Borosil Renewables Limited (502219) Earnings Call Transcript & Summary

Thanks a lot, [ Rutuja ]. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the Borosil Renewables Limited Q3 FY '21 Earnings Conference Call. Today, we have with us the management team represented by Mr. P. K. Kheruka, who is the Chairman; Mr. Ashok Jain, who is a whole-time director; and Mr. Sunil Roongta, who is the CFO. We will first begin with opening remarks from the management, followed by the Q&A session. With that, I hand over the floor to Mr. Kheruka. Over to you, sir. Thank you.

Thank you. Good afternoon, and welcome to the Borosil Renewables Quarter 3 Financial Year '21 Investor Call. It is a pleasure to be interacting with you once again. The Board of Borosil Renewables approved the company's financial results for quarter 3 financial year '21 on February 12. Our results and an updated presentation have been sent to the stock exchanges and have also been uploaded on the company's website. I shall try and cover the company's performance and key developments since our last call with you before opening it up for questions. As you are aware, the company is undertaking an expansion of its capacity from 450 tons per day to 950 tons per day by adding a third solar glass line of 500 tons per day, along with its processing facilities. It is estimated that this expansion will be at a cost of about INR 500 crores. The financing plan for the project envisages equity of INR 200 crores, debt of INR 200 crores, with the balance to be met through internal accruals. I'm happy to say that the company has successfully raised equity finance of INR 200 crores by way of a qualified institutional placement. The share capital of the company has increased from 11.41 crores shares to 12.99 crores shares of INR 1 each, an increase of 13.9%. Promoter shareholding has dropped from 70.5% to 61.89%. We are glad to have a number of marquee institutional investors as our shareholders. We thank them for the confidence reposed in the company and look forward to their continued support. It is also heartening to have them share our conviction about the future of the renewable energy sector and manufacturing of solar components in India and particularly solar glass within it. This, we believe, is the first investment in a public equity by investors in this sector and we trust will help attract more investments and provide a boost to domestic manufacturing of solar components in India. Borosil Renewables has produced at near full capacity of 450 tons per day during the quarter 3 financial year '21. Demand has been robust, and the company achieved its highest-ever quarterly revenue from operations of INR 140.1 crores. This was higher by 23% over the revenue of INR 114.1 crore in the previous quarter. The company locked a revenue growth of 86% over quarter 3 financial year '20, INR 75.2 crores, where we were operating only one plant for the first 2 months. During the 9 months ended December 2020, the company recorded net revenue of INR 308.3 crores, a growth of 74.3% over the corresponding period in the previous year. The current quarter experienced a mismatch of demand and supply of solar glass at the industry level on a global basis. Consequently, unit prices of solar glass started to spike from the beginning of October 2020 and continued to rise till December. The average ex-factory prices realized by us were higher than in quarter 3 financial year '20 by about 17%. The company registered a sales volume growth of 60% over quarter 3 financial year '20. About 90% of global solar production is in the hands of Chinese manufacturers. Being so dominant, they are the price setters in the market. Any abnormal increase or decrease in these volumes can have a significant impact on solar glass prices. Also, a significantly large module manufacturing capacity exists in China, and highest installations happen also in China. Consequently, any acceleration or deceleration in China's solar program and demand for solar modules will have an impact on global demand for solar glass. The solar glass manufacturing globally has adequate capacity and operates at a high utilization level, being a capital-intensive industry. The spike in prices during the last quarter is a consequence of a spurt in demand for solar glass in China, as China decided to complete the shortfall in target for a COVID-hit period, that is the first half of calendar year 2020, in the remaining part of the year while mandating that 30% of the modules would have to be bifacial modules or glass-glass modules. We understand the percentage of glass-glass modules production during the current year, that is to say calendar year 2021, in China would rise to 60%. Historically, each module needed only one sheet of glass. The bifacial module has a sheet of glass on either side, which when used with a bifacial solar cell is able to enhance the power generation from the module by 15% to 20%. Demand for solar glass has thus jumped and exceeded the supply in the immediate term, whereas any fresh capacity addition takes a long time. Going by some research reports, about 8,000 to 9,000 tons per day of solar glass capacity are likely to come on stream in the calendar year 2021, with a further similar volume expected to be added in the calendar year 2022. We recognize that this spurt in prices in quarter 3 financial year '21 is a short-term phenomenon. The upward movement in prices has plateaued, and we expect prices to stabilize at close to the levels in December 2020 for a few months before softening gradually in the financial year '22. By comparison, the increase in prices during the 9 months from April to December 2020, as compared to the corresponding period during the previous year, was about 6%. Borosil Renewables has been one of the early movers to produce thinner solar glass that is required for bifacial modules or glass-to-glass modules. We were the first company in the world to produce fully tempered 2-millimeter solar glass. The bifacial models, which are likely to see wider absorption, now use thinner than conventional 3.2-millimeter glass, for instance a 2.5 mm or a 2.1 mm solar glass. We have increased production of the lower thicknesses and supply it to many customers in both domestic and export markets. During the third quarter of the financial year ending '21, our sales of thinner glass lower than 3.2 mm comprised about 25% of the sales volume. At the module manufacturing level, there is a need to change, modify the equipment to gain the capability to produce bifacial modules. In view of this, we may see a delayed and slower adoption of such change in India. During the quarter, we maintained a healthy mix of large and small customers, though there is a higher demand from each in view of higher activity and tendency to reduce dependence on import of solar glass from China and also due to lower availability. Moreover, the module manufacturers are adding capacities on the strong sentiment of Atmanirbhar Bharat. We believe this would significantly increase demand for solar glass in the country. There is an increased demand from the customers in export markets in view of lower availability from China, Malaysia. More geographies are getting added to the customer list. Exports comprise about 16.1% of overall sales. We are restricting orders in both domestic and export markets in view of limited availability. The Borosil group has decades of experience in operating glass-melting furnaces and producing glass. During the last decade, it has developed strong capabilities in the solar glass segment. In addition to its leadership in the production of thinner tempered solar gas, Borosil also offers other value-added solar glass such as Selene anti-glare for use in airports and NoSbEra antimony-free solar glass. Our glass delivers a high efficiency value of 95.2%, well above minimum