Borosil Glasss Workss Ltd Q2

Q FY 17
1 Postt Resultts
Confe
ference Call
Novem
mber 288, 2016
6

MANA
AGEMENT
T: MR. SHREEVA
AR KHERU
UKA MANAGING
G DIRECT
TOR &
CHIEF
F EXECU TIVE OFF
FICER, BOROSIL G LASS WORKS
LTD
MODE
ERATOR:

MR. ABHISHEK
K RANGA
ANATHAN AMBIT
T CAPITA
AL

Pa
age 1 of 19

Borrosil Glass Works

W
Ltd
November 28, 2016
Moderatoor:

Ladies an
nd Gentlemen, G
Good Day and Welcome to th
he Borosil Glasss Works Limitted Q2 FY17 Post Results
R
Confereence Call hosted by Ambit Capital. As a rem
minder, all particcipant lines
will be in the listen-onlyy mode and there will be an op
pportunity for yyou to ask questions after
the presen
ntation concluddes. Should yo
ou need assista
ance during thee conference call,
c
please
signal an operator by prressing * theen 0 on your touchtone phoone. Please notte that this
conference is being recoorded. I now haand the confere
ence over to M
Mr. Abhishek Raanganathan
from Amb
bit Capital. Thaank you and oveer to you sir.

Abhishek
k Ranganathan
n:

Good Aftternoon, Everybbody. We havee Mr. Shreevarr Kheruka M

M.D. and CEO of Borosil
Glass Wo
orks with us too discuss this Quarters
Q
Earniings, I am grat
ateful to Mr. Kheruka
K
for
giving us the opportunity
ty of hosting th
his call. Mr. Kh
heruka will opeen with brief reemarks and
then the floor
f
will be oppen for questio
ons-and-answerrs. Over to Mr.. Kheruka and thank you
very much
h again.

Shreevar Kheruka:

Good Aftternoon, Ladiess and Gentlemeen. Welcome you

y to the Boroosil Quarterly Conference
C
Call. I will spend a few minutes going through a smalll deck which w
we have already
y uploaded
on our weebsite and on thhe BSE websitee. I am going to spend maybe
be about 10-min
nutes going
through th
he salient pointts of the last qu
uarters perform
mance and up too the half year ended FY17 as welll as a Scheme oof Amalgamatiion that we havee announced inn the last board meeting.
m
So just to give you a litttle bit of a back
kground, Borossil is a brand w
with a 50-plus year
y
legacy
and we arre the market lleader in micro
owavable kitcheenware throughh our Consumeer Products
division and
a in laboratoryy glassware thrrough our Scien
ntific Products ddivision.
For the half
h
year endeed September 3
30th our total turnover on a standalone baasis in the
Consumerr Division grew
w 40%, and on
n the Scientific Products divisiion on a standaalone basis
grew 16%
%. Total Standaalone growth waas 27% and th
hen if we add thhe two acquisittions -- one
of Hopew
well which we acquired in Jaanuary of this year and secoond Klasspack which we
acquired end
e of July of this year - ourr growth was around
a
80%. Inn terms of EBIITDA from
operationss, on a standaloone basis the EBITDA grew 44%.
4
With the ttwo companies Klasspack
and Hopew
well it grew 11 6%, and the PA
AT virtualy dou
ubled overthe laast half year.
Going forrward, on the proposed Scheeme of Amalg
gamation, the ccompany has proposed
p
a
scheme fo
or three compaanies to get co
onsolidated into
o Borosil; thatt is Hopewell Tableware,
Vyline an
nd Fennel Invesstment. This traansaction was advised by PWC
C and the valuaation of the
companies was done by SSPA & Co. with
w the fairnesss report providded by Keynotee Corporate
Services. The rationale for this amalgamation is to ensure
e
a simpllified group strructure and
remove a number of relaated party transsactions that weere happening iin the past. Ho
opewell has
been a 10
00% subsidiary of the parent company, so th
here is not mucch to discuss on that one.
Vyline is a promoter heldd company and
d has been a thirrd-party manufaacturer for Boro
osil; its last
year EBITDA was aboout Rs.10.5 crores and PAT
T of Rs.2.3 croores. This willl now get
consolidatted into the ooperations oncce the necessaary approvals for the mergeer and the

Pa
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Borrosil Glass Works

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Ltd
November 28, 2016
shareholder approvals arre through. Thiss will result in reduction
r
in adm
ministrative and
d operative
cost and will
w also allow, like I said, few
wer related party
y transactions.
In the cou
urse of this trannsaction two oth
her things happened -- one is tthe promoter sh
hareholding
goes up by
b a couple of ppercentage poin
nts from 72.26%
% to 74.58% an
and Gujarat Borrosil which
was owneed only 25.25% by Borosil, now
w becomes a 58
8.38% subsidiar
ary of Borosil.
Coming to
o more detailinng on the performance of the company divisiion-wise. I will start with
the Consu
umer Products division. In the
t past, we have traditionallly been a Miccrowavable
Glasswaree company withh a limited ran
nge of productss this was abbout 4-5-years ago. In the
last, say 3 to 4 years, w
we have enhanceed our strategy, which is leveeraging our bran
nd and our
distributio
on channel to seell more produccts to the same customer and tthrough the sam
me channel.
So the ideea is to changee from an occaasional use prod
duct to an everryday use prod
duct for the
modern an
nd contemporar
ary homemaker,, and the main target segmentt is the middle to
t upper to
high-end income
i
earner, and our channeels include mod
dern trade. We have a higher percentage
of sales through
t
modernn trade outlets like Big Bazaaar, Reliance aand so on, and
d of course
traditionall trade is still vvery strong in th
he country. Butt I see the ratioss tending towarrds modern
trade as well
w as e-commeerce business.
So now we
w are presennt across categ
gories including
g Glass Microowavables, Tum
mblers and
obviously
y Opalware throough our acquissition of Larah, the Storage seggment and the Appliances
A
segment. All of these cattegories have fairly
f
large mark
ket sizes and go
good growth and
d there is a
lot of opp
portunity for brranded players because we see a trend towar
ards branded prroducts and
more aestthetic and hygiienic products to be used in the kitchen. Thhere is a lifesty
yle change
towards convenience andd improved preesentation and this
t is made poossible because of the rise
of the mid
ddle class.
There are also innovatioon possibilities in these produ
uct categories w
which we are capitalizing
c
on; in fact, new product development in
n our core prod
duct categories,, this is to say without
w
the
acquisition is contributinng 20% of our sales
s
for the year. New produucts is defined as
a products
which are introduced in tthe last 3 years..
We do alsso see another trend of movin
ng away from plastic
p
and steeel towards glasss. That is a
clear trend
d we see acrosss many of our retail outlets beecause of the pperceived beneffits of glass
being morre hygienic andd healthy.
Borosil haas always been the gold standaard on quality and
a we have alsso had very stro
ong channel
loyalty beecause of the waay we deal only
y in terms of ou
ur account settleements and in teerms of the
strong bacck-up we havee towards our product.
p
Whenever there is a pproblem we maake sure we
solve it. So
S the channel iis extremely loy
yal and we tend
d to get a fair shhare of display shelf space
in the chaannel. This is aalso proven wheen we introduced Larah, in a very short periiod of time
we have been
b
able to inncrease the num
mber of sales ou
utlets which caarry Larah and I think the
Larah salees in the first hhalf of the yearr have been Rss.44 crores com
mpared to a salle of Rs.48

