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Borosil Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '24 Earnings Conference Call of Borosil Limited hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anirudh Joshi from ICICI Securities. Thank you, and over to you, sir.
Yes. Thanks, On behalf of ICICI Securities, we welcome you all to Q4 FY '24 results conference call of Borosil. [Audio Gap]
Thank you, Anirudh and ICICI Securities, for arranging this call. Good afternoon to every one of you. We are delighted to be communicating with you once again from Borosil. Borosil Limited's Board approved the company's financial results for Q4 FY '24 and full year FY '24 on 24th May 2024.
Our results and an updated presentation have been sent to the stock exchanges and have also been uploaded on the company's website. We had earlier announced a plan to restructure the company's consumer and scientific business into 2 distinct publicly listed entities through composite arrangement scheme, the appointed date for the scheme was was 1st April 2022, and the scheme has been made effective from 2nd December 2023.
And pursuant to the scheme, the scientific and industrial products business of the company stand demerged into Borosil Scientific Limited. At this point of time, we still await regulatory approvals for Borosil Scientific Limited for listing on the stock exchanges which is expected to be completed by mid of June 2024.
In today's call, we shall focus and discuss about Borosil Limited, which houses our consumer products business. We are very pleased that Borosil Limited had a fantastic year 2023-2024. Our consolidated revenues from operations for FY '24 was IRR INR 942.3 crores as against INR 741.6 crores last year, which is an industry-leading growth of 27% over the same period last year.
I would like to acknowledge and thank the entire Borosil team along with our stakeholders, including customers, suppliers and shareholders for contributing towards this growth. Your dedication, not just over the past year, but in the years prior too has built a strong foundation and enable the execution of a robust strategy that has brought us to where we are today.
I'm very proud of the team's achievements and I'm also excited for the future. During the year, the company achieved a consolidated EBITDA before exceptional onetime items and investment income of INR 144.9 crores as against INR 81.6 crores last year.
The EBITDA margin was 15.4% in FY '24 as against 11% in the previous year. Here, I would also like to mention that the other income includes INR 5.5 crores of shared service support income, the underlying expenses of which are reported under total expenses. That is shared service for other group companies, the cost of which is borne by Borosil Limited and is recovered by way of other income.
Profit before tax during FY '24 was INR 87.8 crores as against INR 66 crores in FY '23. Last year, we had an insurance claim resulting in an exceptional gain of INR 9.33 crores and onetime net gain of INR 3.85 crores. The investment income was higher by about INR 4.32 crores during FY '24 compared to last year, whereas depreciation and finance costs are much higher this year by about INR 32.6 crores primarily due to the new Opal furnace commissioning during Q4 of FY '23.
During FY '24, Borosil recorded a consolidated profit after tax of INR 65.9 crores as against -- compared to INR 51.9 crores in the previous year.
Coming to our business-wide performance, Borosil consumer business comprising glassware products and nonglassware under the brand pose and Opalware range under the brand, Larah, are the 2 main separate brands that we have.
Larah Opalware is a dining and tableware range, contemporary designs and impeccable finish. And this [indiscernible] a sales of INR 357.7 crores in FY '24 as against INR 260.6 crores in FY '23, marking a significant increase of 37% from the previous year.
Our glassware products comprising of servingware, glass tumblers and borosilicate lunch boxes as well as glass storage experienced a growth of 11.3%, reaching INR 198 crores in revenue as against INR 177.9 crores in FY '23.
Our non-glassware products comprising of small home appliances insulation flash, cookware, this also see affective growth of 27.5%, generating a turnover of INR 386.5 crores as against INR 260.6 crores in FY '23. The strong performance across all our categories underscores the successful execution of our strategy to broaden the Borosil brands offering to cater to diverse kitchen and serving needs in Indian households.
It also reflects the enduring equity and the feel of the Borosil brand across different product ranges. Over the past few years, Borosil's consumer business has successfully diversified beyond its primary focus on microwavable glass products and has established 3 robust pillars that ensure sustainable future growth. The glassware, Opalware and non-glass verticals have all reached significant prices and are poised for further expansion as the penetration and usage frequency increase.
In FY '24, Borosil has launched thousands of new SKUs across these 3 ranges, amongst which include Borosil's new series, borosilicate jars and containers, coffee air fryers and gas stoves, which have been well accepted by customers.