standards. In financial year '20, we were able to commission our second line in record time and stabilize production within a month. Our capability in solar glass production is also reflected in our costs of production which is globally competitive. We have been able to innovate and control our cost of raw materials and achieve significantly lower consumption of energy in glass melting. A high level of automation in the factory has contributed to cost savings also. We have also been able to use innovations to reduce our costs of packaging. With enhanced capacity, the higher production and sales have resulted in operating leverage kicking in, particularly in overheads and manpower costs, et cetera. Cost efficiencies have also contributed to better profitability. The company registered an EBITDA margin of 38.3% during the third quarter for the financial year '21, as compared to 13.5% during the third quarter financial year '20. For the 9 months period ended December 2020, the company recorded an EBITDA margin of 31.2%. On a sequential basis, EBITDA has improved from 28.4% to the 38.3% in the quarter under review. During quarter 3 financial year '21, Borosil Renewables, riding on significantly high EBITDA of INR 53.65 crores, achieved a profit before tax of INR 41.3 crores, as against a loss of INR 1 crore in quarter 3 financial year '20. Profit after tax, before considering income taxes pertaining to earlier years, during quarter 3 financial year '21 was INR 29.2 crores and for the 9 months ended December 2020 was INR 41.4 crores. During quarter 3 financial year '21, the company has charged a onetime amount of INR 18.6 crores, net of MAT credit of 56 lakhs, pertaining to taxation in previous years. During 2016, '17, the Municipal Corporation of Greater Mumbai had made a compulsory acquisition of land owned by the company. The company's stand was that the compulsory acquisition of land by government authority in 2016 was under the new Act, which gave waiver from levy of income tax on the compensation paid. However, a demand was raised by the tax authority on the ground that the acquisition was under the old Act which granted no such waiver. The company had recognized this as a contingent liability. It also initially decided to defend its position; and as required, deposited an amount of INR 12.5 crores in January, February 2020, before effective date of the merger scheme. During January 2021, the company reviewed the status of the dispute. Our belief was that, whichever way the ruling of the lower courts went, the party against whom the order was passed would take the matter right up to the supreme court. This would entail a number of years in legal battles, entailing costs and management bandwidth. Moreover, with passage of time, the claim amount would balloon with added interest and penalty, increasing the value of the potential risk of an adverse judgment against the company. Meanwhile, the company had the option of availing itself of the Direct Tax Vivad Se Vishwas scheme 2020, under which a payment of tax could be made, and any penalty imposed and interest accrued thus far would be waived. Consequently, the company could settle the claim by paying INR 19.16 crores, as against a total demand of INR 25.71 crores, including interest accrued till date. Considering that a final decision in the company's favor was not guaranteed, legal costs, potential increase in the contingent liability in the event of an adverse judgment, management time; and given that this is a one-off event, the management decided to offer to pay the principal demand of INR 19.16 crore under the scheme and take a onetime hit to its profit and loss this year. As we had already deposited INR 12.5 crores with the authority, the incremental cash flow impact to the company is INR 6.66 crores, so I clarify that the result of this decision is that we will have an incremental flash -- cash flow impact to the company of INR 6.66 crores. As we have discussed on earlier calls, the outlook for the solar industry and consequently outlook on solar glass remains very positive. Large capacities for solar power generation are expected to get added each year, aided by policy thrust and multiple government schemes to drive demand for solar power. The current annual requirement of glass to meet module manufacturing in India is for about 4 gigawatts. There have been recent announcements to add 12 gigawatts of module manufacturing capacity in India by various players, to come up in multiple phases over the next 1 or 2 years. Currently, Borosil Renewables caters to about 2.5 gigawatts of glass requirement annually, which will rise to 5 gigawatts after implementing the current expansion. Over the years, we have built the capability to produce tempered glass, solar glass at globally competitive costs. Subsidies in cost of land, power and fuel, labor costs, finance and taxes, et cetera available to our Chinese and Malaysian competitors and a direct subsidy on exports from China is something that we cannot control. And it is for our authorities to take cognizance of to prevent dumping and unfair pricing. An antidumping duty exists on imports of solar tempered glass from China, which is valid until August 2022. The company will take necessary steps to seek an extension of the same for another 5 years. A final recommendation to levy countervailing duty of 9.71% on solar tempered glass from Malaysia for a period of 5 years has been made by DGTR to the Ministry of Finance, who is expected to issue a customs notification in due course. In the recently announced Union Budget, the government has corrected a major anomaly that existed in the duty structure. Solar glass that was imported into SEZs were not subject to level -- levy of antidumping duty. Moreover, when this solar glass was used in the manufacture of modules, these once again escaped levy of duty when the module was cleared from SEZ into the domestic tariff area. Besides being a loss to revenue, this gave an unfair advantage to module manufacturers located in SEZs. Module manufacturers in the domestic tariff area faced unfair competition since they were obliged to pay antidumping duty on their imports. The last budget has now plugged this loophole. Currently, about 40% to 50% of modules manufactured in India are manufactured in SEZs. We see a possibility of rising demand going forward from these customers. Given the positive outlook, the company has already commenced work on its expansion plan of an additional 500 tons per day. We have started placement of orders of long-delivery items, and ordering of all key items is expected to be completed by March 2021. The project is expected to be commissioned by June 2022. Borosil Renewables is conscious about the impact it has on the environment. By the very nature of our business, we are part of the renewable energy ecosystem. Nonetheless, we do play a role behind -- beyond passive participation in it. A, our technical capabilities have delivered thinner tempered glass that provides a boost to the industry by reducing cost of electricity and enhanced productivity for solar project owners. B, we have developed antimony-free solar glass. Antimony is poisonous and can pose issues during disposal of modules at the end of life. Our antimony-free glass is an environmentally friendly alternative. C, our process saves 22% energy, as compared to the default score in glass manufacturing life cycle assessment, among industry best values as per Solstyce, a reputed French institute recognized by the government of France. D, a small portion of our energy requirements come from renewable sources such as a captive wind energy project. We're in the process of supplementing that with a captive solar power project. I would now like to open the floor to questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of [ Jai Shah ], an individual investor.

