Borosil Renewables Limited (502219) Earnings Call Transcript & Summary

[Audio Gap] Renewables, which is represented by Mr. P. K. Kheruka, Executive Chairman; Mr. Ashok Jain, whole-time Director; Mr. Sunil Roongta, Chief Financial Officer. We will begin with the opening remarks from Mr. Kheruka, followed by an interactive Q&A session. Over to you, sir.

Thank you very much, Mr. Shiva. Good afternoon, and welcome to the Borosil Renewables Q1 FY '22 Investor Call. My colleagues and I are happy to be interacting with you once again. The Board of Borosil Renewables approved the company's financial results for the first quarter financial year '22 on 4th August. Our results and an updated presentation have been sent to the stock exchanges and have also been uploaded on the company's website. During the quarter, the company recorded a net sales of INR 136.1 crores. This is a 152% increase from last year's low base, which has suffered the impact of COVID-related lockdowns. Export sales during the Q1 FY '22, including to customers in SEZ, INR 32.2 crores, comprising 23.6% of the turnover. The sales were lower than the historical high sales we had achieved in the fourth quarter '21 of this INR 17.6 crores is owing to AS 115 related accounting impact alone. However, as we had discussed in our last quarterly interaction, the prices of solar glass had begun correcting from the beginning of the quarter from the peak they touched during the second half of the last year, as the mismatch of global demand and supply began to get bridged and year-end rush to complete the project abated. Our average ex-factory selling prices during quarter 1 FY '22, were lower than those of quarter 4 FY '21 by about 10%. Despite a higher drop in the imported prices, which was possible since CVD against Malaysia came into force and the landed cost of imports remained high due to a significant rise in the logistics costs. Sales volumes are also lower than the historical peak volumes achieved during Q4 FY '21 by about 10%. This was mainly because of lower production, which in turn had gotten impacted due to the second wave of COVID-19. While gross production from the furnace was at about 96% capacity during quarter 1 FY '22, and annealed tempered glass production were each lower than in quarter 4 FY '21 due to lower efficiencies arising from the aforesaid reasons. This also resulted in higher production costs during the quarter. The situation, however, has improved considerably from July onwards. Notwithstanding the drop in realizations, and the slightly higher production costs as compared to the previous quarter. The EBITDA margin during Q1 FY '22 remained very healthy at 50.1%. During the quarter, the company generated a profit before tax of INR 55.9 crores and a profit after tax of INR 39.6 crores corresponding to a PAT to sales ratio of 29.1%. The nonrecognition of sales of INR 17.6 crores in the quarter also impacted the PBT and PAT. The correction in selling prices started in the beginning of April 2021 and continued till May. In fact, the demand in China in the current financial year has remained subdued so far, which is leading to a higher push for exports of the Chinese controlled solar glass production. The correction seems to have halted now. Accordingly, the average ex-factory prices in July are lower than the average for the Q1 FY '22. On the input costs front, there has been a rise in the costs for natural gas, packing materials and a few raw materials. The company is putting in efforts to minimize the impact. Both these are likely to impact the EBITDA margins in the current quarter. The long-term opportunity in solar power and our capability to produce the highest quality solar glass at efficiencies that match global standards has given us the confidence to expand our capacities significantly. As you are aware, we are currently undergoing an expansion to add a third line, SG-3. The company has decided to enhance the capacity of this line from the earlier planned 500 tons per day to 550 tons per day. The furnace will come with a superior design expected to deliver higher efficiency. Meanwhile, there has also been an inflation in cost of steel, cement and freight besides higher spend on furnace, building and production processing lines, leading to a higher project costs. Our overall project cost for the higher capacity of 550 tons per day is now estimated to be about INR 600 crores. This SG-3 line is expected to go into commercial production in the second quarter of FY '23. At that stage, the company's capacity would stand enhanced to 1,000 tons per day, that is to say above 5 gigawatts. The levy of 9.71% CVD on imports of solar tempered glass originating from Malaysia from March 2021 had its positive impact as this becomes a part of the landed cost of imports while we negotiate our selling prices. The antidumping duty against imports from China is valid until August 2022. The company has filed an application of the concerned authority to extend the duty for another 5 years, and the government has initiated investigation. There is a new challenge posed by imports coming from the new solar glass plant in Vietnam, set up by one of the large Chinese companies, which has begun operations recently. Such imports are not subjected to any duties as of now. Initially, these imports were priced higher, taking into account the duties on alternate sources. However, the offer prices have now aligned to China/Malaysia. We are closely watching the situation, and we'll take appropriate measures available under the law. While we await the levy of basic custom duty on solar cells and modules becoming effective from 1st April 2022. The safeguard duty of 14.5% has come to an end on 30th July. This may result in increase in imports and pose a temporary challenge for domestic producers of modules. In the meantime, the approved list of module manufacturers which is known as ALMM mechanism is being intensified and it is likely that more demand may be added to the list of segments, which mandate use of the module supplied by the manufacturers listed in ALMM. This may to a great extent curb the import of modules. The government has invited bids under the recently introduced PLI with a performance-linked (sic) [ production linked ] incentive scheme, under which additional production of higher efficiency solar modules cell and further backward integration will be incentivized. The scheme promotes use of domestically produced components as the incentives are designed to be at a higher rate in case of use of domestic components. The scheme incentivizes solar module manufacturers to source solar glass and other components from domestic producers. In our view, the country needs to add 25 gigawatts annually to meet the target of 300 gigawatts of solar installations by 2030. The total annual manufacturing capacity of solar modules in India currently stands at about 11 gigawatts, significant capacity additions of about 14 gigawatts are likely in the next 1 or 2 years. In addition, an announcement of new capacity of 10 gigawatts has been made by a very large player. The module manufacturers are also looking at supply chain of the key components from domestic sources, including solar glass. The rise in the installed capacity of solar module cell manufacturing will lead to a rise in the production of solar modules, which in turn will lead to a higher demand of solar glass. The company has been providing an increased focus on the exports to all the markets, including Russia, Middle East, Africa, North and South America in addition to the regular markets in EU and Turkey. The demand for glass in all the major markets is expected to rise exponentially due to increased thrust on domestic manufacturing of solar modules. The company is having a very good scope to grow the exports significantly now. As any new capacity augmentation has a lead time, I had mentioned during the last quarterly call that the company's Board has approved a further expansion by 1,000 tons per day to be implemented in 2 phases of 500 metric tons each. These will be our lines, SG-4 and SG-5. Work on SG-4 is likely to be taken up during the second half of this financial year, and the line is expected to be commissioned in quarter 1 financial year '24. The expansion will be financed through a mix of internal accruals, debt and equity. The Board had approved a rights issue of shares further updates on the fundraise will be shared at the soonest. 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 Sumit Kishore from Axis Capital.

