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Buy Borosil Ltd For Target Rs. 300

Laboratory to Kitchen - Cooking up a Storm

We initiate coverage on Borosil, a thinly researched stock and a household name in the microwaveable glassware industry, with a BUY and TP of Rs300. Fortified by decades of experience, a powerful brand and a distribution network, the company commands ~60% market share in the microwaveable glassware industry. This is likely to be successfully leveraged by diversifying into new consumer categories. The company’s highly profitable cash cow - the Scientific and Industrial Products (SIP) division, which commands a ~60% market share in the lab glassware segment, should ably support the company’s growth plans, while at the same time expand into Lab Benchtop instrument and Pharma packaging segments. Our conviction is further bolstered by quality financials: debt- free status and rapidly rising profitability metrics.

Expansion strategy paying dividends:

Borosil, having made its name in the microwaveable and heat resistant glassware and gained market dominance, never rested on its laurels and continued to introduce new products. Today the company’s consumer division’s range of offerings go well beyond microwaveable glassware products to everyday solutions such as non-plastic kitchen storage products, kitchen appliances, glass lunch boxes and jars, stainless steel flasks and opal tableware. Borosil is in a sweet spot to gain market share in new product categories, exemplified by new SKUs contributing ~20% to consumer revenue.

Scientific and Industrial Products (SIP) division - Potential dark horse:

The Company has evolved from being a glassware manufacturer to a provider of solutions to its customers for their emerging needs. It has developed newer products based on the innovation that the scientists are attempting in their labs, upgraded manufacturing facilities and invested in technology to meet the most stringent requirements of leading pharmaceutical and healthcare customers consistently. This division is steady-growth, highly profitable and relatively priceinelastic, and provides the ballast for the consumer division.

Improvement in return ratios to drive valuation expansion:

We expect that with scale benefits, the company’s ROE and ROCE to see manifold increases; ROE should increase from 5% to 13.4%, while ROCE is likely to expand from 6% to 18% over FY21-24E. In the SIP division, the company’s superior quality has made it a market leader in lab glassware segment, which we believe will help in gaining a strong foothold in new categories. This sizeable improvement in profitability, we believe, can act as a catalyst for valuation expansion, as we have seen with many companies in all types of businesses.

Valuation & Risks:

We value Borosil at 30x June 23 EPS post implying a target price of Rs300, an upside of ~36%. Clear diversification strategy in both consumer and SIP divisions resulting in an accelerated path to growth and a meaningful expansion in return ratios can expand valuations substantively. Key risks: Slowdown in consumer spending, increase in competition and spending curbs by govt institutes.

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