Furthermore, new designs in Opalware, Opalware lunch boxes and storage sets, kulhud mugs have gained high traction amongst users.
Borosil continuously seeks to increase its digital presence and engagement and also engages in brand associations. We have entered into a brand endorse arrangement with celebrate Chef for the [indiscernible] flash and bottles, Borosil has been the hydration partner to the Indian Olympics Association for the Paris Olympics coming up shortly.
To enhance brand awareness and strengthen brand recall Borosil utilizes a diverse array of promotional and marketing efforts, including in-shop display, merchandising, advertisements in print as well as social media, retail branding and product branding. The organization has developed a strong brand identity through reflecting brand advertising and marketing campaign, including the Borosil OTG campaign as well as the Larah festive campaign.
Borosil has a well established which is continuously growing at all social medial platforms. We also run automated campaigns on Google ad services as well as campaign across Facebook and YouTube on a periodic basis. The brand is further actively promoted through various influencers across food and lifestyle sections.
Coming to the balance sheet, average operating capital employed in the business that is capital employed without CWIP and investments was inx 601.2 crores. During FY '24, the company earned operating profit, again before exceptional and one-time items [indiscernible] investments of INR 19 crores, translating into an annualized operational ROCE of 15.1%.
The ROCE is expected to increase going forward with improved margin as we enhance the manufacturing base as well as higher capacity utilization from our new manufacturing capacities.
As of 31st March 2024, the company has a net debt of INR 159.4 crores. Investments as on date are INR 92.3 crores. Our primary goal at the moment is to expand our brand franchise. We are focusing on upgrading avoid consumers from plastic and to glass storage and Opalware, while also increasing adoption of glassware products. To broaden our collection, we continue to introduce new items including portable high-grade steel products as well as home appliances.
Our aim is to establish Borosil and Larah as go-to brands in [indiscernible] storage, preparation, cooking, heating and serving needs. As previously communicated, a new borosilicate facility in Jaipur with a capacity of 25 a day was commissioned on January 31, 2024.
Further, we are pleased to announce that commercial production of this facility began on March 28, 2024. This initiative will reduce our dependence on imports in product offering and need domestic as well as international demand for borosilicate glass and provide a competitive edge through lower production costs.
Borosil Limited is committed to adhering to sustainability principles, emphasizing on responsible business practices. In this regard, we have also developed an ESG road map setting significant targets for the company in environmental, social and governance sections.
The progress is regularly monitored and reported to key stakeholders through periodic reviews. We have created, modified the various policies such as ESG policy, our sustainable supply chain policy and equal opportunity policy et cetera [indiscernible].
We've also formulated [indiscernible] for sustainable We have communicated our ESG and related initiatives in annual and This year, we're taking a step ahead and have proposed to integrated reporting framework ESG efforts. We remain highly optimistic about the medium-term prospects for our consumer business [indiscernible] more than cautious consumer behavior which is mostly cyclical in nature, [indiscernible] in our sector due to a favorable long-term trends.
Our primary focus will be on expanding our customer base, launching innovative new products, optimizing our supply chain and marketing channels. Additionally, we will continue to invest in enhancing our brand's visibility.
Thank you for your attention. With that, I'd like to throw the floor open to questions.
[Operator Instructions] The first question comes from the line of Pranay Chatterjee with Burman Capital.
Sir my first question is with respect to the FY '25 growth outlook for both consumer glass and Opalware. On consumer loss growth has been around 11% this year. Do you expect the next year to be on similar fashion or as the utilization increases the growth will be much stronger?
And secondly, Opalware, it seems that the volumes are more or less at peak utilization. So how much growth can be expected for the next year?
Yes. So as far as the glassware business is concerned, now that we have our new manufacturing facility, I do expect growth to be substantially higher than the 11%, 12% we had last year. The reason being, as I mentioned, that we are able in the past also new products and we have also some pricing advantages manufacturing.
Our goal is to make it an everyday use item, glass to be everyday use item. And for that, in some products, we would like to offer pricing, which is more competitive. And I can tell you that overall, glassware definitely be -- should drive growth this.
Coming to Opalware, we had about 80% capacity utilization. And I think we have a good shot at going to the closer to the 100% level. So we do have room to grow. But rather than commenting year-to-year, I would say that probably have always been mentioning a 15% to 20% kind of CAGR growth and I think we have been slightly ahead of that. But I would expect that there should not be any change in the medium-term growth forecast.