A couple of India-based players are looking to set up solar glass manufacturing capacity. So we heard about Asahi India glass, which has agreed to execute term sheet with the Vishakha Group to set up a green field solar glass manufacturing plant at Mundra, Gujarat. And does Adani Group have any ambitions in solar glass if you could elaborate? That's my first question.

So my answer to that is that Adani have been exploring the possibility of manufacturing solar glass for quite a while now. This has been our information, and they have been in dialogue with us as well. Now they are already manufacturing a large volume of solar photovaltic modules. I would imagine that the idea is primarily to supply to themselves for their own demand. And part of it might very well be available for sale within the domestic market.

Okay. And would you have some comment on the Asahi venture as well as would RIL make their own solar glass that will be a huge capacity?

Yes. So in case of the Asahi India, they have collaborated with Vishakha Industries, which is associate of Adani. So that plant of Vishakha and Asahi put together will be the plant of actually Mundra Solar or Adani Solar to support their capacity requirements. That's how they are looking at this from the angle of ensuring their supply chain. In the case of Reliance, they have said that they would like to go into all the components and which they may do by themselves or they may engage somebody some associates or they may develop some ancillaries. So we don't know yet how they are planning to move on the solar glass front. But there is a possibility that they may make solar glass because their requirement is also going to be very substantial.

Just as a follow-up addition to the -- your first question. The thing is that the Vishakha Industries has signed an agreement with China Tramp, which came out in the news. And therefore, I'm not very sure in what way, Asahi is going to be involved in this venture. So there is no clarity as far as far as the public is concerned on that.

Got it. So the second brief question, safeguard duty, basically saw sunset towards end of July, and nothing has been reinstated in its place. So I mean, is there any -- do you see China imports rising very significantly for modules themselves for the balance here? And is there any related impact for solar glass?

Yes. So there is a potential to import the models from China, which is what the certain portion of the Indian developers are looking for but the current trend in the market, what we said from our customers is that even the manufacturing is going to be higher and they are not going to have any set back. They're not going to receive any setback in terms of their own domestic production in India. So we have to work and see how this actually plays out because the module prices themselves have been fluctuating so much. that this duty may not have any significant impact. So -- and the polysilicon price, the cell price, everything is moving part as of now. So we have to wait and realize how it actually pans out. But at the same time, the government is also trying to safeguard the domestic production by introduction and making it compulsory to use the approved manufacturer -- approved list of module manufacturers list as a source of supply, which will ensure that the module production keeps on at a high point.

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

Congratulations on a good set of numbers. So my first question is how is the capacity utilization in Q1 FY '22 and pricing compared to Q4 FY '21? And what is the outlook on pricing going forward for the next 2 quarters, given that there is no duty? And the related question is that does -- because containers freight has gone up, does this -- so does it mean that the Malaysian and the Indonesia or the Vietnam glass, which can be imported will become uncompetitive.