Congratulations on the wonderful set of results and the successful QIP. I've got a couple of short questions, so if you could like answer all of them together. So the first one is regarding -- so I just read this article that said that the Chinese government subsidy is about to expire soon. So is that true? And if it is true, does that mean that -- can we assume that we're the cheapest producer going ahead? The second question is regarding our gas supply. So like do we have a long-term gas supply? Or do we buy from spot? Because I think the spot prices were at a rise in early January. The other question is regarding updates on any new players entering our fleet in India. And I've heard that Chinese companies are going to start their old capacities back, so till when do you see the higher prices for solar glasses to -- like till which quarter do you think that these prices will be there?

Your first question was relating to competition, our competitiveness. So we are competitive indeed. And that has been established because of the results of the second quarter of the current financial year, when the market was on a sort of a normal phase and we were still able to generate a 28.5% EBITDA. With respect to your second question, regarding gas [ supply ], I'll ask Mr. Ashok Jain to answer that question.

So in terms of the -- our requirement of gas. We have a couple of different type of contracts. These are -- one contract is a long-term contract. And the other contracts are rather shorter-term contracts. They are linked to various kind of baskets, which avoids the concentration of risk in a particular type of benchmark, and that's how we control the cost of the natural gas for us. You are right that in January the prices went up and we had certain extra cost to pay, but this is general phenomenon that gas prices over the world go around -- go a little higher in December and January. So it should gradually settle down.

The last question...

The next question was regarding new players in India. So we have no concrete news or announcements so far regarding any new player coming into glass production. Yes, the possibilities always remain.

India is a free country and anybody can enter into any kind of production at any time. So that's how it is. Thank you.

Okay. And sir, one last question, sir. So I heard that the Chinese players are getting their old capacities back for production, so till when do you see the higher prices [ to play out ], till about which quarter approximately?