Got it, sir. That is helpful. Nextly, on your cost base, if I compare Q3 2024 to Q4 2024, employee expenses and other expenses have gone up by around INR 12 crores and depreciation is up by around INR 3 crores. So if you could help us understand what has led to this? If there is any bonus that we recorded?
And if any of the new furnace borosilicate pressware costs have already been booked in Q4?
Yes. I think the answer -- you already answered the question across yourself, say, because of [indiscernible] in fact, I alluded to it in my opening remarks. We now Borosil group has 3 -- almost the third company will be listed soon. But basically, we're operating as if we have 3 listed entities.
And Borosil Limited -- all the support functions are at bx Limited and Borosil Limited recovers the cost of these functions, which are given for Borosil Scientific as well as Borosil Renewables. And that comes with other income. So whatever we recover comes from other income, whereas the expenses in the employee cost or the relevant head.
So therefore, the costs do look a bit inflated because this has started in the last quarter, actually, this whole shared services function. So it's showing a little bit higher, but you have to offset some other income against these expenses, which will give you a fair picture.
Secondly, yes, definitely, we have bonuses that we have given because we have a good year, so that there is some amount of onetime aspect to that, which have come in. And as you rightly mentioned, depreciation also has gone up. So Q4 numbers have been a little bit more muted. But those are, as I mentioned, we have to take some amount of other income. And whatever overall EBITDA margin we have maintained, I think that's sustainable and will also grow in the coming years.
Got it, sir, if you could just specifically comment on the new furnace because that's going to change the complexion of the P&L, at least in the next couple of quarters? So have you already booked any cost? And I'm talking employee other expenses and depreciation for...
Yes. Employee costs have -- so look, there are quite a few employees that have hired many months ago, and they have already been baked into the system, okay? But I think more -- the employee cost is a small fraction. The challenge with any production line is always, let's say, the ramp-up to full efficiency.
So we are not there yet, and it will take maybe 2 or 3 quarters for us to achieve the full efficiency. So more than employee costs, I think the power and fuel, while we are spending it, the cost -- the efficiency being lower, there'll be slightly higher inflated power and fuel costs.
Employee costs, like I said, would not be materially different going forward. Of course, everybody gets increments. So that may -- that there will be some increment associated with it. But -- the other expenses, let's say the fixed overhead expenses will be spread over a smaller base, just till we achieve the full efficiency.
So that will impact at least in that section of the business for 2, 3 quarters, I would say. It's hard for me to elaborate on the quantum because I don't know it myself, but there will be some impact.
Got it. If I talk in -- so my last question is if I talk in terms of full year margins, right, for your consumer division. If I see in FY '24, full year EBITDA margin was around 14% pre other income. Obviously, some amount of other income needs to be taken, so probably a few bps more. This 14% margin when I think about it from a next year perspective, where H1 is going to be impacted and probably as utilization increases, the margins will improve. Should we expect the margin hit decline improvement, if you can give some directional sense for the next year as a whole basis the all projections?
So actually this year, EBITDA margin was 15.4%. If you net off the other -- I think the relevant point of other income versus the extra cost. So actually, our EBITDA margin for our operations was 15.4% in this year in the FY '24. Look, it's hard for me to give you specific numbers for FY '25.
All I can say is that the borosilicate furnace that we've added, short term may have some impact, but I would say it would dramatically help improve EBITDA in the -- in, say, the coming year. Now when it starts -- when we are able to reach the full efficiency, like I said, may 2 or 3 quarters. But once we hit full efficiency and our sales, we are seeing good traction there, if we're able to do the -- sell the tonnages that are coming from here, I think our EBITDA margin was substantially improve. In the short run, in the first 2, 3 quarters, what is the impact, whether net will it reduce EBITDA margin or will you able to sustain this, it's very hard for me to be specific about it. And I frankly don't even know it.
It depends on too many other factors. But we are investing in the business from a long-term perspective. And therefore, 1 or 2 quarters, when we know the root cause of the challenge. I don't think is that that importance.
So I'm afraid, I wouldn't be able to share with you a number because I don't know.
Sir, and when you say full efficiency, what utilization would that mean like we said in 2 to 3 quarters' time...
75% to 80% would be -- we may be at about 50, 55 now, we'll go to 70% or 80%. We will achieve it surely.