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Borrosil Glass Works

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November 28, 2016
crores for the entire yearr last year. So there
t
has been a substantial grrowth in Larah and one of
the key reeasons has beenn the channel lo
oyalty towards our company. B
Besides, of cou
urse, we are
also spend
ding a substantiial sum of moneey on brand-building through aan advertising campaign.
c
So just to talk about Laraah little bit morre. The market is still dominatted by a single player. We
expect thaat there is a goood opportunity for a second pllayer to come iin and grow thiis category.
The target is the mass m
market customeer for daily usaage. Our custom
mers on the mo
odern trade
side inclu
ude Big Bazaarr, Walmart, Hom
meTown, DMa
art, Metro, Reliiance. I can naame quite a
few moree of them, andd we also havee some institutiional customerrs such as Sam
msung, LG,
Whirlpooll, IFB who end up doing crosss-promotional sales along withh our product raange.
So just to summarize thee Consumer Pro
oducts range, I think
t
the perforrmance for the first
f
half of
the year has
h been quite rreassuring, has been very good
d. The core cateegory has grow
wn aided by
NPD, and
d also the acquuisition of Laraah has benefited
d us because w
we have seen a lot of our
channel partners adopt annd start selling this product. We
W have got goood response from this. We
are going
g to continue sspending aggressively on the brand campaiggn and also grrowing the
distributio
on for this produuct category.
Coming to
o Scientific Prooducts: We offeer Glassware Liquid Handling Systems and In
nstruments.
Our main
n customer basee includes phaarma companiees, biotech, miccrobiology, foo
od and soil
testing. We
W have a substtantial market share in the Gllassware aspectt of this producct category
and now we have just introduced a new
n
brand called Labquest; this brand is mainly for
laboratory
y equipments. It sells at lesss than a lakh of
o rupees whichh is almost treated like a
laboratory
y consumable. So the purchasse decision is in
n the hands of the end-users and
a it does
not go thrrough a purchasse committee to
o make this deccision. Here is w
where we have strength in
the core raange of Borosill Glassware, wh
hich are small-ticket items, muultiple SKUs.
Here it is important to saay that this division, even thou
ugh we sell to innstitutions, is not a typical
B2B or in
nstitutional bussiness; we treat it like consum
mer business bec
ecause we actuaally end up
going to th
he end-consum
mer which is a sccientist in the laab and we sell oour product to him
h or her,
we brand it and they are indented as a branded
b
producct. It is not instiitutional sale which
w
is just
focused on
n pricing. It is tto do with qualiity as well as brrand, which plaays a big role in
n this.
The market size here for Lab Glass is ab
bout Rs.220 cro
ores; we have rooughly 60% maarket share,
growing at
a about 8% too 10% - that is the domestic market. . Thee International Lab Glass
market sizze is about Rs..4,000 crores; here
h
the growth
h is much flatte
ter actually - ab
bout 1% to
2%.
In the inteernational spacee, we have justt recently entereed the market a couple of years ago; last
year reven
nues were abouut Rs.6.5 croress. I expect that to
t increase goinng forward because of the
price advaantage we havee. Our main taarget areas we are focusing onn are Middle East,
E
Africa
and South
heast Asia. Thee lab instrumen
nts is a Rs.150 crore industry domestically, growing at
about 8% to 10% and heere there is a good opportunity for import sub
ubstitution becau
use a lot of

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Borrosil Glass Works

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Ltd
November 28, 2016
these prod
ducts are cominng in from Euro
ope and North America, very highly priced and I think
we have a strong chancee to sustain good
d margins and growth
g
in this ccategory becausse of better
service.
Finally, coming to Pharm
ma Packaging, which is our fo
ourth category in the Scientifiic Products
division: The
T market sizze is about Rs.5
500 crores, grow
wing a bit fasteer about 10% to 12% and
we are entering this markket through ourr acquisition off Klasspack whiich had revenuees last year
of about Rs.28
R
crores.
So growth
h opportunities in Scientific arre mainly in the Pharma spacee, import substtitution and
selling mo
ore products to the same custo
omer in India as
a well as exporrts. So the reaso
on why we
are strong
g here is that wee have a wide product
p
range which
w
meets all our customers needs and
we are no
ot easily repliccable by compeetition becausee of the stocks that we have across the
country; customers
c
can buy small quaantities from uss with deliveryy times of only
y 24 hours,
which is just not easy to replicate. So we
w have a high investment in oour stocks, we have quick
and on-tiime delivery oof the entire range and wee have produccts that meet absolutely
internation
nal quality bencchmarks.
Even thou
ugh pharma com
mpanies which are European and
a North Ameerican when theey come to
India they
y may have a ddirective from their parent to buy
b German gla
lass, but they acctually end
up buying
g all the glass ffrom us becausse they just can
nnot source it fa
fast enough or at
a the right
price. So we are able too sell it to them
m even though they may havee a worldwide tie-up
t
with
some otheer company. Wee have very stro
ong customer reelationships andd virtually 90%
% of pharma
companies would have m
majority of Boro
osil Glassware in their labs.
We acquirred Klasspack iin July 16; theey are mainly making
m
tubular gglass wires and
d ampoules.
It complements our anallytical vials ran
nge, which is used
u
in the lab, and the custom
mer base is
exactly th
he same; it is baasically the large pharma com
mpanies that buuy this. Right now,
n
in that
market wee see an opporttunity because there
t
is only on
ne strong playerr in the market and this is
the raw material
m
for the pharma compaany; so they waant a second suupplier. Becausse we are a
customer--centric companny our customers told us that we
w need to get iinto this markett and rather
than do Greenfield
G
we tthought it woulld be best to do
o an acquisitionn. The revenuees last year
were Rs.2
28 crores and in the 2-month
hs that we bou
ught it the revvenues are Rs.6.5 crores;
however, I want to stres s that here therre is a long lead time before w
we can convertt customers
because th
here is a lot of ttesting and certtification that needs to happenn. So typically it takes 6 to
12-months before we cann convert a custtomer to be a pu
urchaser in this segment.
Some of the key custoomers that we deal with in this division aare Cipla, Myllan, Lupin,
Ranbaxy
basically eveerybody in the pharma
p
index would
w
be a stronng customer forr us.
So going forward, just to summarize,, we have a very strong braand equity, ourr Scientific
Products business
b
is a stteady business, it is growing well
w and it is a cash flow gen
nerator, that
cash flow then is used too pump into ou
ur Consumer Pro
oducts divisionn which has faster growth,