It's a little difficult to say. I will say that the first quarter of the next financial year would already see a little loosening of prices. And then it all depends upon how the Chinese government and other governments around the world pick up on renewable energy. We must remember that there is a new administration in the United States which is committed to renewable energy, as against the previous administration which was pretty much against it, so there might be some additional outlay for renewable energy in the U.S. which could drive up demand. So this is moving into a realm that it's very difficult to predict, but whatever it is, we are always ready for whatever situation arises.

Yes. Just to add in here. The Chinese capacity installations are going to be higher in this year, and so in India also. And other geographies also, we are seeing that demand is going to be higher. So we have to really see how the situation unfolds on the prices. Though the capacities of glass manufacturing also will rise, we have to see how the prices behave in the due course.

The next question is from the line of Mohit Kumar from DAM Capital.

Congratulation on a good set of numbers. Sir, my first question is on the sustainability of the margins. Margins have come out as 38%. What's your view as we enter FY '22? And secondly, on the current expansion which we are seeing in the industry, have we heard from the new players or something about booking the new quantum of orders as we enter FY '22?

Yes. So as regards sustainability of the margins, we already said that the current prices may start dropping in the next quarter of the financial year. And we really don't know how the prices would really work out. In terms of the volume and the productivity and production, we are doing almost our full capacity. And in terms of the prices, we have to see how they work out. So we -- while -- from the production angle we can give a guidance that we are running at full capacity, but on the prices, till the thing is not certain, we cannot issue any guideline on how the profitability or the prices will behave in the next year.

So are you saying that your volumes are booked for the next fiscal year, but pricing will differ by the market condition? Am I hearing right?

Yes, that's right. That's right.

Our volumes are booked.

Yes, understood, sir. And secondly, on the -- sir, on the expansion program which we have, what is the zero date when you're starting? And when do -- when -- can expect the ramp-up to completely happen? And do we need to speak to the -- to your counterparts to figure out, to book these new quantities, especially on the volume side?

Yes. So we are going to start -- I mean we have already started ordering the equipment, and we are likely to start commercial production by June '22. So all our customers who are already buying glass from us are already in touch with us regarding the new requirements because they are also expanding. So we are in touch with them to also book -- start looking at booking the volume from the next financial year, that is April '22, on an incremental basis, but these are not some contracts or like that. These are just a discussion.

Okay. And sir, what is your dependence on the top 5 or, let's say, top 3 clients on the revenue side concentration?

So top 10 buyers would constitute about 50% of our sales. And the largest buyer would be about 10%.

The next question is from the line of Dhruv Kashyap from Edelweiss.

Yes. First of all, Mr. Kheruka, I mean, heartiest congratulations on the way you and your team are sort of running the company. It's maybe quite a sort of benchmark for others to follow. I'm going to take this opportunity to pick your brains, since, I mean, you will probably be the finest mind, if not the finest mind, on solar in India, on 2 vectors, really present and future. On the present, given all that you've explained so patiently in all the previous calls in terms of what comes from China, what comes from Malaysia, what China sends through Malaysia and the pace of expansion of the solar capacity in India itself, as in the end solar power, what is your outlook on how things stand as we speak currently? And how is it likely to play out in terms of your ability to sort of create and service the demand?

See, the demand for energy in the world is rising. In that, there is no doubt. Number two, the demand for electrical energy will rise exponentially because -- we can see that electric vehicles are definitely going to be coming into the world across the entire globe, so -- and this is going to require a huge amount of electricity. And the cost of conventional power generation with coal is now approaching nearly almost double the price of power from solar sources. So that's very clear, that at the moment it would be foolhardy to try and estimate the extent of rise in solar power generation. And so it's almost limitless as we speak today. Having said that, the question arises about that -- the fact that, well, every piece of -- every single solar module requires at least 1 sheet of glass. And going forward, it's going to be 2 sheets of glass, so the demand for glass is pretty much set that it's going to be there. And no matter what we do, I don't think we can meet the demand for solar glass in the country by ourselves, but we will always remain a very -- we will remain a player which is very relevant. And perhaps we might even be benchmarking the whole thing, but the demand for glass is there. The demand for solar power is there. Insofar the question of increasing capacity is concerned, we are operating 2 furnaces now which together add up to 450 tons, which is okay, but it's staying -- it's no great shakes. Typically you have now solar furnaces which are about 1,000 tons per furnace. And there is a lot of scope for expansion in solar glass, as far as I can see. The nation certainly needs it. Whether we provide it or somebody else provides it, it will remain to be seen, but yes -- but we certainly can see that happening.