Next question comes from the line of [indiscernible] with [ Sumangal ] Investments.
So what is the reason for a sharp drop in our categories when we compare the sales for all 3 categories to the December quarter, sir?
Well, our business is quite a cyclical business in the sense that Q3 was the quarter. So actually, in 1 month, you have more or less 2 months of sales, the value a little bit later this year as well. So I would say that is the main reason.
It would be right to compare Q4 versus Q4 of last year...
[indiscernible] right way to compare?
Yes. And there we have shown a significant growth. So I would encourage you to look at Q4 versus Q4 owing to the cyclical nature of this.
And sir, what will be the ramp-up schedule of this new furnace and all -- and at full capacity utilization will be able to manufacture 100% of glass products from that furnace or still some imports will be there?
So actually, this furnace 3 times the capacity of our current So it's actually 300%. So we need to grow our business by almost say 2.5x or 3x depending on the price benefits we make with our customers. But in principle, that's -- the capacity is more than enough to manufacture -- to compensate for everything that we are buying as far as pressware is concerned.
There are some products, glassware products, which are like blown products, which are very small in volume, which we'll continue to import. That's because is not [indiscernible].
And as far as ramp-up is concerned, like I said before, 6 to 9 months, I think we should achieve the full efficiencies that we expect to achieve.
But to achieve 3x the current sales, we need to capture market means we'll be taking some price action due to lower cost?
Yes, that's right. As I mentioned earlier, we would definitely give in some categories of products where we believe we want to replace plastic or see, we may have to give some benefits -- pricing benefits to the customer and customer. So we would do that from a strategic perspective in some categories. in order to grow volumes. And our goal is definitely that glass or rather, our belief is that glass is a healthier alternative to eat out of. And therefore, we should -- we want to encourage our customers to switch from plastic and glass to steel.
So is it safe to assume that until the full ramp-up happens, we may have some dip in EBITDA margin in the intermediate period?
I would not like to comment on that because I don't know. Obviously, we -- our endeavor would not have any dip and only growing the margins, but there are too many variables here to quantify because this is a small part of the overall business. So whether the dip will be meaningful or whether we can avoid it or whether we can increase our margin.
This is -- frankly, I don't answer to this question. It depends on many factors. And I would say that once the operations are stabilized, which I'm sure will happen like I said, in 2, 3 quarters, then the margins will only grow. So what happens for 3, 6 months in the middle, it's not really that relevant.
Obviously, our endeavor will be to only grow margin, not how many dip.
And sir, my last question. So at optimum capacity utilization, this furnace can generate annual sales of how much, means 3x our annual current sales?
Yes. For press products. So we -- what we show in the presentation is glassware sales. Pressware product is a subsection of it, maybe 60% of it. So yes, 3x of our press product sales probably
No. Would you repeat? I didn't get it, sir?
[indiscernible] sales, press the way of making glass, you can press it, you can blow it, you can make tubes from it. So this furnace is a pressware production. So about half of our glassware is coming from press, press technology, let's say it. And we can triple that.
Okay. Okay. Three times, means 1.5x of the current sales, right?
Yes, of course, the others will also the other -- you're right, but others will also -- so we will also increase sale of other products where we already have extra capacity. So -- but yes, you're right, [indiscernible].
Next question comes from the line of Aditi Bhatted with Niveshaay.
Yes. Sir, so my question is with like facility, the new facility. So what would be the current operational efficiency with this?
Pat the moment, 60%.
Okay. And I mean, we could have obtained an optimum level in 6 to 7 months, as you mentioned?
Yes. That's the goal.
Okay, okay. And so I believe that we are still importing a certain percentage of products in this division? And what would be that percentage?
We will not import -- we import products in other -- I mean, we have products which we don't manufacture, for example, steel, we don't manufacture, which we import. And like I said, there are some blown products in glass, which we don't manufacture, which we'll continue to import. The overall import percentage will drop this year. I think our overall imports will be less than 30%.
Okay. Okay. Sorry?
Maybe even 20%.
Okay. Okay. Right. And sir, like for this year all our CapEx that we have planned is they are operational now it pressware, be it Opalware everything is operational right now. And I believe we are targeting to achieve us optimum capacity utilization rises and increasing the margins with that. So what do you identify as your major sales driver for this year? I mean in terms of revenue guidance, would you identify as the major sales growth driver?
