorities and related initiatives in annual and [indiscernible]. This year, we're taking a step ahead and have proposed to go about integrated reporting framework to showcase our ESG efforts. We remain highly optimistic about the medium-term prospects for our consumer business while we may encounter slow growth and cautious consumer behavior which is mostly cyclical in nature, we anticipate robust growth in our sector due to a favorable long-term trends. Our primary focus will be on expanding our customer base, launching innovative new products, optimizing our supply chain and marketing channels. Additionally, we will continue to invest in enhancing our brand's visibility. Thank you for your attention. With that, I'd like to throw the floor open to questions.

[Operator Instructions] The first question comes from the line of Pranay Roop Chatterjee with Burman Capital.

Sir, my first question is with respect to the FY '25 growth outlook for both consumer glass and Opalware. On consumer glass growth has been around 11% this year. Do you expect the next year to be on similar fashion or as the utilization increases the growth will be much stronger? And secondly, Opalware, it seems that the volumes are more or less at peak utilization. So how much growth can be expected for the next year?

Yes. So as far as the glassware business is concerned, now that we have our new manufacturing facility, I do expect growth to be substantially higher than the 11%, 12% we had last year. The reason being, as I mentioned, that we are able -- in the past also we -- and also new products and we have also some pricing advantages on manufacturing. Our goal is to make it an everyday use item, glass to be everyday use item. And for that, in some products, we would like to offer pricing, which is more competitive. And I can tell you that overall, glassware definitely be -- should drive growth this year. Coming to Opalware, we had about 80% capacity utilization. And I think we have a good shot at going to the -- closer to the 100% level. So we do have room to grow. But rather than commenting year-to-year, I would say that broadly I have always been mentioning a 15% to 20% kind of CAGR growth and I think we have been slightly ahead of that. But I would expect that there should not be any change in the medium-term growth forecast.

Got it, sir. That is helpful. Nextly, on your cost base, if I compare Q3 2024 to Q4 2024, employee expenses and other expenses have gone up by around INR 12 crores and depreciation is up by around INR 3 crores. So if you could help us understand what has led to this? If there is any bonus payment that have been recorded? And if any of the new furnace borosilicate pressware furnace costs have already been booked in Q4?

Yes. I think the answer -- you already answered the question across -- yourself said, because our end -- in fact, I alluded to it in my opening remarks. We now Borosil group has 3 -- almost the third company will be listed soon. But basically, we're operating as if we have 3 listed entities. And Borosil Limited -- all the support functions are at Borosil Limited and Borosil Limited recovers the cost of these functions, which are given for Borosil Scientific as well as Borosil Renewables. And that comes with other income. So whatever we recover comes as other income, whereas the expenses in the employee cost or the relevant head. So therefore, the costs do look a bit inflated because this has started in the last quarter, actually, this whole shared services function. So it's showing a little bit higher, but you have to offset some other income against these expenses, which will give you a fair picture. Secondly, yes, definitely, we do have bonuses that we have given because we have a good year, so that there is some amount of onetime aspect to that, which have come in. And as you rightly mentioned, depreciation also has gone up. So Q4 numbers have been a little bit more muted. But those are, as I mentioned, we have to take some amount of other income. And whatever overall EBITDA margin we have maintained, I think that's sustainable and will also grow in the coming years.

Got it, sir, if you could just specifically comment on the new furnace because that's going to change the complexion of the P&L, at least in the next couple of quarters? So have you already booked any cost? And I'm talking employee, other expenses and depreciation for the overall.

Yes. Employee costs have -- so look, there are quite a few employees which we have hired many months ago, and they have already been baked into the system, okay? But I think more -- the employee cost is a small fraction. The challenge with any production line is always, let's say, the ramp-up to full efficiency. So we are not there yet, and it will take maybe 2 or 3 quarters for us to achieve the full efficiency. So more than employee costs, I think the power and fuel, while we are spending it, the cost -- the efficiency being lower, there'll be slightly higher inflated power and fuel costs. Employee costs, like I said, would not be materially different going forward. Of course, everybody gets increments. So that may -- that there will be some increment associated with it. But the other expenses, let's say the fixed overhead expenses will be spread over a smaller base, just till we achieve the full efficiency. So that will impact at least in that section of the business for 2, 3 quarters, I would say. It's hard for me to elaborate on the quantum because I don't know it myself, but there will be some impact.

