Borosil : Riding An Upward Curve

Given the fact that the Indian consumer durables market is estimated to develop at a CAGR of 6.5 per cent between 2022 and 2030, reaching USD 125 billion, Borosil certainly finds itself in an envious position of assured progress 

Borosil Limited was established in 1962 as a public limited company to acquire the existing business of Industrial and Engineering Apparatus Company (P) Ltd., set up by Dr. Sridhar Lele.The name was inspired from Borosilicate glass, the primary product category of the company. The company started selling items under the ‘Borosil’ brand. Even at that time, the company had a lofty vision of being an internationally recognised scientific glass producer. As its first consumer product, Borosil introduced the iconic vision glass, which quickly became India’s most popular glass. Today, the group functions under two listed companies.

One is Borosil Ltd. which consists of consumer products and life sciences division. The other is Borosil Renewables Ltd. which manufactures and sells solar glass. The life science manufacturing facilities are located in Bharuch (Gujarat) and Tarapur (Maharashtra). It invests in and upgrades manufacturing facilities on a continuous basis with the best-in-class technologies, continuous training and development and implementation of modern business practices. The consumer product division of the company includes Borosilicate glass serve ware, drink ware, stainless steel ranges and other appliances.

Sector Overview
Durables, also known as durable goods or consumer durables, are a type of consumer goods that do not wear out quickly and thus do not require frequent replacement. They are included in core retail sales data and are referred to as ‘durable goods’ because they typically last at least three years. Economists pay close attention to consumer durables’ consumption because it is a good indicator of the country’s economic strength. From a marketing standpoint, consumer goods can be grouped into four categories: convenience, shopping, specialty and unsought goods. These categories are based on consumer buying patterns.

Appliances such as washers, dryers, refrigerators, airconditioners, computers, televisions and other electronics, jewellery, cars, home and office furnishings are examples of consumer durable goods. Some of the top consumer durables companies in India are Voltas, Honeywell Auto, Dixon Technologies, Whirlpool India, Bajaj Electricals and TTK Prestige. The Indian consumer durables industry is categorised into urban and rural markets, and it attracts marketers from around the world. The sector is made up of a sizable middle class, a substantial rich class, and a tiny economically deprived population.

The pandemic has left its mark on almost every industry across the globe. Clearly, the impact on the consumer durables’ sector is significant, ranging from supply chain disruptions to a severe impact on the country’s GDP. Still, the consumer durables’ sector’s recovery has entered a new phase with economists expecting significant growth in 2022. Global corporations consider India as a vital market from which further growth is likely. The consumer electronics and appliances industry is expected to rise from USD 9.84 billion in 2021 to USD 21.18 billion by 2025. The country’s electronic hardware production was estimated to be USD 63.39 billion in 2021.

Financial Overview
Considering the financial performance of the company recorded for the fourth quarter of FY22, on a consolidated basis Borosil Ltd. recorded net sales and other operating income of Rs220.05 crore, thus posting growth of 19.55 per cent from Rs184.06 crore reported in Q4FY21. On the other hand, the operating profit recorded at Rs44.37 crore in Q4FY22 as compared to operating profit of Rs37.90 crore in Q4FY21. Q4FY22 recorded net profit of Rs34.58 crore in comparison with net profit of Rs18.44 crore in the same quarter in the previous year, indicating a strong rise of 87.53 per cent.

Considering the yearly performance, Borosil Ltd. recorded net profit of Rs85.23 crore as against net profit of Rs42.35 crore during the previous year ended on March 2021, leading to a strong rise of 101.25 per cent. Also, net sales surged by 43.62 per cent to Rs839.86 crore as against Rs584.77 crore during the previous year ended on March 2021. In June 2022, the company released the notification of allotment of 17,500 equity shares in exchange for stock options under the ‘Borosil Special Purpose Employee Stock Option Plan 2020’ (ESOP 2020) and 11,590 equity shares in exchange for stock options under the ‘Borosil Employee Stock Option Scheme 2020" (NEW ESOS 2020).

The company is valued at Rs3,317.55 crore on the market. Promoters held 70.43 per cent stake in the company as of March 31, 2022. Institutional investors have a total stake of 2.77 per cent, out of which foreign institutional investors (FIIs) owned 2.71 per cent. Non-institutional investors have a total stake of 26.80 per cent. Due to the first and second waves of the pandemic, the company’s business was disrupted. However, after struggling during this period, it was able to handle its operations successfully. Since the past two years, the company’s debt-to-equity ratio has been zero. The company receives all its funding from equity rather than debt and all the assets are financed solely through equity.

To gain an additional financial overview, we have analysed some other glass and glass products manufacturing companies in the consumer durables sector. Borosil Ltd., Empire Industries Ltd., Haldyn Glass Ltd., Hindusthan National Glass and Industries Ltd., La Opala RG Ltd. and Saint-Gobain Sekurit India Ltd. were the companies chosen for the analysis. Borosil outperformed other companies by delivering higher ROA, ROE and ROCE than its competitors. Net sales and profit margins for the company have been increasing with each passing quarter. Different growth ratios such as EBIT, PAT and EPS have been unprecedented.

Outlook
The Indian consumer durables market is estimated to develop at a CAGR of 6.5 per cent between 2022 and 2030, reaching USD 125 billion. Rising disposable income, growing urbanisation and the launch of innovative goods are likely to boost market expansion. The Government of India has approved 100 per cent foreign direct investment (FDI) under the automatic route in the electronics systems design and manufacturing sector. FDI into single brand retail has been increased from 51 per cent to 100 per cent and the government plans to raise the FDI limit in multi-brand retail to 51 per cent.

Imports from low-cost countries such as China and Southeast Asia have expanded as a result of free trade agreements and the cheaper availability of low-cost goods as compared to domestic manufacturing costs. Global market participants also want to increase their local manufacturing in India, changing it into an export centre, in order to efficiently fulfil expanding local demand as well as export demand to neighbouring areas such as the Middle East and Africa. However, as a result of free trade agreements, Indian manufacturers are currently facing barriers such as an inverted tariff system, which makes Indian manufacturing uncompetitive for white goods such as airconditioners, refrigerators and washing machines.

This issue is worsened by the inapplicability of the Modified Special Packages Scheme (MSIPS) in a number of consumer durables, as well as increased excess duties, an underdeveloped and insufficient local supplier base and high manufacturing and capital costs due to rapidly changing energy efficiency regulations. Rising income and urbanisation, increased product affordability, product innovation, the availability of additional product variations, simpler consumer financing and an increase Peer Comparison Company Name Market Cap (Rs Cr) ROA (%) ROE (%) ROCE (%) Adjusted PE (x) EBIDTA Adjusted EPS (Rs) Analysis Equity in the proportion of organised retail are all factors contributing to the market’s expansion.

Considering the company’s outlook, it is the single largest manufacturer of a full range of volumetric glassware. It exports to more than 50 countries worldwide. It is not an exaggeration to say that all of India’s leading pharmaceutical companies, research and development labs, health and educational institutes prefer Borosil products in their laboratories. The company’s net sales and profit margins were continuously growing by each passing quarter. The vision of the company is to be the most customer-centric company in India with an emphasis on integrity, respect, safety, continuous improvement and customer focus. Hence, considering the positive long-term outlook for the consumer durables industry as well as very good opportunities lined up for Borosil Ltd., we recommend BUY.