In terms of product category or...
In terms of product category, in terms of product category.
Yes. Like -- so glass will definitely be 1 of the major drivers in terms of growth, revenue growth. And of course, Opal also we have capacity left, so that will also -- we should be able to grow that business as well. So the glassware and Opalware, I would say, would be the 2 main drivers of revenue growth.
Okay. And sir, Opalware, are we planning any further capacity addition? Because I believe that we are already running at around 60% to 70% capacity utilization, which we will fulfill by quarter 3 also going ahead. Do you plan anything futher?
At this very moment, we are not planning anything because we are looking at premiumization of our Opalware range as well as utilizing the 100% capacity. So at this very moment, no.
Okay. Okay. And sir, lastly, one of our CapEx, which was put on hold for backward integration. I mean do we have any guidance for that?
At the moment, so that will now come under scientific dividend. That will not come here. Because that's mainly scientific. So -- but -- and that's on hold only. I don't we're, at the moment, looking to get into that.
Okay. But that was helpful for the raw material side of consumer division as well, right?
Yes, that's right. But at the moment, we are able to source this at very low prices. So we are that would not -- at this current moment that we would like to operationally, let's say, stabilize our current production, what we have just done and maybe we can relook at that in the coming year.
Next question comes from the line of [indiscernible] with [ Girik ] Capital.
Yes. I would just like to know how much are you going to spend on advertising in the forthcoming years as a percentage of sales?
It's going to be in the 7.5% range, 7% to 8%.
And in FY '24, what was that number?
[indiscernible] similar.
Next question comes from the line of [ Pratik ] with [indiscernible] Research.
Congratulations for a good set of numbers. I just have 1 question, 1 question. So will company structure now very, very segregated. Is it fair to assume that the earlier mix of bandwidth is now and there will be a sharper in focus on all 3 verticals [indiscernible] if you can help us understand perspective.
I'm sorry, you were a little bit muffled, but what I understood is you're asking about managerial bandwidth across the businesses. Is that right?
So I'll quickly repeat my question. So I just want to understand with a very well segregated company structure, in 3 divisions now well listed. The mix of bandwidth, which was earlier there, is it optimally free now for a sharper and dedicated focus?
So frankly, the bandwidth has not changed in 1 way or the other because the businesses were already always operated as individual units only. Now only the legal structure has evolved to reflect the reality what is already present. So in that sense, I would -- of course, during this process, for example, now we have the CEO of our Scientific business.
So to that extent, that gentleman will take more responsibility in terms of the overview of business. But that's a natural progression and it doesn't really have much to do with the particular restructuring per se. So I don't necessarily know if the bandwidth there's any changes because, like I said, we were always operating.
And I believe that we have been focusing on each of the business to the best of our abilities independently anyway. So I don't see much change there, frankly.
Understood, sir. So going ahead, it should be more about the capacity utilization in our consumer business, which should be driving the growth and your margins accordingly?
Yes. Yes, absolutely. And I believe we have reasonably strong teams across all our organizations, all of 3, say, the companies. And they are well suited with or without this, let's say, restructuring to drive growth. And I think there's a track record also now of that.
Our next question comes from the line of [ Laxminarayan ] with [ Tunga ] Investment.
Just couple of questions. One is that in the nonglassware category stoves and also some of the other things like micro-oven so how do you call out your differentiation there? Because these are very, very entrenched product lines and where if you look at it, your right to win is very high in terms of Opalware and the glassware. In nonglassware, how do you [indiscernible] differentiation strategy there?
Yes, it's a good question, and I think we debated this along a lot before we actually entered the business. And I believe there's 2 or 3 points that we have tried to focus on. And the number 1 is, in terms of we have stuck to a premium quality position, okay?
So as I would call it, March premium, we have identified, let's say, all the materials that we use, whether it's appliances or the insulated flash or even the steel serving ware which we don't manufacture. We have identified the core raw materials to be used. We specified them from our vendors and we do a precarious quality control check and ensure that we are getting the best in glass as we have specified.
The second point is in terms of customer insights, I think the products themselves are made keeping some customer insights in mind, these customers expect from a brand like Borosil. For example, our motors will have only copper binding, not aluminum, okay?
As an example, we would -- our upbeat for will be stainless steel 304 grade. Others may have different ones. We will have longer cards, which allow people to use be in kitchens with to put the -- have more flexibility in putting the appliance in a place away from even the power point.