Got it. If I talk in -- so my last question is if I talk in terms of full year margins, right, for your consumer division. If I see in FY '24, full year EBITDA margin was around 14% pre other income. Obviously, some amount of other income needs to be taken, so probably a few bps more. This 14% margin when I think about it from a next year perspective, where H1 is going to be impacted and probably as utilization increases, the margins will improve. Should we expect the margin hit decline improvement, if you can give some directional sense for the next year as a whole basis your projections?

So actually this year, EBITDA margin was 15.4%. If you net off the other -- I think the relevant point from other income versus the extra cost. So actually, our EBITDA margin for our operations was 15.4% in this year in the FY '24. Look, it's hard for me to give you specific numbers for FY '25. All I can say is that the borosilicate furnace that we've added, short term may have some impact, but I would say it would dramatically help improve EBITDA in the -- in, say, the coming year. Now when it starts -- when we are able to reach the full efficiency, like I said, maybe 2 or 3 quarters. But once we hit full efficiency and our sales, we are seeing good traction there, if we're able to do the -- sell the tonnages that are coming from here, I think our EBITDA margin was substantially improve. In the short run, in the first 2, 3 quarters, what is the impact, whether net will it reduce EBITDA margin or will you able to sustain this, it's very hard for me to be specific about it. And I frankly don't even know it. It depends on too many other factors. But we are investing in the business from a long-term perspective. And therefore, 1 or 2 quarters, when we know the root cause of the challenge. I don't think is that -- trying to -- seem that importance. So I'm afraid, I wouldn't be able to share with you exact numbers because I don't know.

Sir, and when you say full efficiency, what utilization would that mean, like you said in 2 to 3 quarters' time...

75% to 80% would be -- we may be at about 50%, 55% now, we'll go to 70% or 80%. We will achieve it surely.

Next question comes from the line of [ Vipul Kumar Anopchand Shah ] with Sumangal Investments.

So what is the reason for a sharp drop in all categories when we compare the sales for all 3 categories to the December quarter, sir?

Well, our business is quite a cyclical business in the sense that Q3 was the Diwali quarter. So actually, in 1 month, you have more or less 2 months of sales, Diwali was bit later this year as well. So I would say that is the main reason. It would be right to compare Q4 versus Q4 of last year.

That would be right way to compare?

Yes. And there we have shown a significant growth. So I would encourage you to look at Q4 versus Q4 owing to the cyclical nature of business.

And sir, what will be the ramp-up schedule of this new furnace and all -- and at full capacity utilization will be able to manufacture 100% of glass products from that furnace or still some imports will be there?

So actually, this furnace has 3 times the capacity of our current phase. So it's actually 300%. So we need to grow our business by almost, say 2.5x or 3x depending on the price benefits we make with our customers. But in principle, that's -- the capacity is more than enough to manufacture -- to compensate for everything that we are buying as far as pressware is concerned. There are some products, glassware products, which are like blown products, which are very small in volume, which we'll continue to import. That's because this production is not set up for that. And as far as ramp-up is concerned, like I said before, 6 to 9 months, I think we should achieve the full efficiencies that we expect to achieve.

But to achieve 3x the current sales, we need to capture market means we'll be taking some price action due to lower cost?

Yes, that's right. As I mentioned earlier, we would definitely give in some categories of products where we believe we want to replace plastic or steel, we may have to give some benefits -- pricing benefits to the customer, end customer. So we would do that from a strategic perspective in some categories in order to grow volumes. And our goal is definitely that glass or rather, our belief is that glass is a healthier alternative to eat out of. And therefore, we should -- we want to encourage our customers to switch from plastic and glass to steel.

So is it safe to assume that until the full ramp-up happens, we may have some dip in EBITDA margin in the intermediate period?

I would not like to comment on that because I don't know. Obviously, we -- our endeavor would not to have any dip and only growing the margins, but there are too many variables here to quantify because this is a small part of the overall business. So whether the dip will be meaningful or whether we can avoid it or whether we can increase our margin. This is -- frankly, I don't answer to this question. It depends on many factors. And I would say that once the operations are stabilized, which I'm sure will happen like I said, in 2, 3 quarters, then the margins will only grow. So what happens for 3, 6 months in the middle, it's not really that relevant. Obviously, our endeavor will be to only grow margin, not how many dip.