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Borrosil Glass Works

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Ltd
November 28, 2016
where wee can build ourr brand equity, expand into more
m
product caategories, we have
h
a very
wide netw
work of happy cchannel partnerrs, balance sheet is strong; soo it enables us to
t invest in
brand buillding as well ass potential acqu
uisitions in the future.
f
The last point;
p
GST is llikely to be a good
g
benefit forr us because m
most of our com
mpetition is
unorganizzed and I expecct that in the fu
uture with GST
T coming in andd more organizzed players
that will lead
l
to margin expansion and
d more efficien
ncies for the orgganized players. So, with
that I wou
uld like to closee comments on the
t Scientific Products
P
and thee Consumer Pro
oducts.
I want to also share coupple of thoughts on Gujarat Borosil which beecomes a subsid
diary for us
upon apprroval of the Sccheme of Amaalgamation. Gujjarat Borosil iss in the busineess of solar
glass, theey are the onlyy solar glass manufacturer
m
in
n India. The tturnover last year
y
of the
company was Rs.182 croores with an EBITDA of Rs.3
35 crores; this year in the firsst half they
have donee about Rs.90 ccrores of turnov
ver with Rs.20 crores of EBIT
TDA. So the maargins have
been grow
wing slightly hhere. Solar indu
ustry has a strrong governmen
ent impetus, theey need to
achieve 100 GW capacitty usage by 202
22. Just to put it
i in context, ouur company can
n do 1 GW
currently per year and w
we are planning to expand this to 2.3 GW in tthe next 18 mo
onths. So, it
is still a small percentagge of the overall demand for th
he target set byy the government. Exports
are emerg
ging as a good ggrowth kicker here;
h
at least 20
0% are exporteed. Company is looking to
more than
n double its caapacity and the EBITDA margins are prettyy strong. We haave market
leadership
p in the Indian Solar Glass market,
m
we are cost competitivve with Chinesse supplies,
and we haave a state-of-tthe-art manufaccturing facility with strong tessting and R&D
D. This will
allow us to
t come up withh new productss in this segmen
nt. We have alsoo launched thesse products
and have got good accceptance in th
he market. Cusstomers here aare some of the leading
companies in India -- Taata Power, Waarree Energies, EmmVee,
E
Topsuun, Lanco, Vikrram Solar - they aree key customerrs in domestic.. In exports, we
w are exportinng to Spain, Italy, US,
Germany and we have sstrong and repeeat customers over
o
here. Sincce the call is for
f Borosil
Glass Wo
orks Ltd, I am not discussing
g too much abo
out Gujarat Boorosil, but I am
m happy to
answer those questions aalso separately.
I would liike to now connclude my part of this discussion and am happpy to take any
y questions
and answeer them as best as I can. Thank
k you very much.
Moderatoor:

Sure, than
nk you very m
much. We will now begin the question-and-aanswer session
n. The first
question is from the line of Hitesh Kum
mar from Ideas With
W Convictionn. Please go ahead.

Hitesh Ku
umar:

I just havee three questionns from my end

d: One, if you could
c
just sharee what is the to
otal number
of outstan
nding shares poost the amalgam
mation? Two, now
n
that Gujarrat Borosil is a subsidiary
and that you
y have planss of expanding the capacity frrom 1 GW to 22.3 GW, what will be the
CAPEX outlay
o
there andd how do you plan
p to fund thatt CAPEX? Thre
ree, if you could
d just share
the objecttive behind valuuing the non-co
ore real estate asset and probabbly what is the book value
of this non
n-core asset in tthe books at thiis point?

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age 6 of 19

Borrosil Glass Works

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Ltd
November 28, 2016
Shreevar Kheruka:

On the CA
APEX for the G
Gujarat Borosil project,
p
we are looking for Rs..270 crores rou
ughly. Tthat
is going to
t be funded byy internal accru
uals as well as some equity rraising which has
h already
been apprroved by the Guujarat Borosil Board;
B
of course also some terrm debt, that will
w increase
the capaccity to 2.3 GW
W. I just wantt to stress herre that Gujaratt Borosil has a separate
management team and, w
while the promo
oter family is th
he same, the maanufacturing an
nd the sales
are done by separate teeams from Borrosil; that is an
nother point I wanted to mak
ke. On the
objective of valuing the nnon-core assetss in Borosil, wee realize that wee are focused on return on
capital em
mployed and wee found that therre is some chun
nk of non-core rreal estate in th
he company
that reducces the return onn capital emplo
oyed. So we aree valuing it at thhe moment and depending
on how it turns out, the bboard may deciide to sell it or to do other thinngs with it; thaat is not yet
clear, but the objective is to increase the ROCE. Th
he book value w
would be rough
hly around
Rs.70 cro
ores to Rs.75 ccroresbut I am
m sure you can get that evenn from our ballance sheet
which waas shown last yyear. There are three assets; th
here is a flat inn Samudra Mah
hal, there is
Beach Towers flat and thhere is Amby Valley
V
flat. As far as number oof shares is con
ncerned we
will go frrom 23,10,0000 equity sharess to 25,20,00
00 plus/minus eequity shares in
i the post
amalgamaation.

Hitesh Ku
umar:

Fennel haas an investmennt in Gujarat Borosil. So on account

a
of the m
merger, you wiill have the
shares com
ming being partt of the compan
ny?

Shreevar Kheruka:

It becomees part of the coompany, you aree right.

Hitesh Ku
umar:

In that casse, I think it willl be more than

n 25.2 lakh sharres the total outtstanding shares if they do
not get canceled?

Shreevar Kheruka:

No, sorry,, they will be caancelled, my mistake, it will be 25.2 lakh shar
ares.

Hitesh Ku
umar:

Coming back
b
on the CA
APEX outlay that you gave for Gujarat B
Borosil, in casee of equity
infusion, would
w
there bee an infusion eq
quity by Gujaraat Borosil or w
would you be raaising fresh
equity from outside?

Shreevar Kheruka:

Raising frresh equity from

m outside.

Moderatoor:

Thank you. The next quuestion is from the line of Kasshyap Jhaveri fr
from Capital 72
2 Advisors.
Please go ahead.

Kashyap Jhaveri:

If you loo
ok at Hopewelll, we did aboutt Rs.44 crores of
o top line for tthe first half an
nd October
being of Diwali
D
season, iit is probably one
o of the best quarters
q
that is there for that product.
p
So
should wee expect this buusiness to run att full capacity in
n this financial yyear itself?

Shreevar Kheruka:

Like you said October 330th was Diwalii this year and in general I thiink everybody had a very
good Diw
wali session inclluding us; howeever, on Novem
mber 8th there w
was this announ
ncement on
demonetizzation and I thiink that in the short run that will
w have somee impacts certainly on the
sales of th
he products from
m a secondary and tertiary pe
erspective. So eeventually that is going to

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November 28, 2016
hit us on the primary salles also; howev
ver, we have to
o do a furnace rrepair sometim
me in AprilMay of th
he coming year,, so we are plan
nning to run at full
f capacity beecause anyway we have to
build up stock
s
for sellingg during the 2 months
m
or so thaat the furnace iss out of producttion. So we
will continue on full cappacity and let us
u hope we are able to come uup with ways to
t limit the
impact off demonetizationn on the sales of
o the organization. At this mooment I can say that it will
continue but
b it has beenn a big shock to
o the entire sysstem and it willl take some tim
me for it to
reboot. So
o that is always a caveat there.
Kashyap Jhaveri:

In which case,
c
FY18 Hoppewell will requ
uire some CAPEX?

Shreevar Kheruka:

FY18 yess, the CAPEX w

will be required
d, absolutely, we
w are planning to upgrade thee furnace to
a larger capacity
c
as welll as upgrade some
s
of the maachinery, whichh we inherited during the
acquisition, to European machines; som
mewhere in the range
r
of Rs.45 ccrores.

Kashyap Jhaveri:

Currently, let us say if I look at Hopeewell, it probab

bly tends to rou
oughly about 2--2.5x gross
block turn
nover, right?