So I mean, I'm giving you 2, 3, but there's many such examples. So our focus has been to listen to the customer and then develop the product. As far as the right to win is concerned, I think distribution also plays a role in that. And I think we have a very strong and loyal distribution base. And we finally, after sales service.
I think our aftersales service has a turnaround time of 3 days across the country. So we respond to customer issues quite rapidly, which is also one of the main reasons why customers buy from us.
And look for pudding is in the eating, the nonglassware was virtually 0 in 2017, if I'm not mistaken and it's almost a INR 400 crore category. And we have been posting good growth and probably industry-leading gross margin, although I don't share that data with you with outside.
But in principle, I think we have shown that we have -- we've made a good position for ourselves. Although definitely, we're not market leaders, but we have a good position here.
And across the different categories, what's the kind of a channel break between [indiscernible] whichever way you want to look at it, either large format stores [indiscernible] So what is the channel mix is not all to be different [indiscernible]
I will not share percentages with you. But in principle, I can tell you that general trade is the largest. And we do reasonably well. Our growth numbers in general trade are quite good. And then e-commerce would be the second largest. In large format stores, we are not that strong.
Okay. And what kind of business comes from products?
What product, sorry?
comes from the [indiscernible].
The defense canteen. So there actually listing is a big challenge in defense canteen. So our listing of products, it takes a long time, and there only list very few items at a time. So we are much stronger in glassware in canteens. And recently, we've been adding new SKUs, of course. But we don't have anywhere close to the full range we would like to have in the canteens because this takes a long time to list. We hope that will change in the future.
But I would not like to share exact numbers with you, but in principle, I would say, glassware canteen drives some good revenue from glassware
And the nonglassware I presume entirely outsourced production, right?
Yes, that's right.
Next question comes from the line of Hitesh with Kosha Capital.
Congratulations on the growth here. I think we have been outpacing most of the peers not in the listed and unlisted space. If you can probably share what is -- and bulk of this growth is coming from the categories where the level of competition is also very high.
So you did mention about how different Borosil is vis-a-vis the product development, the aftersales service. But then otherwise, on the sales strategy part, could you just highlight how -- what different are we doing vis-a-vis the competition?
Frankly, I think it's a very difficult question for me to answer because there's no 1 -- let's say, there's no 1 silver bullet. I would say our teams are highly motivated. We are very -- we have -- in fact, our manpower cost, as you can see someone already count is quite high. So we compensate them well and we expect results also from them.
And we have, I would say, built a team for a INR 2,000 crore turnover at INR 900 crores or even actually before that. So our size of teams are bigger, probably than our competitors. I think they're hungry, they're quite hungry for success because their compensation is linked to it.
We also have ESOP schemes which will give our people. So I would say we have a very well motivated team. And it's not 1 person, it's across the board. And that's something I believe is a key source of our key, let's say, reason for growth. because market keeps changing, I would say pricing also is up and down.
It depends month-to-month, even region to region. But I think the -- I would just appreciate my team for achieving this number. And I don't believe there's any 1 product or any 1 channel or anyone strategy that has given us this growth. Very frankly, that's my honest answer to your question.
Sure. Within the nonglassware, any -- I mean, I'm sure you'll not give numbers, but any specific category where you're seeing a higher growth -- which categories contributed to the high growth last year in the non-glassware segment?
Bottles in general have done well. Our insulated bottles have done well. I think things like the juicers have done well. I think there's a lot of focus on healthy products. And those products have done well for us. But I would say if you look at the -- I mean, I review the growth numbers quite frequently, and I see that we have double-digit growth across almost all the products that we are in. So some of course higher than others, but like, yes, within that, I would say bottles, some appliances like [indiscernible] would have done very well.
Sure. And this BIS norms that have come in for the vacuum last, will you see that having any impact because most of it is imported for us also, right, where BIS cannot be followed?
So the industry as such is dependent on imports because the local ecosystem is still not developed. It will take some time. We have also started sourcing locally this product category. And if you can see our working capital has gone up because then we have imported a reasonable amount of stock for this year while we develop the local better ecosystem.
So that is -- so we expect -- I mean, it will have a short-term impact, but I think the local ecosystem should also develop quickly. There are already quite a few players who are started producing this year.
