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BORORENEW emerging as a solar glass micro monopoly
BORORENEW's improving financial performance along with potential for growth, let alone in domestic region itself, gives comfort around forward looking performance. We are LONG.
BORORENEW or Borosil Renewables came in from the restructuring of Borosil group entities – resulting in a standalone global solar glass business. BORORENEW is India’s sole domestic solar glass manufacturer. It is also the world’s largest solar glass manufacturer outside of China (China controls 90% of global solar production) granting it heightened strategic and geopolitical importance. BORORENEW fulfils 40% of India’s domestic solar glass requirement, with rest being imported from China & Malaysia (via China origin companies). India currently has around 37GW of solar capacity, representing 41% of the total renewable energy pie – projected to increase to 300GW by FY 2030.
Policy tailwinds and strategic advantages bode well for medium to long term growth
Broader macro landscape is favourable with policies like CPSU, Kusum, imposition of anti-dumping duty/CVD on SEZs and implementation of PLI worth INR4,500cr awarding incentives to manufacturers for sourcing materials domestically. Imposition of CVD on Malaysian imports and possible extension of anti-dumping duties on Chinese imports is likely to fuel further sectoral growth. BORORENEW derives 16% of its revenue from exports with presence in EU, Turkey & North America. With a focus on innovation, it became the first manufacturer globally to produce 2mm tempered glass. Furthermore, an uptick in demand for Bi-facial solar modules is expected.
Expansion plans to capture and hold a dominant position appears promising
BORORENEW plans to increase its production capacity from 450 Tonnes per Day (TPD) to 1,950 TPD in multiple phases. The first phase for 500 TPD with a capital outlay of INR500cr is on track. Of this, INR200cr has been financed via its recent QIP and balance is to be financed through debt and internal accruals in the ratio of 2:1. The plant is expected to be commissioned by Q2 2022.
Improving financials and strengthening balance sheet de-risk the investment profile
The restructuring exercise lead to a textbook “value unlock” for the solar glass business. The co. reported revenue of INR308cr for first 9M 2021, registering 74% growth and 60% volume surge on Y-o-Y basis while EBITDA has quadrupled for the same period. FCFF for FY20 was (INR79cr) and positive FCFF was achieved in Q2 2021 as co. reported YTD FCFF of INR22cr. Leverage stays accommodative with Debt-to-Equity of 0.22x and Debt-to-total assets of 0.14x, resulting in comfortable interest coverage of 11.05x. Post incremental debt of INR200cr for capacity expansion, pro forma Debt-to-Equity would be 0.81x and Debt-to-total assets would be 0.55x.
Potential risk factors to be watched closely
Increasing production in China and price fluctuations can impact near-term profitability, although cost efficient operations minimize the impact. Key lagging point for sectoral growth is the lack of incentives to increase dependence on domestic manufacturers. Though BORORENEW already has the field advantage, emergence of new entrants need to be closely watched.
Premium valuation supported by strategic advantages and broader tailwinds
Being the only solar glass manufacturer in India, the stock appears to be trading at a premium. However, BORORENEW’s rather unique and quasi-micro-monopolistic positioning somewhat justifies the premium valuation. Stock is currently trading at P/E of 30x+ and EV/EBITDA of 20x+ on FY23F considering a modest 18%/15% CAGR growth in Revenue/EBITDA. The expected uptick in demand, favorable macro trends along with strategic moats bodes well for the stock notwithstanding a somewhat stretched valuation. There just isn’t a better play on solar energy in the India markets and double digit revenue and EBITDA growth trajectory certainly makes for a compelling story.
The improving financial performance along with potential for growth, let alone in domestic region itself, gives comfort around forward looking performance. We are LONG.