Shreevar Kheruka:

2-2.5x sou
unds roughly abbout right to mee.

Kashyap Jhaveri:

If I look at
a EBITDA, thhe presentation mentions that we
w did about R
Rs.6 crores EBIITDA over
there; now
w if I look at laast year it was actually
a
an EBIITDA loss of ro
roughly about Rs.8
R crores.
What kind
d of margins caan one expect when
w
it runs at full Rs.120 croores or Rs.130 crores
c
kind
of capacitty?

Shreevar Kheruka:

Structurallly, in the businness, there is no

o difference between us and L
La Opala, whicch is the #1
competito
or. We will havve the scale an
nd we will hav
ve the same kiind of customeer base. So
structurallly I would not tthink that after La Opalas tax
x advantage exp
xpires there sho
ould be any
differencee in the EBITDA
A percentage. For Larah som
me operational eefficiencies need
d to kick in
after we acquired
a
the com
mpany. So I wo
ould still give ourselves maybee 8 to 12 month
hs to get all
those operational efficieencies in, but very
v
clearly ourr target is bencchmarking to th
he kinds of
margins La
L Opala makess. I do not see an
ny reason why we cannot.

Kashyap Jhaveri:

One questtion on Vyline.. If I look at Borosil Glass Works

W
annual rep
eport, we had about Rs.76
crores of related party ppurchases and your
y
presentatiion mentions thhat we did abo
out Rs.10.5
crores kin
nd of EBITDA. So Vyline did roughly
r
in that case about 14%
%, EBITDA, is that a right
assumptio
on?

Shreevar Kheruka:

Yes, that would

w
be I guesss the right assu
umption to mak
ke.

Kashyap Jhaveri:

On a likee-to-like basis oon the overall let us say Sciientific plus Innstrument plus Consumer,
adjusted for
f some of the expenses that we
w do on asset management
m
annd some of the non-related
n
expenses, what could bee EBITDAth
he numbers wh
hich are now m
mentioned in presentation
adjusted for
f all those exppenses?

Pa
age 8 of 19

Borrosil Glass Works

W
Ltd
November 28, 2016
Shreevar Kheruka:

Look, all of Vyline EB

BITDA will flo
ow into Borosill. So you coulld just do a sim
mple math
addition on
o that.

Kashyap Jhaveri:

Let me reephrase; let us ssay if I am loo

oking at presenttation on Slidee #4, EBITDA for Borosil
Glass stan
ndalone is abouut Rs.14.7 crorees and now this would not incclude expensess which are
related to asset managem
ment because wee have some bro
okerage?

Shreevar Kheruka:

It would not
n include, youu are right.

Kashyap Jhaveri:

Is there margins
m
of pure pplay in Glasswaare business?

Shreevar Kheruka:

Yes, you are

a right.

Moderatoor:

Thank you. The next quuestion is from the line of (Deevang Mehta froom Tamohara Investment
Managerss). Please go aheead.

Arpit:

This is Arpit
A
here. A ccouple of quesstions: On the Consumer Prooducts division
n after this
acquisition, your addresssable market sizze has increased
d a lot. So you hhave given som
me numbers
on the esttimated market size. I just wan
nted to understtand, is it the onnly organized market
m
and
how big would
w
be the unnorganized marrket because what
w
we understtand is lot of im
mport from
China and
d all happens inn this segment?

Shreevar Kheruka:

You are absolutely

a
rightt, if I look at th
he market size, these are firstly
ly internal estim
mates. I am
not sure how
h correct theyy are because itt is almost impo
ossible to judgee how many con
ntainers are
being imp
ported by lots oof traders that do
d this business. So our estimaate of this is thee organized
market sizze. Unorganizeed may be exacctly the same value also, but iit is very very difficult to
judge it. So
S that is why w
we did not put it
i down; but forr us we made thhese estimates some time
ago and that
t
time GST
T had still not been approved
d and this dem
monetization had not yet
happened. I think both off these are goin
ng to drive moree players from uunorganized to organized.
So certain
nly the market ssize will increasse, but it is too early
e
to judge hhow much and what
w it was
because th
here is a lot of uunder invoicing
g happens, as I am sure you m
may be aware. So
S it is very
difficult to
o come up withh any kind of acccurate assessment.

Arpit:

On the Hopewell bit, yoou have obviou

usly done very well as the Hoopewell came under
u
your
fold. So iss the product alrready there in your
y
distribution
n network or it is still to go?

Shreevar Kheruka:

I would not
n say there is a 100% overlaap yet, but certtainly 60-70% w
which is largelly from the
modern trrade, for exam
mple, Big Bazaar, Reliance Retail,
R
traditionaal trade also, all
a the key
cities, all the key distribuutors are carryin
ng it, so you sh
hould be able too get it in the Mom
M
& Pop
Stores also. So I would ssay there is a hig
gh degree of ov
verlap, but it is nnot 100% yet.

Arpit:

As you haave more produucts, how will diistribution netw

work expand ovver next 2-3 yeaars?

Pa
age 9 of 19

Borrosil Glass Works

W
Ltd
November 28, 2016
Shreevar Kheruka:

It is a go
ood question, A
Arpit. I think distribution
d
netw
work is somethhing that we are
a actually
revaluatin
ng. With GST ccoming in, it maay impact our distribution
d
netw
twork in the sen
nse that we
may need
d to go for som
me larger distrib
butors who buy
y consistent truuck loads and make
m
them
super disstributors and then reallocatte smaller disttributors to thhem. So thosee kinds of
discussion
ns are happeninng at the minutee. But suffice to
o say we will inncrease our disttribution in
South and
d in some parts of West wheree we need to fu
urther strengthen
en it, we are wo
orking on it
at the moment. But withh GST I think there will be some impact, w
we are still evalluating that
impact, so
o I do not havee a very concreete answer for you on that frront yet. There is a wider
product raange, we must iincrease the num
mber of retailerrs, I think that iis a more important point.
We have may be arounnd 10,000 plus retail outlets we
w should try aand go to 14-1
15,000 that
should be the target for uus.

Arpit:

Sir, you have also star

arted a small division
d
on th
he Appliances side. Now it is a very
overcrowd
ded market. Whhat is the strateg
gy and thought process there?

Shreevar Kheruka:

On Appliaances, you are absolutely righ

ht, it is very cro
owded. If you nnotice we also launched a
brand called Labquest iin the Scientiffic Products sid
de. The idea hhere is to com
me up with
products because electrrical appliancees for Consum
mer and Appliiances for the Scientific
Products are very similaar. Only the intterface is differrent, the end usser is different,, but at the
end of day
y it is basicallyy electronics an
nd it is housing in which the eelectronics sits and then it
shakes orr stirs or heats the product which
w
is exactly
y the same in the lab as welll as in the
kitchen. So,
S we have soome ideas therre about produ
uct developmennt, they are stiill work in
progress ideas.
i
I do not want to get too
o much into it at
a the moment aas, I cannot discclose much
about thatt, but it is goingg to be a story which
w
will take a couple of yeaars to play out in
n my view.
The curreent story is on the tableware storage and on
n the Microwavvables and the Tumblers.
Here we are spending m
most of our effforts in terms of advertisingg and brand-buuilding. On
Appliancees, we are sellinng it, we are getting
g
a lot of feedback, talkiing to many cu
ustomers to
understand what are theiir likes and disslikes because we
w feel that noone of the otherr appliance
companies really understtand the consum
mer, they kind of
o just push prooducts. We do not
n want to
do it like that, we wantt to do someth
hing different but
b it requires pproduct develo
opment and
strong bacckend which w
we are working
g on and hopeffully we shouldd have somethiing on that
sooner ratther than later.