Obviously, the challenge I would say China, they have built an ecosystem over a long period of time. Obviously, we won't be that long. But I would say it will take some time to replicate that in terms of new products, new product development which will be impacted. But the -- whatever products we're already making, I think getting it made in India is not such a big challenge.
Got it. Got it. And lastly, on this expansion into, I mean, the furnace that we are setting up. See, we have been in the industry, probably the oldest player in the glassware, right, amongst our peers. There's a big capacity that now we also have. also expanding expanding on the soda lime side. So -- and you had mentioned about how you want to -- how you aspire to introduce more SKUs, which will probably help you grow the market -- now when all these 3 players are expanding, we'll probably try to stock the channel.
And there is a -- these are breakable items, right? So there's only limited shelf space that a dealer would have you think you see that as a challenge in terms of stocking, given that all the 3 players would be equally aggressive to have a scale there?
Well, frankly, I think I would change the perspective of this question. I don't think we are competing with in glass. I think all 3 of us are competing against plastic, okay, and against steel to some extent. And I would say that we have -- as an industry, we would have to take away share from unorganized players as well as from steel and from plastic. That would be a target.
If we achieve that, we could do much better than taking away share from each other, which is the pie is too small. So I do believe that if we come with innovative products and good products, then we'll find shelf space. I don't -- and I don't think pricing is the determinant of shelf space, frankly. Shelf space, the determinant is the value for the customer and whether customer is coming and asking for the product.
No, when I mean pricing, I meant the dealer incentives that will probably have to be given if you need a shelf space there, right?
I mean if we look at the history, last few years, all 3 players have expanded their Opal capacity also in the same period of time. I don't think anyone has gone down that road because like I said, then everybody knows that in glass, specifically glass manufacturing is a very high CapEx business.
And sometimes we have a lot of maintenance CapEx also, so unless you make margins, you can't see in the business. So I don't think any of the players have a short-term view on life. And I think this is a mature industry. And they are all top of -- I would say, top class, I would say, competitors
So I don't see any short-term coming in that way because even actually in the past, when we were smaller and we expanded from 1 to 2, you're expanding 50%. Now when you go from 2 to 3 expansion percentage will be the same. So I mean I -- and plus -- I mean, I don't see -- I think there's a lot of import substitution that will happen.
The shelf space will take away from imported and like I said, the nonorganized players as well as maybe plastics. So I don't [indiscernible]
Got it. And lastly, what is the breakeven capacity or breakeven utilization for the glassware furnace?
I mean, specifically, I don't have an answer for you, but specifically, I don't have an answer, but broadly in a glass furnace, I would say, rule of thumb 60%, 65%.
Which we plan to hit by Q3 of this year, right?
Yes, absolutely. We should try that, at least, as a goal.
Next question comes from the line of [ Ankur Shah ] with [ Quasar ] Capital.
Sir, apart from the reason which you explained, is there any reason for a sharp increase in working capital?
No. The main reason -- there's 2 reasons. One has explained the BIS issue for steel borrowers. Second is, as I said, we have been working on a capacity utilization of 80% for Opalware and that capacity utilization we've been producing at 100%. So we don't really be able to sell the inventory. So these are the 2 main reasons.
Because if I add for the gross margin, we are running at least like 2 quarter inventory.
We are having 2 quarters of inventory. Yes, like I said, it's coming from Opalware and the BIS.
Okay. And sir, second question is, sir, while you switched to Indian manufacturing, what is the effect on the ROC because I'm sure you would have made that calculation because the first business is quite asset-light because it's more or less -- and...
Yes, ROCE, in the short term, take we achieved capacity utilization ROCE will fall, no doubt. And it has -- if you see last year, we were 16-odd percent, 15%, but in the -- once you hit the numbers, the capacity utilization numbers, the ROCE jumps.
So we are in this for the long haul. We are not looking at quarter-to-quarter. So it's okay if it falls...
No, which I agree, but like because you also mentioned that you would be going aggressively on the volumes because of which maybe you might take price cuts. So generally, to manufacturing such involves a margin rise and which takes care of the ROCE. So since you're going to pass on that benefit, how do you see the plant ROCE versus the trading business ROCE?
The plant ROC should be higher than the trading business ROC. There will be 1 or 2 years of flux, okay? In between, there will be 1 or 2 years of flux because the whole matter has to settle because the third element is also volumes, right? When you're trading, you buy when you -- what you need to -- what are you selling.