My second question is a little more futuristic and if you could humor me with sort of crystal ball gazing, that see, given the breakneck speed at which solar-end power sort of is increasing in India and the kind of lofty targets that the government has set and that kind of reflects in your expansion as well, where you've gone from almost 150 tons per day to 450 tons per day in no time. If you were to talk about even beyond this 950 tons, and I'm sure, I mean I can bet my bottom dollar on it, at some time we'll be discussing future expansion even beyond 950 tons. Given that this takes about 12 to 15 months to set up then there'll be some trial times. So by the time you can ramp up to keep this thing. And now I'm not even sure next time you'll have space for brownfield. You might need to go for greenfield and it might even be longer. What are your thoughts on the next leg after the 950 tons?

Our campus where we are producing glass is over 100 acres. We could easily accommodate 2 furnaces of 1,000 tons each in addition to the 950 tons that we are talking about, so we cannot rule out the possibility of, at some point in the future, taking up the idea of a fourth furnace with 1,000 tons per day.

So just a clarification on that, sir. If that was to happen, would there be any change in the time to sort of go to market from these 12 to 15 months? Because I'm guessing it won't be greenfield, so it won't need more time than what it currently takes for your current 450 to 950 tons, but is there any chance of shortening time lines going forward, I mean, given that you've been doing this for so long?

I doubt it. I think 15 months will be the absolute and aggressive target, we will take it. One normally takes it for 18 months, but that's -- you have to manufacture these. The machines that make the glass are all bespoke, so they have to be made according to the demands that we set on the manufacturer. This is not off the shelf. Actually it just starts from the ground, up. So it -- I don't think we can make it in less than 15 to 18 months, further expansions also. The question is do we...

Sir, just a final clarification on that...

The question is when do we go for SG-4. I mean, when do we decide on that? So it all -- I mean that depends upon the time that we take to decide about the fourth furnace.

So hypothetically speaking, if you decide in June 2023, it would still make it September, October 2024 by the time it's operational.

You're right, if we were to decide in June '23, but if we were to decide in June '22, then that will be September '23. And if we were to decide earlier than that, we could -- there's nothing to stop us from deciding in December 2021 that we wish to go ahead with the next furnace even before this one is up and running.

So just out of curiosity, what is stopping us from not -- going all the way from 450 to 950 tons to say 450 to 2,000 tons in one shot?

I mean, look, the thing is that we have invested money in the company, I'm myself an investor in my own company. And I cannot be reckless. So we must exercise due caution and feel our way around. We need to see how this year pans out. I mean the current calendar year 2021. It is really evident. And China has set up 42 gigawatts of solar power capacity in the year 2020. They go by the calendar year. So if they are now talking about 59 gigawatts in calendar year '21. Then comes the question, are they going to do more of bifacial modules with 2 glasses per module? Or they'll do that less. So there are many things have to be seen. It's very evident that, if you buy a bifacial module, your reliability of the module goes up significantly. And there are very strong technical reasons to go for a bifacial module with glass on both sides. So there are so many imponderables and we need to be a little bit cautious. And so therefore I think perhaps by the end of this year will be earliest that we might take a decision in the [indiscernible].

The next question is from the line of Vikram Sharma from Nivesh India.

Congratulations for a good set of numbers. Sir, like with government-imposed CVD on imports from Malaysia and also SEZ units now need to pay antidumping duty on CVD inputs, sir, if we assume price start correcting and the scenario becomes normal over time -- so where price can settle down, what we are expecting? Like we had very stable in the range of [ INR 97 to INR 102 ] in the past 5 years.

See, that's very speculative. It's very difficult for me to make any kind of prediction about where the price might settle because your -- the gentleman who was asking questions just before you was also trying to figure out what the scenario will be going forward. It's so strongly market dependent, you see, so it's very difficult to predict. So far the question of the extra costs is concerned, we must remember that the last bid for solar power was won by a developer who was quoting INR 1.99 per unit of electricity. And we must remember that the cost of power from coal-based thermal power generating system would have been INR 3.40 about 4 years ago when everything was at rock bottom. The ocean freight was rock bottom. The cost of coal was rock bottom. Today, ocean freight has risen enormously. Coal is coming from Indonesia for power plants in some cases. And the whole -- the cost of coal itself has gone up because commodity prices have risen sharply in the last 3 months. So the price of power from coal would now be as much as INR 4, for example. So even if the price of module goes up a little bit, the price of solar power from that would not go up by more than INR 0.10 maximum per unit.

Okay. And sir, another, can you guide about the total capacity of solar glass worldwide? And what is upcoming CapEx?

Yes. So there are some reports available by -- done by some research companies. And we understand that total global capacity of glass -- manufacturing of solar glass is existing at about 20,000 tons per day. Now this 20,000 tons per day capacity is mainly 90% is controlled by China or Chinese-owned companies in, say, Malaysia or Vietnam, for that matter. And the rest, there are only about 4 plants around the world, including ourselves. So the capacity is totally focused in the hands of Chinese manufacturers. In terms of the further growth, there are numbers of -- being shared by those research agencies that about 8,000 to 9,000 tons per day additional capacity will start in this calendar year. So that's the status as of now.