Arpit:

We will have
h
some substtantial share in the overall sizee of the businesss?

Shreevar Kheruka:

I am very
y clear if the strrategy works itt will give a big
g share. and we do not wan
nt to be the
#32 appliaance player. Iff it works we will
w grow substaantially, if it dooes not work we
w will shut
down thatt part of the opeerations; but it is in my view something that should work and
a it is too
preliminarry to discuss nuumbers, but we do want it to grrow to a sizeablle basket of opeerations.

Arpit:

On the Ph
harma Packagiing bit, you accquired Klasspaack, which is a small entity now given
Borosils network, in thhe Pharma spacce, because yo
ou have writtenn that it is Rs.500 crores

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November 28, 2016
market. One
O is what is th
the share we are addressing in
n the Rs.500 croores and what do you see
with the Borosil
B
brand annd network, wh
here do you see that business ggoing in 3-to-5-y
years?
Shreevar Kheruka:

In 3-5 yeaars, we should ddefinitely double the business. Firstly, Rs.5000 crores is the addressable
a
market wh
hat I am talkinng about. The number
n
one player is a comppany called Sch
hottKaisha.
They do about Rs.180-oodd crores of sales. I have spoken
s
to manyy customers who
w want a
second su
upplier. So I thinnk the way we have structured
d the transactioon also is that we
w have put
in a lot off primary infussion into the co
ompany, which will help us m
make CAPEX, which will
allow us to expand thee capacity of th
he operations and that will hhelp us do cleean rooms,
automatic inspections, otther upgradatio
ons which our customers
c
wantt to see. If we are able to
do that I th
hink we can bee a very strong #2
# player in the next 3-years inn that space.

Devang Mehta:
M

Devang here. There are a lot of things that

t
you are try
ying to do. So juust wanted to understand,
u
how is ou
ur 3-4-5-years vision in terms of individuall categories or where do you see larger
opportunities going forw
ward, just trying to understand different
d
growthh trajectories?

Shreevar Kheruka:

On the Consumer
C
side I think overalll we are saying
g that we shouuld cross 15% growth on
CAGR deefinitely if you llook at the nex
xt three years th
hat should be thhe kind of minim
mum target
for us and
d we should try and do better than
t
that even. Within
W
Consum
mer, certainly, our
o focus is
on opal glass
g
on the raange of Microwavables that we have and on storage. So
o we have
introduced
d products likee lunch boxes and those kin
nds of productts which have been well
accepted. On the Scientiific side, the market
m
is growing bit slower iin terms of thee glassware
rangem
maybe 8-10% raange and wee will certainly
y grow at the ppace of the maarket if not
slightly faaster. But there are three oppo
ortunities one is on the Instruuments through
h Labquest.
Talking percentage of grrowth does not make
m
sense, because the base iis zero; but I th
hink we can
increase to
t at least 10%
% market share there in the neext 3 years. If you look at Klasspack,
K
I
already mentioned
m
we shhould more than double. On th
he third, if I loook at the exporrt market, I
think agaiin there is an oopportunity forr us to grow faaster; maybe too double in the next three
years at leeast there.

Devang Mehta:
M

You said that there is a llot of focus on ROCE. Any number that youu would like to quote as a
target?

Shreevar Kheruka:

No, I am sorry, I cannott do that but I know

k
we are lo
ow compared too competition and
a I know
that we have
h
to substanntially increase it and that is very much on the managemeents mind;
everybody
y talks about itt. While I do not
n want to tak
ke a target at thhe moment, maaybe in the
future I caan share with yoou some clear indication of thaat.

Moderatoor:

Thank you
u. The next queestion is from the line of Jayveer Parekh from
m Nidhi Securitties. Please
go ahead.

Jayveer P
Parekh:

I have fou
ur major questiions: Firstly, with
w regards to the preferencee share of Gujaarat Borosil
held by Borosil
B
Glass, I understand in the last two yeears 90 crores ppreference sharre were not

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November 28, 2016
paid any interest.
i
Has annything changeed in the first half
h of this yearr? The second question is
related to the EBITDA m
margins of yourr subsidiary com
mpanies. Vyline
ne now we undeerstand it is
14%. Can
n you give som
me quantum for
f Klasspack and Hopewell as well in terrms of the
EBITDA margins? Thirdd question is th
hat earlier at th
he CNBC intervview, you men
ntioned you
are going to double youur advertising spending
s
in thee current year. From your FY
Y16 annual
report, I think
t
it is Rs.133.5 crores. Doees that mean it is going to bee in the quantum
m of about
Rs.27 crores to Rs.30 crrores going forw
ward? Last queestion is what w
will be the totaal cash and
cash equiivalents balancce for a consolidated compan
ny after the Sccheme of Amalgamation
exclusive of the 90 crorees preference sh
hares of Gujarat Borosil?
Shreevar Kheruka:

On the firrst question, theere is no dividen

nd paid on the preference sharres in the first six
s months.
Second qu
uestion on the E
EBITDA, Vylin
ne you got the number
n
correct,, but on the other two also
we have given
g
the numbber; actually if you look at slide #4, the EBIT
TDA for Hopeewell in the
first half of
o the year wass Rs.6.09 crorees on a turnoverr of Rs.44 crore
res and for Klassspack was
124 lakhs and that as on a turnover of Rs.650
R
lakhs. So
o that is the EB
BITDA margin of
o the other
two comp
panies. Advertissing spend, yes,, the number is about right, wee are doubling the
t number
from last year, so the raange of about Rs.27-odd
R
crorees seems to be around where we will be
hitting forr this current yeear. Cash and cash
c
equivalentts, I think by thhe end of the yeear, if I am
not mistak
ken, we shouldd be with abou
ut Rs.120 croress of cash and ccash equivalentts this is
liquid investments, I am not counting in
n this the preferrence share, I am
am not counting
g in this the
real estatee which is the nnon-core assets.

Jayveer P
Parekh:

So this is basically your iinvestments in the stock markeet and other liqu
quid investments?

Shreevar Kheruka:

Exactly.

Jayveer P
Parekh:

Is there an
ny outlook on thhe preference sh
hares dividend pay going forw
ward?

Shreevar Kheruka:

Gujarat Borosil
B
itself reequires a substantial chunk of capital to furrther expand because
b
the
market is in a very goodd position at the moment for that
t
company. So we are tryin
ng to solve
this by geetting a new invvestor. So, I can
nnot give any firm
f
outlook, buut we are talkin
ng to a few
people and let us see how
w that discussio
on pans out.

Moderatoor:

Thank you. The next quuestion is from the line of Kasshyap Jhaveri fr
from Capital 72
2 Advisors.
Please go ahead.

Kashyap Jhaveri:

Just again
n coming back on numbers reeported on slid
de #4, EBITDA
A from operatio
ons Borosil
Glass Works is Rs.24.9 ccrores in F16, about
a
Rs.10.2 crores in F16 firrst half and Rs.14.7 crores
in F17 firsst half. Does thiis include any income
i
on investments also orr does it not?