Here, you are -- the production is kind of fixed, you have to produce a certain amount for having having some basic scale benefits. So until you hit that mix, which takes a year or 2, then you may have a short-term dip on the ROCE numbers.
But -- like I said, as per our calculations, once we are able to hit cross 70%, 75% capacity utilization, the ROC of this business is north of 20%.
Sure, sir. And the last question is on the non glassware business. So are we able to find with positions in certain category of products where we feel that these categories would be sort of established categories going ahead. I'm just asking from the mindset that people think about Borosil when they buy in that category.
I mean, again, it is a large country, and we have many different types of customers and also we have lots of product categories. I would say that in some product categories, for example, appliances, if you go on Amazon, I'm just using Amazon as the benchmark.
We are already #1 or #2 in some, like, for example, OTGs, juicers we will be #1, #2 or maximum #3, okay, in a few categories already. So people are definitely coming and asking for our product or rather putting Borosil as a brand of choice there.
Is the same thing happening on the -- in the trade channels? Maybe not at the moment, okay? It will take time to establish. In the trade, we have done very well with bottles. So people have come and asked for bottles.
We personalize bottles also with people's names and so on. So people come and they like it. So obviously, our endeavor is that what you mentioned is to get people even in nonglassware to come and ask for the product.
But -- and obviously, we have done some good work here because sales have grown from virtually 0 to almost INR 400 crores in the last -- in the 5, 6 years.
But can I say that -- I want to mention that we are the industry leader by any stretch of imagination, but we are working towards that goal. And of course, within pockets, there will be some channels and some products where we already have a good bag position. But I would say vast majority, we are not the leader yet.
Next question comes from the line of Priyank Chheda with Vallum Capital.
Just a few clarifications. So FY '24-'23 since we started -- since we saw elevated CapEx cycle, we have roughly invested INR 325 crores. I believe that is for the Opalware furnace. And then in FY '24, the CapEx was roughly INR 200 crores. I believe that would be for the new pressure plus furnace. Am I correct on this understanding? p
I mean broadly, yes, most of it is there, but we also invested, for example, in a solar park. We had some other yes, but broadly you're correct.
So solar investment was around INR 40 crores, INR 50 crores, right? So the furnace pressware furnace was around -- would be around INR 150 crores.
That's right. You are roughly right.
And if I heard correctly on the call earlier in this call, you did mention that the new pressware furnace of glassware, you expect peak sales of around INR 300 crores. Is that understanding correct at the peak utilization?
At full utilization will be up between INR 250 and INR 300, depending on product yes, that's right.
Got it. Got it. And what would be the CapEx budgets going ahead, sir, for FY '25-'26, so where are we broadly planning?
About INR 100 crores CapEx this year, okay? That is for some debottlenecking, some another solar [indiscernible] all put altogether about INR 100 crores. Now beyond this, we have not -- at '25-'26 I don't have any plans at the moment.
INR 100 crores for this year broadly into solar and some other debottlenecking, right?
Solar, debottlenecking, and we have to rebuild our furnaces both our Opal glass 1 and 2 furnaces. So if we spend the money for it, then the will happen depending on the life of the furnace.
Right. So when you undergo for maintenance, is there any chance of debottlenecking Opalware capacity also?
Yes, that's exactly right. That's the goal. That's right.
Correct, correct. And on the gross debt of around INR 150 crores, given that this year where we are -- when we are going live with 1 furnace in glassware, and went with the gross debt of INR 150 crores. And I believe significant of the amount of cash flow that would be generated internally would go into working capital requirements. So any other plans that you have given the debt of INR 150 crores we have, how do we think about the further capital allocation on the balance sheet to strengthen anything that you're looking out for equity raise, any thoughts on that?
I think we had already announced that we were looking permission to raise equity up to INR 250 crores. There's anything yet on that, but we have permission to raise up to INR 250 crores. So we will choose to do that at the appropriate time.
Ladies and gentlemen, that was the last question for today. We have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for active participation in our quarterly conference call. Just to summarize, we had a good year as far as the growth is concerned, we continue to work on improving margins. And we are quite bullish in terms of the future where we are positioned and also where we see our demand in our country going. So thank you all for your support and patience and so on, and we look forward to interacting with you next quarter. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.