Okay. And what is current demand worldwide any [ guess ]?

As we have been explaining, the demand is a little higher and which has caused a certain amount of imbalance in the demand-supply scenario. So the demand has been higher than the current supply.

Okay. And sir, my last question. What is trend of bifacial modules in India?

Yes. So in India, it has not yet picked up so much because the module manufacturing in India is typically on a conventional module basis. And many of the module manufactures even do not have the equipment to make bifacial modules, so they will have to incur certain CapEx to change their lines or make those enabling facilities in the current facilities. And thereafter, they can start doing it, but we have been in discussion with a couple of large players and they are now saying that they want to start bifacial modules manufacturing in the second half of this calendar year. So it should gradually pick up by end of this calendar year, I suppose. And we see a good future of bifacial modules in India as well.

And just what is other option available for back sheet other than glass? And what is cost of that?

It's a plastic back sheet. It's a polymer back sheet which is what has been used so far. The cost of that in the past was about 3% of the cost of a module. And the cost of glass is now 9%. So if you do not use a back sheet and use glass, then you are paying 6% more for the cost of the module, but the life of the module goes up from 25 years to 40 years. And also the failure rate drops, so actually at the end of the day it is not an expensive option. It is a good option to have glass lining.

And this bifacial cell which are charged from the back side also, you are able to produce extra energy by 15% to 20%. So one is to see in all respects overall cost of producing electricity out of [ if it makes sense ].

The next question is from the line of Arvind Kothari from Nivesh India.

Yes. Congratulations on great set of numbers, sir. I was just wanting to expand on the earlier question on the capacity. So if we do the math right, India surely needs a 4,000 to 5,000 tons kind of a player maybe by 2025, right? If you just add up the domestic content requirements of some other users, it is basically having that kind of, you can say, level to basically cover this. So in terms of your bottleneck in terms of the plant or the CapEx or any part of the order which we need to import, is there something which stops a 1,000-ton kind of, you can say -- I guess, China, the expansions are coming in the line of 1,000 tons in [ sealing ] glass or flat glass, whatever big players we talk about. So is there any technical, you can say, problem that might -- may be stopping us from doing that?

There is absolutely no technical problem that is stopping us. We can easily do a 1,000 tons per day plant. It's a question -- or it's a holistic decision which is an overall decision which is -- includes commercial considerations also. So there is a certain amount of caution that anybody exercises when you make a large investment. You make the investment and you see how it pans out. You see it panning out all right and the results are good, then you think about the next expansion. So like even the current one, we were in operations since June of -- July of last year -- of July of 2019. And we rebuilt our original furnace, and that came into operation in December 2019. So 1 year of operations we have seen, and it's been going well, so it gives us the courage to go for the next expansion. So as I've said already, we might not wait for the output from this to start flowing. We might even decide on the next furnace before that, but we need to understand how the market is moving, and so therefore I think definitely, for the next 12 months, we will watch and wait.

So any dynamics in terms of whether per-ton CapEx increases or decreases when we go for a high capacity? And also the cost dynamics. I mean, what economies of scale would result into cost saving for us if we go for a 1,000 ton kind of a furnace? Any insight on that?

Definitely -- there is definitely some economy of scale, not a huge amount, but there is some economy of scale. But it's only after we've sat down and gone through with a fine-tooth comb that we can really say for a fact what that might be. I mean, today, anything I say would be speculative.

Yes. Just to add. I mean this -- the market cap of the company was at around 1,000 crores when we started the second expansion. And suppose we were to incur 1,000 crore on a 1,000-ton furnace. It would have been a huge risk for the bankers and equity holders as well. So we have -- we are growing in progression. And you will see that we continue to grow going forward also as the market is progressing and demand is getting generated.

Perfect, sir. Another question was on, sir, cash flow. So if I do the math right, I guess 40 crores to 50 crores of cash flows would have been generated this quarter. And given the prices that have gone up from January if we do the average price calculation, which might continue till March, this quarter, we might be ending up with 80 crores, 90 crores of cash and equity more. So if even the prices go down, I guess 40 crores, 50 crores would be the type of run rate we would be making on enhanced capacity. Do you think our requirement for debt is a bit reduced from the earlier projections because of these bounty of extra cash that we will get from the prices?

Yes. Initially we had projected a higher amount of debt. Then we have cut it down slightly. And right now we are staying with a, let's say, debt per ton which is 200 crores. And we'll see how much we'll draw at the end of the day.

