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Expansion Mode On

We maintain a BUY rating and our target price of Rs 300. Borosil’s revenue growth was ahead of our estimates. The growth was aided by robust performance in both Consumer and Scientific divisions. The consumer division continues to gain momentum, with sales in Opalware, Hydra glassware and Appliance gaining traction, this optimism is further backed by positive feedback from channel partners.

The Scientific division continues to perform well, despite core lab business being impacted by educational institutions remaining shut and benign govt spending. Lab instrument and pharma packaging continue to gain prominence. We further believe capacity expansion in Opalware and borosilicate glass are steps in the right direction.

* Robust Topline Growth- The Company reported revenue growth of 146% YoY (-25% QoQ) to Rs.1,379mn (MNCL EST-Rs.1,000mn). The growth was aided by 325% YoY growth in the consumer division, while the Scientific division posted a growth of 48% YoY.

* Within the consumer division, the Opalware segment posted a growth of ~700% YoY to Rs.324mn (+12% as compared to Q1FY20). This highlights the robust demand for Opalware and the growing acceptance of Larah (La Opala sales stood at Rs.322mn). The nonglassware revenue posted a growth of 300% YoY to Rs.289.5mn driven by Hydra Range and Appliances. Glassware business posted a growth of 168% YoY to Rs.224mn.

* Within the Scientific division, the core lab glassware business reported a growth of 39% YoY to Rs. 282mn. The pharma packaging posted a growth of 58% YoY to Rs.217mn, a part of the growth was aided by COVID related products (~20%). The lab instrument posted a growth of 73% YoY to Rs.42.20mn

* Strong Gross margin expansion- The company’s gross margins came in at 68.2% vis-à-vis 58% YoY. The company posted an EBITDA of Rs.176.4mn vis-à-vis an operating loss of Rs.47mn. The company reported an OPM of 12.8%.

* The company posted a net loss of Rs.19mn vis-à-vis loss of Rs.10.6mn. PAT for the quarter was impacted by a couple

* Valuation and rating: We value Borosil at 30x Sept 23 EPS post implying a target price of Rs300, an upside of ~42%. The current quarter revenue growth further increases our confidence regarding product acceptance and Brand Strength. We Increase our revenue estimates 6.9% and 4.7% respectively for FY23E and FY24E, however, given the one time impact and we reduce our earnings estimates by 24.2% and 8.4% respectively.

* We believe, 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

Valuation – Deserves premium valuation; BUY with a TP of Rs 300

The name Borosil is synonymous with the consumer houseware industry with the company commanding 60% market share in microwaveable and heat resistant glassware products over the last few years. While Borosil has made a name for itself in this segment, the company has never rested on its laurels and continued to expand to adjacent categories and launched new SKUs to drive growth.

Testament to the fact is that as new SKUs get added, the company follows a discipline of culling SKUs from the long tail. New products (introduced during the last 3 years) now constitute about ~20% of the revenue of the Consumer Products Division. In the SIP division, the company has ~60% market share in the laboratory glassware segment, while this segment is very lucrative and increasing realization is not a problem, the overall addressable market size remains limited.

To capture growth in this division, the company decided to enter new segments like LabQuest and Klasspack. We believe this will aid the company to garner a high wallet share from existing customers and increase its overall client base. Today, the company has one of the widest range of offerings in consumer division and SIP division and is present across segments. The company's strategy to enter new segments and introduce new products has reaped fruits and we expect this trend to continue.

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