Shreevar Kheruka:

No, only income

i
relates tto operations. If there is any
y operations liqquid funds I am
m sure that
would be included, but vvery very small sum.

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Kashyap Jhaveri:

So this maargins in let us say if I look att Q1 numbers EBITDA

E
whichh was reported in
i the press
release thaat we have wass about Rs.4.6 crores
c
total whiich was about R
Rs.1.1 crores in
n Consumer
Ware and about Rs.3.5 crrores in Labwaare.

Shreevar Kheruka:

Roughly correct.
c

Kashyap Jhaveri:

So let us say
s this is abouut 9% EBITDA
A margins in Co
onsumer Ware aand about (+20
0%) kind of
margins in
n ?

Shreevar Kheruka:

Yes, you are

a right.

Kashyap Jhaveri:

Are these margins sustainnable because Q1

Q margins werre materially diifferent?

Shreevar Kheruka:

Yes, Q1 is a low sale quaarter for the company. So thesse margins are m
more or less ok
kay these
margins I am not talkinng in the very
y short run beccause of demoonetization imp
pact on the
margins. I do not have a view that it is going to have a material impaact on it but theese margins
can certain
nly sustain in thhe medium to lo
ong run.

Moderatoor:

Thank yo
ou. The next quuestion is from
m the line of Sarvesh
S
Gupta from Trivantag
ge Capital.
Please go ahead.

Sarvesh G
Gupta:

What is th
he share of yourr modern trade and eCommercce in the Consum
mer division?

Shreevar Kheruka:

Modern Trade
T
plus eCom
mmerce about 35-40%,
3
eComm
merce separately
ly will be about 7%.

Sarvesh G
Gupta:

You are planning

p
to put a new capacity under Hopeweell Rs.45 crorres expansion. What
W is the
ROCE of that project?

Shreevar Kheruka:

We are sttill working on that yet. So I will

w be able to comfortably annswer that quesstion in the
next quartter.

Sarvesh G
Gupta:

The Solarr Glass subsidi ary, what is th

he ROCE for th
he new CAPEX
X over there th
hat you are
trying to undertakenot
u
t the current RO
OCE, but let us say you are douubling the capacity from 1
to 2.3 GW
W, so for the new
w project?

Shreevar Kheruka:

It should be
b in the range of 20-22%.

Sarvesh G
Gupta:

At Gujaraat Borosil Lim

mited, are you cost competitiive with Chineese? What is the
t pricing
environmeent there becauuse these ROCE
E would be very
y sensitive to
?

Shreevar Kheruka:

You are absolutely

a
righht. In fact, we have benchmaarked our produ
duct costing with Chinese
product co
osting and we aare actually cheeaper than the Chinese
C
in term
ms of our produ
uct costing;
however, so far Chinese government haas been giving export
e
subsidy of 17% roughly, which is
the direct export subsidyy. So when you factor that in, th
hen it becomess a problem in teerms of the

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costing; however,
h
we hhear that the Chinese
C
govern
nment is lookinng to withdraw
w that and
Gujarat Borosil
B
also fileed unfair trade practices
p
case, which is antidu
dumping duty case against
the Chinese and that mattter has gone intto investigation
n. So we are aw
waiting the outco
ome of that
particular investigation. That being said
d, even today th
here is no dum
mping duty on th
he Chinese
and we arre achieving saay EBITDA margins of aboutt 22%-odd in tthat company and
a we are
selling ou
ur products mayybe 4-5% morre expensive than the Chinesee and because we are the
only manu
ufacturer in thee country everyb
body needs a su
upplier who is close to them because
b
we
are a raw material for thee company thatt makes modulees. So if somethhing gets messeed up in the
supply ch
hain, they need a second suppllier. So, many companies
c
we aare supplying 80%
8
of our
glass and 20% they buy from China. In
n other compan
nies, we are sup
upplying 20% of
o our glass
and 80% they are buyinng from China. But there are very few comppanies who wo
ould not be
buying an
ny glass at all fr
from us. So we are able to maaintain price adv
dvantage of 4-5% over the
Chinese even when theree is Chinese sup
pport to their industry and no ggovernment sup
pport to our
industry. So
S I expect bothh of those macrro factors to chaange in the next
xt few months.
Sarvesh G
Gupta:

Why are we
w the only maj
ajor player in th
his businessw
what is the comppetitive edge th
hat we have
got here?

Shreevar Kheruka:

Of coursee, you are absollutely right and that may happen also in the ffuture, nobody knows, but
we were the first mover iin this. Maybe I think we weree a little bit aheead of our timess to be very
frank; wee launched in 22010 and at th
hat time the In
ndian solar indu
dustry was in itts absolute
infancy. So
S we were the first mover and
d then we have a couple of yeaars of substantial losses in
that comp
pany. So I thinkk that also scarred off some of the larger plaayers from inveesting. The
larger plaayers have focuused their atten
ntion on more mass productss like automotive and the
architectu
ural glass and I think that is wh
here they are more
m
comfortablle. So I do not expect any
of the larg
ge players reallly to enter this space because worldwide theey have been selling their
non-autom
motive and nonn-architectural glass productio
on units. So yoou may see som
me smaller
players co
ome in, but therre we have 50 years
y
of glass ex
xperience. So w
we do have a tecchnological
edge plus 7 years of expeerience now in the solar industtry plus a very w
well-established customer
base and of course in this also justt like in our pharma
p
compaanies, you neeed to have
certificatio
on because thee end product is
i certified for almost 20-yearrs after it is so
old. So you
need a com
mpany who cann withstand thaat certification. So all these aree barriers to enttry for new
players. Nothing
N
to say thhat somebody who
w wants to in
nvest Rs.200 cro
rores cannot com
me in but it
is not for everybody, therre maybe a cou
uple of competittors down the rooad.

Sarvesh G
Gupta:

My final question was oon Labquest. Now,

N
that is a market where we are domin
nant market
leader witth 60% share aand I guess mo
ost of the mark
ket would be or
organized in thiis case and
given thatt the market itseelf is just growiing at 8-10%, now the opportuunity is to quick
kly ramp up
the intern
national busine ss and the Lab
b Instruments. So, how mucch is it possiblle to grow
quickly in
n these two areeas because ag
gain here you would
w
need a llot of certificattions etc to
grow?

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Shreevar Kheruka:

Actually, you need certiffications in the pharma packag

ging space becaause there yourr product is
touching the
t pharma inggredient and yo
ou do not wantt any spoilage tto the medicin
ne or to the
medication. So there lott of testing is required.
r
For Labquest
L
itself it is used for the quality
control an
nd R&D parts oof the pharma company.
c
Here so much certifi
fication is not reequired but
brand repu
utation is requiired, quality is required and faast deliveries arre required. Th
hese are the
three important features. The fourth one is the wide raange of productts. So on the ex
xport front,
we have been doing weell, I think wee should definitely at least doouble the grow
wth rate of
domestic in the exportss range of the current product portfolio. A
As far as the Labquest
L
is
concerned
d which is the IInstruments bussiness, it also deepends on the sstrategies we em
mploy, it is
a very preeliminary discuussion because we just launch
hed it in April oof this year; we have had
very posittive feedback fr
from the custom
mers, we were getting
g
sales ovver there. It rem
mains to be
seen whatt is the best waay to monetize this.
t
We are stiill working on a couple of ideas and it is
early dayss on this, but I aam quite positiv
ve on this segment of the businness.