Okay, okay. Great, sir. Also, sir, I just had this one question on the back sheet instead of glass. There is also another polymer which can do the same thing. I mean the bifacial. It's just not using glass. There are other materials, too. So how do we compete in terms of the other materials? What are the pros that a glass has versus a transparent back sheet, which in cost parallels or in terms of generation balance?

The more power we draw from a module, the hotter it gets, so the question is that -- with that kind of heat, to save a few cents by not having glass and having a polymer back sheet might be a little less capital intensive in the beginning, but later on, if the module -- because at the end of the day, all polymers have a certain melting point or a softening point. And when they're softened, then a crack develops with softening and cooling and all that. Because a module will -- generates heat during the day, but in the night, it falls silent. So it cools down. So you have all this cycle of expansion, contraction. And then you develop a crack and then moisture seeps in from that. These are all things which are happening on a daily basis, and that is why people are going for this glass-glass thing. So in fact, even when the module is not bifacial, many times, a customer will say, "I just want glass-glass," like on floating solar. So the other thing is on floating solar. I mean today, floating solar, you first create a platform which is on a buoy, B-U-O-Y, buoy, drums filled up with air and all that. So you are creating land first. Then you are putting normal module mounting and then you're putting the module. It's very expensive, but in a good world...

Sorry, sir. Please go ahead, sir.

Yes, yes. So I was just saying that a real floating solar would be something like a life belt around a module which would be actually sitting in the water. So the cost of that floating solar would be a fraction of what is being paid out today. That would be only possible if it's a glass-glass module. So that little extra cost of glass would give you floating solar of enormous quality. There are so many technical [indiscernible].

Got it. And sir, my final question would be so the solar glass pricing, we all know, is an aberration maybe due to a mismatch this year, but what stops it to maybe continue in the -- so what -- we have visited a lot of module manufacturers. The feedback that we get is that, a, we're running short on the inventory of glass that they normally maintain. And everyone is waiting for March end and they believe that the prices will go down, and hence they would order more post March. So a lot of order for glass might have shifted. And in terms of bifacial that we are talking about, it's not a normal development for the industry, right, the type of demand that has grown for the bifacial module. So those are things that the industry can be overwhelmed if Chinese demand for bifacial continues because the capacity can only be expanded by a few players. And it's known that -- who is doing what and when the capacities are going to come. So what stops the prices from being high for a relatively higher amount of time than what we are currently projecting?

See, according to this report that we are discussing, there's about 20,000 tons per day of production in China and Chinese companies -- actually around the world. And from that, they are saying about 8,000, 9,000 tons per day additional capacity is likely to come on stream as planned during the current year 2021, another 8,000, 9,000 tons in 2022. So we're looking at a doubling of capacity in the next 24 months, okay, which is a healthy increase in capacity. Now the increase in installations is also equally healthy around the world now. We're not discussing just China. It's around the world. There's a zoom in the installation of solar power, so that's why I'm saying it's a very difficult question to answer because which government will have how much money to devote to solar is again a question because everybody is reeling under COVID and things like that. But everybody is also not reeling under COVID. Some people are still quite okay financially. So we have started hanging [indiscernible]. We pace ourselves based upon what we can do and then the part we cannot do.

But the question of government has reduced over time. I mean, if you look at the Gujarat policy just recently concluded, the bids that were there, I mean you might be aware of that. That far exceeded anybody's guesses. So the private enterprise is coming big way into solar to reduce their costs predominantly. Also the medium-scale enterprises also have a lot of benefits, so I guess it's something which -- the demand is there, I mean. If it is able to sustain, I guess the pricing might also surprise some people.

The demand is unlimited, in my opinion. It's just simply unlimited. And you -- can you imagine all the cars in the world going electric? And then why would anybody pay for power to the grid? You set up your own little solar roof to power a battery. In the night, you would plug your car to your battery. Just like you have for your mobile telephone, you have a battery pack that you carry with you. So you'll have a battery pack at home. And all these cars that are going to be running on solar or running on electricity, after 2 years, those batteries are no longer useful in the car, but they're still good for another 4 years at home. So the amount of batteries is going to expand exponentially in the world. And therefore, all of this is going to come from solar, so to me it's a no-brainer regarding the need and demand for solar power is going to just grow exponentially.

So anything can change from this perovskite cells technology. I mean, is that a technology that can become a larger portion in the future? And does that require a glass or not...

It's going to take time, I guess. You see it's a little -- it's very uncertain. The highest disruption is happening in the field of cells. So that really is not our whole field of expertise. We know quite a lot about it, but that's not where we are reviewing cutting-edge research. But every day, we see cells are getting more and more efficient.

[indiscernible] let's see what the other technologies like HJT, IBC, all those things will come up as they are coming up in Europe and other places. So those technologies will start coming to India as well.

The next question is from the line of [ Utkarsh Somaiya ], an individual investor.

