Borosil Renewables Q2 Analyst Call Takeaways For Solar Sector

For Borosil Renewables, these are the best of times. The firm, the only producer of solar glass in India, has had a terrific run ever since it completed its capacity expansion last year, timed as it was with the imposition of import duties on imports from Malaysia, Vietnam and China, of course, besides rising demand in India. All that has led to  an astounding journey on the stock markets for the firm, with the stock becoming the toast of punters for both future promise and the turnaround it has delivered.

Added to growing demand is the supply disruptions among solar glass manufacturers in China earlier this year, which led to a significant increase in the price of this valuable input for solar modules. Making both domestic sales and exports even more lucrative for the firm. We went through the firm’s analyst call transcript to bring you key takeaways, as a pointer to the future for the firm, as well as its view on the broader solar sector. Ashok Jain, Whole Time Director, Answered most of the questions.

Q2 in Numbers

During the quarter, the company recorded net sales of Rs.160.5 Crores, an increase of 41% over the corresponding quarter of the previous year. The average ex-factory price of tempered solar glass during the quarter was about Rs.118 per millimeter. This is a lower price compared to the peak prices prevailing in the fourth quarter of the financial year 2021 and first quarter 2021-2022; however, these prices are still higher than the prices in Q2 FY2021 about 20%. Export sales during the second quarter 2021-2022 including to customers in SEZ were Rs.55.1 Crores comprising 34.3% of the turnover.

EBITDA during the quarter was Rs.58.9 Crores corresponding to an EBITDA margin of 36.7% as compared to a margin of 28.4% in the second quarter of FY2021. The higher EBITDA margin was led primarily by better ex-factory realizations moreover higher productivity gross pull per day was higher by 4% over the corresponding quarter also contributed to better margins. These higher margins were obtained after absorbing higher costs on account of increases in natural gas prices, packing materials and inflation and export logistics costs owing to the increased global freight rates. Higher EBITDA led to an increase in the profit after tax. The company recorded a profit after tax of Rs.34.1 Crores, a growth of 143% over the same quarter last year. The firm is seeing strong  interest in its thinner solar glass. During the second quarter of the current financial year sales of thinner glass increased to 28.3% of sales.

Interestingly, considering the high unmet demand in India where it is able to meet only 35% of demand, as well as the advantages the firm has built up in key export markets, particularly Europe, for its tempered glass versus the heat strengthened glass coming from China, the firm believes an EBITDA margin of 35% is sustainable going ahead.

Capacity Expansions

The firm is setting up additional production capacities to meet higher demand expected from an increase in production of solar modules as well as a shift to bifacial modules. Such modules require thinner glass in order to control the weight of the module meanwhile solar sales become larger requiring larger sizes of glass, which will lead to higher efficiency solar modules. A third solar glass line (SG3) with a capacity of 550 metric tonnes this will enhance the capacity from 450 tonnes per day to 1000 tonnes per day. The firm says that solar glass selling prices globally started recovering gradually from September end and are currently about 18% to 20% higher than the average prevailing in the quarter presently under review.

Imports from Vietnam, which started around April 2021 are still coming in duty free. Such import volumes are so far not significant. The antidumping duty against China is valid till August 2022. The company has applied for a sunset review of the same with a request to continue the duty for another 5 years with the outcome expected in the next few months. The CVD against Malaysia was levied in March 2021 and the same will be valid for 5 years.

The Rs 600 cr SG3 expansion is being funded through our QIP of Rs.200 Crores completed in December 2020, bank term loans of 200 Crores and internal accruals of 200 Crores.  A further of capacity through solar glass lines 4 and 5 in order to further raise the capacity from 1000 tonnes per day to 2100 tonnes per day has also been approved. Work on the SG4 project is expected to commence during the last quarter of this financial year given the lead times required for capacity expansion. This additional capacity can come on stream in the middle of calendar year 2023.

Cost Outlook For Solar Glass

The firm expects prices to stay firm, or move higher, especially if existing high prices of key inputs like natural gas and soda ash continue at present levels, as many of its existing contracts will be ending by December. So 2022 could see yet higher prices for solar glass. With limited skills available for solar glass manufacturing, the firm expects limited capacities to come up, if at all, and that too for some captive consumption. “We are only at about 35% to 40% of the domestic market so far and even with increased capacity we will not be more than 50% to 55%, so there is enough room for the glass consumption and glass capacities to take place in India, so there may be a increased production of solar glass in the country, but right now the imports are filling the gap”. Prices will be determined by pricing coming from China Vietnam and Malaysia, as these countries still account for almost 90% of global production of solar glass.

Industry Trends 

Bifacial modules are expected to be 40% of all consumption globally by 2025 or earlier. The thickness of the glass in bifacial glass module is also expected to go down to keep weight down. The trend would be to use 2 mm glass, which makes the firm optimistic for its own future prospects.

On module manufacturing capacity in India, the firm estimates that the capacity right now is about 14 gigawatts and another 18 gigawatts of capacities have been announced by various players, where it expects almost all to come online  in the next 2 years. Beyond that another 10 gigawatts has been announced by large players (PLI Scheme winners possibly) and this should total up the capacity to roughly 40 to 42 gigawatts. Since these capacities are based on three shift working of the plants, actual observed capacity utilization is about two-thirds. Thus, on 40 gigawatts capacity or 42 gigawatts capacity actual utilization is expected to be 28 to 29 gigawatts. Thus in final terms, the firm expects actual manufacturing at about 20 gigawatts in the course of the next 2 to 3 years depending on capacity utilization  50%, 55%, or 60% depending on each module manufacturers ability.