Moderatoor:

Thank you. The next quuestion is from the line of Tejjas Shah from Spark Capital.. Please go
ahead.

Tejas Shaah:

If you can
n elaborate a hiigh priority white spaces at Hopewell which we would like to address
be it in reg
gional expansioon or product ex
xpansion?

Shreevar Kheruka:

Firstly, I think we are sstrong in the northern

n
region of the countryy and we havee got some
presence in the south inn Kerala speciffically. I think there is an oppportunity in th
he western
region, saay Mumbai, andd surroundings where we can improve our brrand presence. I think that
is where we
w are going too invest more time and effortss in the next few
ew months and probably a
year. In general,
g
on the brand side of things, La Opa
ala has been a standard brand
d and they
have donee very well andd they have grrown that busin
ness. Larah stiill does not com
mmand the
premium that La Opala does in the maarket and certainly our idea aand objective of
o investing
that Rs.45
5-odd crores inn the CAPEX iss to build up th
he products port
rtfolio and quallity and the
strength to that benchmaark and I expecct that is wheree we are goingg to spend lot of
o time and
effort so that
t
there shouuld be a premiu
um positioning of Larah. So oon the distributiion front, I
would foccus on the westtern region of th
he country and on the productt itself focus on
n upgrading
the factory and the backkend to deliver to the market quality of prodduct that Borosil has been
traditionallly renowned foor, but under th
he Larah brand name.
n

Tejas Shaah:

Sir, since we are expandding aggressivelly both in B2B business and B

B2C business, just wanted
to understtand what is thhe plan to expan
nd the managerrial bandwidth to manage the growth; if
you can help
h
us to undeerstand the interrnal reporting structure
s
are these businessses put into
SBUs wh
hich report intoo one central planning
p
beccause even the resource alloccation both
manageriaal and financiall if you can help
p us to understaand how you deecide on the sam
me?

Shreevar Kheruka:

A good qu
uestion. Firstlyy, just want to correct
c
you on one comment yyou made; we look at the
Scientific Products businness also as B2C
C business, nott as B2B busineess even though
h we sell to
institution
ns. We think thhat we are sellin
ng to a custom
mer within an innstitution. So itt is a small

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point but an important ppoint of differen
ntiation for us because that allso drives how we recruit
people. Coming
C
to answ
wering your queestion specificaally, we have tw
two separate SB
BUs which
are the Consumer Produucts division an
nd the Scientiffic Products divvision. They are
a run and
managed by completely independent teams. So the salles team is sepaarate, the produ
uction team
is more orr less separate; there are somee overlaps but I would say 85-990% is separatee. The new
product development is separate, the qu
uality control is separate. So aall the main functions are
separate. The only comm
mon functions are accounts, finance,
f
HR, IT
T and legal. These are the
four comm
mon functions.. All of these functions repo
ort to me meeaning the fou
ur common
functions plus the heads of the SBUs off the two busin
nesses report to me. There is an
n incentive
structure in place in term
ms of sales and
d profitability target
t
that we sset and incentiv
ves on that
basis. So we benchmarkk our salaries with
w the market through third-pparty agencies, we ensure
we have a medium-term vision in termss of where we want
w to go as a company and everybody
is empowered to achievee that. End of daay I am the CEO
O and Managinng Director of th
he business
and the vaarious heads I juust mentioned report
r
to me. Gujarat Borosil iis a separate com
mpany that
is manageed by Mr. Pradeeep Kheruka, who
w is my fatherr and they havee a separate man
nufacturing
team. All the functions ar
are separate and
d they report directly to him.
Tejas Shaah:

Sir, just one

o hypotheticaal extension off the same queestion; let us saay if you have Rs.100 to
invest, ho
ow do you priorritize based on
n the opportunitty that you are seeing in diffeerent SBUs
and capitaal efficiency andd also the grow
wth prospect?

Shreevar Kheruka:

At the mo
oment, to be verry frank, we haave had the good fortune of groowing all three businesses
and each of
o the three bussinesses is able to self-fund. So ROCE has beeen the key queestion to be
asked beffore we look aat deploying an
ny capital let us be specifi
fic here, for ex
xample, the
Scientific Products businness, deploying
g capital is very
y little in the w
way of CAPEX except for
the acquissition we did iin Klasspack, now
n
that itself had a very strrong ROCE an
nd a strong
rationale for
f investment. So we took thaat call. I would say we would iinvest in a business where
we would
d at least get 20% ROCE th
here. Similarly, on the Consu
sumer business, the main
investmen
nt we have madde is the acquissition of Larah. Here you all kknow how welll players in
the markeet have done. E
Even in Gujaratt Borosil, we could have inveested from Boro
osil but we
decided th
hat it is best too get an outsid
de investor on board.
b
The hollding structure of Gujarat
Borosil an
nd Borosil is hi storic. The prom
moters already have 75% of thhe business. Bo
orosil Glass
is one of the
t promoters. So we figured its okay to geet an outside invvestor in this bu
usiness. So
rather thaan invest Borossil Glass capitaal, we thought that is a right way to proceeed. So it is
specific to
o each of the buusinesses but eaach of the busin
nesses is a babyy and you have to feed the
baby if yo
ou want for it tto grow. Each baby requires that food and tthe nourishmen
nt and I do
think thatt we will feed it only what is
i required verrsus overfeed itit. So those decisions are
definitely reviewed by tthe managemen
nt on a consisstent basis andd we have stron
ng internal
management structures too do that.

Moderatoor:

Thank yo
ou. The next quuestion is from
m the line of Rohan
R
Advint ffrom MultiAct. Please go
ahead.

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Rohan Ad
dvint:

My questtion was on L
Larah. If

you could throw some

s
light on how the dealer and the

distributorr margins are ffor Larah relativ

ve to our comp
petition, especiaally after late laast year La
Opala marrgin structure aat a distributor and
a dealer levell, so how does iit compare todaay?
Shreevar Kheruka:

We have channel
c
marginns similar to Laa Opala. We haave not changedd it much; howeever, as far
as my info
ormation is conncerned they haave changed it a little bit. So I am not exactly
y sure what
the latest story is but wee have been folllowing a consiistent one whicch is along the lines of La
Opala as well
w as similar to the businesss that we have been
b
doing in B
Borosil for so many
m
years.
The idea here
h is not to seell the products on the basis off higher marginn to the channel. It is just a
long-term
m losing strategy
gy and that is not
n what we arre doing to do.. The idea is to keep the
margin lucrative enough so that they inv
vest money in it
i but we do nott want to push the
t product
is what I am trying to ssay. We will crreate the pull and
a the channell should hold the
t product
because th
he customer coomes asking for it. That is thee overall philossophy. Marginss will keep
changing or will change depending on consumer offtaake for that seasson or there maay be some
promotion
nal offers. So inn general, in qu
uarterly margin
ns there may bee some small changes
c
but
overall thee clear strategyy of the compan
ny is to generate pull and, twoo, ensure that peeople come
and ask uss for the producct rather than us
u push it. So th
hat is the generaal idea. Specificcally, like I
said, Laraah channel marrgins are alon
ng the same lin
nes of what wee have been do
oing in our
Consumerr Products divission which has been active forr last 50+ years with the trade and we are
not giving
g anything moree specifically co
ompared to La Opala.