Firstly, I just wanted to clarify one of the previous statements you made. The current land that we have can accommodate 2 more 1,000 ton per day furnaces, if I'm not mistaken, right?

That's right.

So in addition to the 950 tons, the total will be 2,950 tons.

That's right.

Okay. And also you said that global capacity right now is 20,000 tons per day, and this is only in 4 plants globally.

No. I didn't say it's 4 plants. I said 2,000 tons per day -- I'm sorry, 20,000 tons per day. These are Chinese-owned capacities. They are in China mainly. There are some in Malaysia, some in Vietnam. So these are the Chinese-owned capacities. Other than that, there is something in Europe and there's something in Turkey. And they are there in India. Outside of Chinese companies, we are the largest manufacturer of solar glass in the world.

So the 4 companies are actually outside China, which are contributing to about 1,000 tons per day overall. And the rest of the companies are controlled by China either in China or in Vietnam or in Malaysia.

Okay. And what is the global demand? I think you said that global demand is higher than the total capacity, but can -- is there a number you can put to that?

For glass, as I just said, that the consumption -- the production today is about 20,000 tons per day, and the demand is more. Now see, we never know how much the demand is in a case where there is a shortage of supply because we don't know whether we are losing out on 1,000 tons per day or 10,000 tons per day. It's impossible to gauge that, so -- but I have a feeling that the additional nearly 90% increase that is coming in the next 2 years, next 2 calendar years, will do a lot to alleviate this shortage which we see today. But what will happen to further increase in demand is anybody's guess. I just mentioned about the United States of America, the current administration is very, very committed to renewable energy. If China is talking about setting up 49 -- sorry, 59 gigawatts in 1 year as the United States decides that they want to set up 40 gigawatts in a year, they'll change this equation completely. If they say they want to set up 2 gigawatts, then that's different. You know what I mean. So it's too early to say, but there's a potential for a lot of disruption. But we don't know.

All right, all right. And what is the operating cash flow and ROCE for quarter 3?

Yes. ROCE is about 20%.

20%.

Yes.

Yes.

Okay. And operating cash flow...

Yes. So we did EBITDA of INR 53 crores and PAT of INR 29 crores.

I didn't get that. EBITDA of...

So the profit after tax was INR 29 crores without including that one-off charge that we were -- that we've talked about, which the outlook for that will be INR 6.66 crores. And after that, that's it. So the last quarter, as Mr. Jain just said, is INR 29-plus crores for profit after tax and INR 53 crores of...

How much of this is converted into cash flow?

Over to...

How much of the EBITDA of INR 53 crores is converted into operating cash flow in quarter 3?

This -- The entire thing is the operating cash flow. The interest is only about INR 2 crores.

So the -- all of INR 53 crores is also -- is operating cash flow at minus the INR 2 crores of interest...

Yes, we got INR 2 crores. Only about INR 2 crores is the interest.

And will you be able to generate around INR 50 crores a quarter operating cash flow consistently?

That is pretty speculative, the answer to that. We -- as we've already said, that as going on the present basis, I suppose, it would be -- it could be in order to say that, yes, we could probably do that until prices soften. And then when that will happen is not easy to predict. It might happen first quarter...

I guess that -- I am not asking for margin guidance. All I'm trying to understand is, is 100% of the EBITDA getting converted to operating cash flow? If EBITDA is INR 40 crores, then for -- let's say INR 40 crores EBITDA and then INR 50 crores then. I just want to know is all of it getting converted to operating cash flow minus the interests...

[indiscernible].

[indiscernible] other than interest, there will be only increment some small amount of CapEx which will be -- which will not be very high. So the entire EBITDA will be -- generally it will be the cash surplus.

Yes, it becomes a cash surplus for us to do with what we like. I mean where it's -- if we will decide that there's some CapEx required, some small-time CapEx, this is always going on. Then we use it for that, yes.

Yes. So that is after operating cash flow. That is if you decide to spend the operating cash flow.

Right, exactly.

That's correct.

Just to add. We are paying MAT. MAT is also reduced from that operating [indiscernible].

Also paying...

MAT. M-A-T, MAT difference.

Minimum alternate tax.

Yes, yes.

Okay, okay. And I just have one last question. Is there any scope of any backward or forward integration in the future?

There is always a scope, but at the moment there is such a high demand for glass that it seems to be not very wise to shift away from something that we know and that we can do and do something else. Having said that, we are looking at another component where there is an international player who wants to step in with us. And he wants us to produce it and sell it to the same customer, but I cannot go into that right now.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you very much. We are grateful for the interest taken in today's discussion. And the level of questioning showed a healthy study of the working of the company. And we all look forward to meeting you all again at the time that we are ready with the presentation for the next quarter. Thank you very much.

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect.