BOROSIL LTD Rs 415
Nobody knows a company better than its management. Average managements knowingly over-commit and under-deliver. Great managements under-commit and over-deliver. But sometimes a company can outperform without its management being aware of the reasons behind it and thereby also be unsure about its continuation. Borosil Ltd seems to fall in this category.
From FY2018 to FY2024, its revenues have grown at the rate of 24.8% and Operating EBITDA at the rate of 36.5%. In conference call post FY24 numbers, management guided for a relatively sedate 15-20% growth in the foreseeable future. However, its following quarter ending Jun 2024 surpassed the guidance by a wide margin with revenue, operating EBITDA and PAT rising 23%, 45% and 80% respectively.
Borosil has been well known primarily for its microwave safe kitchenware. In the last few years, it has expanded the product range extensively and made it much more relevant. Its glassware range now includes lunch boxes, jars, water bottles, containers etc. It has made great strides in the non-glassware segment with products like stainless steel flasks, pans, cookers, gas stoves, non-stick cookware etc. It has also become a major player in Opalware dinner sets, containers, coffee mugs, tea sets etc.
In recent years because of aversion to plastic, higher disposable incomes and preference for better aesthetics, alternate categories like the above have been doing very well. Besides this secular uptrend, Borosil products seem to have hit it off with the consumers (that too in a subdued demand environment) while listed peers like TTK Prestige, Cello World Ltd and La Opala Ltd have languished as can be seen from the table below: –
| All figures in Rs crores | 4 Year (FY20-24) Sales CAGR | 3 Year (FY21-24) Sales CAGR | 1 Year (FY23-24) Sales Growth | Q1FY25 YOY Sales Growth | 4 Year (FY20-24) EBITDA CAGR | 3 Year (FY21-24) EBITDA CAGR | 1 Year (FY23-24) EBITDA Growth | Q1FY25 YOY EBITDA Growth | |
| TTK Prestige | 7% | 7% | -4% | 0% | 3% | -2% | -16% | -11% | |
| Cello | NA | 24% | 11% | 6% | NA | 22% | 21% | 8% | |
| La Opala | 8% | 20% | -19% | -15% | 7% | 25% | -21% | -23% | |
| Borosil | 21% | 35% | 27% | 23% | 37% | 73% | 77% | 46% |
Borosil has recently commissioned India’s only borosilicate plant for glassware which will reduce its import dependence and increase margins. Its operating margin is currently around 15% which the management expects to cross 20% in the upcoming quarters as capacity utilisation improves. Hence the bottomline is expected to grow at rates higher than its topline.
There are a few concerns as well. Firstly, it will face capacity constraints in a couple of years requiring additional capex. Secondly, it is outsourcing all its appliances from China and these products have come under BIS restrictions. For the current year, Borosil has imported sufficient inventory but beyond that it will have to tie up with domestic manufacturers for continued supplies of competitively priced good quality products. Finally, its valuation at around 70 PE is quite elevated.
It is difficult to make an accurate estimate whether Borosil’s high growth is merely a one off or its products have hit a chord with the consumers and the management/market is just not aware of it. But a company that bucks the industry is always worth looking at. As a base case, assuming sales growth to be at the lower end of management guidance of 15-20% and with expected margin expansion, its PAT growth could be assumed at @ 18% for the next few years which gives FY29 EPS target at @ Rs 14. At exit PE of 40 this leaves around 6% on the table for investors with chances of meaningfully higher returns if Borosil continues to positively surprise in the upcoming quarters.