Rohan Ad
dvint:

The performance that wee have done on Larah, would that

t be taking sshare away from
m La Opala
or do you think the markket itself might have
h
expanded through our enntry?

Shreevar Kheruka:

I think th
he market has been expandin
ng certainly, that is one of thhe good thingss about the
product category itself bbecause in a grrowing market it makes moree sense. To try
y and fight
somebody
y and take sharre away from th
hem reduces the pricing. Our focus has been
n to expand
the markeet by way of prooduct innovatio
on or getting in
nto geographiess where La Opaala may not
necessarilly be strong or bby way of adveertising and attrracting new cusstomers into thiis category.
So it is veery difficult to say what their market is and how much mar
arket share if an
ny we have
taken awaay from them; bbut I think they
y have also grow
wn in the first hhalf of the yearr by 8-10%
points on a higher base than us. So I do
d not think wee have really taaken away any
ything from
them, we have just addedd.

Moderatoor:

Thank you. The next quuestion is from the line of Devang Mehta froom Tamohara Investment
Managerss. Please go aheead.

Devang Mehta:
M

Just wanted to understannd how the cap

pital intensity will
w change as we leap into this
t
growth
phase from
m now to three or four years down
d
the line?

Shreevar Kheruka:

On the Sccientific Produccts front, I do no

ot see any substantial change iin capital intensity. Like I
said in Klasspack
K
whateever we have invested, most of it has beenn in the form of primary
infusion. So
S whatever CA
APEX already spent
s
I think that itself will susstain in the nex
xt two-three

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years of growth
g
of that coompany and heelp us increase the
t revenues to double plus. As
A far as the
Consumerr division is conncerned, the inv
vestment of this Rs.40+ croress will be new CAPEX
C
for
Opalware. Beyond that tthere may be so
ome more CAP
PEX for improvving our warehousing and
our infrasstructure for seervicing the markets in light of GST, that maybe another Rs.15-20
crores I am not exactly
ly sure what thaat number is; att this moment w
we are still worrking on it.
Beyond th
his I dont seee any major CAPEX.
C
Of cou
urse, we are allways on the lookout
l
for
acquisition opportunity; if we find som
mething interesting then that coould be anotheer reason to
do some CAPEX.
C
That I cannot enumerrate at this poin
nt of time. But tthese are the on
nly CAPEX
that I am seeing of subbstantial nature at the current moment. Of ccourse, subject to change
depending
g on opportunitiies and we havee to act quickly
y if an opportunnity does arise.
Devang Mehta:
M

So we aree seeing large caash on books an

nd also there is a capital requirrement in Gujarrat Borosil.
There will be no cross-poollination of baalance sheet or there
t
would be??

Shreevar Kheruka:

At the mo
oment, there is nno plan to invesst further equity
y from Borosil tto Gujarat Boro
osil.

Moderatoor:

Thank you. The last queestion is from the

t line of Jainiil Jhaveri from
m J&J Holdings. Please go
ahead.

Jainil Jhaaveri:

I just wan
nted to understtand that what is the rationalee for getting annother investor in Gujarat
Borosilis it like a technnology partnersship?

Shreevar Kheruka:

The idea here

h
is that we have high perccentage of prom
moter holding inn this company
y. We think
it could be a couple oof investors, we
w have also applied for QIIP approval th
hrough the
shareholders which w
will be going out
o shortly. Bu
ut the idea is tto give credibiility to the
organizatiion of Gujarat B
Borosil that many people perceeive is standingg largely on thee support of
Borosil, which
w
is not truee. It is a strong
g company in its own right; it hhas got a differrent growth
trajectory compared to B
Borosil Glass, it has got a different capital requirement co
ompared to
Borosil Glass.
G
I think ggetting a third-p
party investor will
w enhance thhe companys image and
overall it positions the ccompany betterr in the future. There should bbe no need to change the
structure in
i the future. S
So this has been
n the traditionaal thinking that we do not wan
nt to crosspollinate Borosil with G
Gujarat Borosil to the extent possible becauuse that may also viewed
negatively
y to the investorrs of Borosil Glass. Somebody
y investing in B
Borosil may wan
nt to invest
in the Co
onsumer busineess or the Scien
ntific business and not necesssarily the Solaar business,
which is the
t B2B kind oof play. So thiss has been the thought
t
processs for trying to get
g a thirdparty inveestment.

Jainil Jhaaveri:

What are the current valuue of the flats approximately th

hat you all havee?

Shreevar Kheruka:

I do not know the exact nnumber at this very

v
moment, but
b it is in the raange of Rs.65-7
70 crores if
I am not mistaken.
m
The ccurrent value, I do not know, we
w have asked K
Knight Frank to value it,
now with demonetizatioon again I do not
n know how real estate pricces are going to
t move in

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terms of th
he valuation. I am not a real estate expert, so I cannot reallyy comment on th
hat, but the
book valu
ue is what I havee just shared wiith you.
Jainil Jhaaveri:

When werre these flats appproximately bo

ought, which yeear?

Shreevar Kheruka:

The chunk
k of this was boought I think in 13 or 14 which is the Samuddra Mahal aparrtments and
Amby Vaalley also was 22-3-years ago; Beach Towers has been in the
he company for more than
20-years possibly.
p

Jainil Jhaaveri:

So most of
o the pricing w
would be recent anyway?
a

Shreevar Kheruka:

Yes, unlik
kely to see any substantial upsiide on this, thatt is my personall opinion.

Jainil Jhaaveri:

The cash that

t would com
me out of these would
w
be again used into the bbusiness, right?

Shreevar Kheruka:

Like I saiid at the beginnning, we are not

n sure what we
w are going tto do with it yet;
y we are
evaluating
g various oppoortunities keepiing in mind th
hat this is impaacting ROCE, but if any
money comes into the coompany, then ceertainly it will be
b used for groowing the busin
ness and for
future opp
portunities.

Jainil Jhaaveri:

The work
king capital cyccle for Gujarat Borosil and Bo
orosil, if you coould tell me in number of
days also would be fine, jjust approximaate?

Shreevar Kheruka:

Gujarat Borosil about 600-days and Boro

osil will be higher than that abbout 110-days of working
capital because, as I menntioned before, one of the key salient points iis that inventory, we must
have inveentory, loss off sale is not att all acceptable
e in Borosil; bbecause especiaally on the
Scientific Products side,, the customer will not wait for the product
cts, so we havee to keep a
higher lev
vel of stock, thaat itself adds to
o the barrier to entry. That is th
the reason we have
h
higher
stock leveels in Borosil. However, receivables in Bo
orosil are roughhly 30 days. So
S working
capital is mainly
m
becausee of the inventory that we havee rather than recceivable.

Moderatoor:

Thank you
u. That was thee last question. As there are no
n further questtions, I would now
n
like to
hand the conference
c
backk to Mr. Abhish
hek Ranganathaan for closing.

Abhishek
k Ranganathan
n:

Yes, thank
k you very mucch for participatting in this call.. Hope this wass quite insightfu
ul. We look
forward fo
or future interacction with you sir.

Shreevar Kheruka:

Thank you
u very much alll for participatin
ng.

Moderatoor:

Thank you
u very much. O
On behalf of Am
mbit Capital, th
hat concludes thhis conference. Thank you
for joining
g us ladies and gentlemen. You
u may now discconnect your linnes.

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