And sir, my last question. So at optimum capacity utilization, this furnace can generate annual sales of how much, means to 3x our annual current sales?

Yes. For press products. So we, what we show in the presentation is glassware sales. Pressware product is a subsection of it, maybe about 50% of it. So yes, 3x of our press product sales probably is right.

Would you repeat? I didn't get it, sir?

Apart from our glassware sales, press is the way of making glassware, you can press it, you can blow it, you can make tubes from it. So this furnace is a pressware production. So about half of our glassware sales is coming from press, press technology, let's say it. And we can triple that.

Okay, 3x means 1.5x of the current sales, right?

Yes, of course, the others will also sell, the other -- you're right, but others will also -- so we will also increase sale of other products where we already have extra capacity. So -- but yes, you're right, it fit together.

Next question comes from the line of Aditi Bhatted with Niveshaay.

Sir, so my question in line with pressware facility, the new facility. So what would be the current operational efficiency with this?

At the moment, I think it's about 60%.

And I mean, we could have obtained an optimum level in 6 to 7 months, as you mentioned?

Yes. That's the goal.

Okay. And sir, I believe that we are still importing a certain percentage of products in this division? And what would be that percentage?

We will not import -- we import products in other -- I mean, we have products which we don't manufacture, for example, steel, we don't manufacture, which we import. And like I said, there are some blown products in glass, which we don't manufacture, which we'll continue to import. The overall import percentage will drop this year. I think our overall imports will be less than 30%.

Sorry?

Maybe even 20%.

And sir, like for this year all our CapEx that we have planned, they are operational now be it pressware, be it Opalware, everything is operational right now. And I believe we are targeting to achieve us optimum capacity utilization with this and increasing the margins with that. So what do you identify as your major sales driver for this year? I mean in terms of revenue guidance, would you identify as the major sales growth driver?

In terms of product category or...

In terms of product category, in terms of product category.

Yes. Like -- so glass will definitely be one of the major drivers in terms of growth, revenue growth. And of course, Opal also we have capacity left, so that will also -- we should be able to grow that business as well. So the glassware and Opalware, I would say, would be the 2 main drivers of revenue growth.

And sir, Opalware, are we planning any further capacity addition? Because I believe that we are already running at around 60% to 70% capacity utilization, which we will fulfill by quarter 3 also going ahead. Do you plan anything further?

At this very moment, we are not planning anything because we are looking at premiumization of our Opalware range as well as utilizing the 100% capacity. So at this very moment, no.

And sir, lastly, one of our CapEx, which was put on hold for backward integration. I mean do we have any guidance for that?

At the moment, so that will now come under scientific division. That will not come here. Because that's mainly used for scientific. So -- and that's on hold only. I don't think, they're, at the moment, looking to get into that.

But that was helpful for the raw material side of consumer division as well, right?

Yes, that's right. But at the moment, we are able to source this at very low prices. So we are -- that would not -- at this current moment, we would like to operationally, let's say, stabilize our current production, what we have just done and maybe we can relook at that in the coming year.

Next question comes from the line of Pratik Banthia with Girik Capital.

Yes. I would just like to know how much are you going to spend on advertising in the forthcoming years as a percentage of sales?

It's going to be in the 7.5% range, 7% to 8%.

And in FY '24, what was that number?

Also same, similar.

Next question comes from the line of [ Prateek ], with Subh Labh Research.

Congratulations for a good set of numbers. I just have 1 question. 1 question, so will the company structure now, very, very segregated. Is it fair to assume that the earlier mix of bandwidth, managerial bandwidth is 3 now and there will be a shuffle, a dedicated focus on all 3 verticals separately, if you can help us understand from managerial perspective.

I'm sorry, you were a little bit muffled, but what I understood is you're asking about managerial bandwidth across the businesses. Is that right?

So I'll quickly repeat my question. So I just want to understand with a very well segregated company structure, in 3 divisions now, well listed. The mix of bandwidth, which was earlier there, is it optimally free now for a sharper and dedicated focus?