Yes. So as far as the volume is concerned, the production level from the furnace has been fairly consistent in last -- both the quarters, that is Q4 of last year and Q1 of this quarter this year, except that the efficiency in this particular financial year, first quarter, has been a little lower as it was explained in the opening remarks. But we are back to the earlier numbers as of July, and we are trying to improve it further. So on the capacity utilization front, we are absolutely on the board. Now coming to the prices, we already explained that the prices started correcting from April. And now the situation is that the correction has halted. So as we speak, the prices are at almost rock bottom. And in terms of the numbers, what was the prices in the Q4 and Q1, the Q4 prices were about INR 155 or thereabouts, and Q1 prices were about INR 140. So that's the kind of 10% lower prices were realized in the quarter. As far as the duty structure is concerned, Vietnam is a new plant. And against new plants, there are hardly any mechanisms available because we have to substantiate with at least 6 months data on the dumping front and thereafter only the action can begin. But as of now, we are having our order book full. We have no problem in selling our goods as far as the quantity is concerned. And should there be any need for any action against the imports from Vietnam, we will move at appropriate time.

My question is how does it container freights.

Yes. So container freight has been significantly high as it is in public domain from China, we use -- I mean, the importers used to pay $400 to $500 in the past, but now it is more than $2,000 for a 20-feet container. So this has led to significant increase in the landed cost for the importers. And since our prices are aligned to the landed cost for the domestic buyers, we get that much extra to price -- to add to the price. Does that answer your question?

I understand how much is the exchange in percentage the impact of this solar INR 155 per kg? How much is -- how much will be the impact on the freight cost, if you can quantify? That would be helpful.

Yes, that would be about 6% or so, the freight cost increase.

Understood, sir. I understand the people I know...

Your voice is breaking, Mohit.

My question is, sir, given the fact that people are tying up a particular role, possible for us to go and enter some kind of exit...

You're not audible.

Sorry Mr. Kumar, but you are not clear, sir, your voice is breaking.

So you can find in the next line, I think.

Yes, I would request Mr. Kumar to check his phone line and rejoin the queue. Thank you. The next question is from the line of Dhruv Muchhal from HDFC Asset Management.

Sir, on the container cost, you mentioned the freight cost increase is about 6%. So I mean, the 6% increases on the sales price or what is it -- What difference is the 6% to.

Yes, yes, that was in reference to our selling price.

Okay. So if it was earlier INR 100, now it is INR 106. The selling price becomes INR 106 because it just -- because of this freight cost change.

Absolutely. You're right.

And sir, second question was you mentioned that the efficiency, the production from the furnace was consistent, but the efficiency was lower. Sir, I could not get that -- I mean, what do we think -- where if you can please explain this?

Yes. So from the furnace, you are growing a certain amount of glass on a constant basis. And now that glass suffers from a couple of type of losses. One is that the losses in the trim from the glass coming from the rollers. And then you have quality related losses and there are processing losses thereafter in terms of grinding, tempering and quality, et cetera. So these losses were higher because of the impact of the COVID also and because of certain problems in the production. So all these things put together, the production was lower by 10%. Though the gross production from the furnace was there, but it could not be converted to a finished good saleable because of these losses.

Okay. So the ultimate final product -- related production was down by 10% because of the -- because of this thing.

Yes, the ultimate product came down by 10%.

Okay, okay.

So when you are using the furnace to the full year spending all the energy already and all the manpower is already there. And if you have lower production -- final production, then your cost is going up. That's what we explained in the remark.

Perfect. Perfect. And sir, any time do you share the sales volume number probably in tons because that helps us understand how your cost of production and how your sales value is moving. A lot of your competitors, at least from China to share that because it becomes a very helpful metric to look at the numbers.

So the numbers actually are not generally shared by the corporate these days because it's not required. And the sales are actually taking place in square meters where the thickness is different and prices depend on the thickness and there are various types of classes even. And then sometimes you have a specific requirement on the glass. So all these things are quite varying and it could impact the prices. So it's difficult to generalize it. But on an average, we are already conveying that the price was INR 140 in the quarter on an average for all the thicknesses, all the types of glasses.

Got it. Got it. And sir, last 2 questions, quick ones. If I look at your gross margin, it has improved to about 91% at this time, which seems very high, if I'm not wrong. What could be driving this?

So when you say gross margin, what are you accounting for in gross?

I'm just taking the RM cost, minus the sales price.

Yes. So the -- I mean, the RM cost is generally about 21%, 22%. So it is difficult to imagine that 91% will be gross margin. I don't know how you calculate it.

Okay. I'm just checking this number. I'll come back. And sir, last thing is we have seen a significant increase in the price of imported LNG. LNG prices are significantly higher right now. So just wanted to understand how is your cost will change and how does it impact you?

Yes, you're right, the price of LNG has been running high, and that is true for all the glass manufacturers for that matter. And the LNG imported LNG or spot LNG is only a part of our total basket of requirement or sources for the natural gas. And we have a couple of contracts where these export prices do not affect that much. So we are having a balance of the various types of sources and try to minimize the impact of the volatility. But you're right on the LNG portion, which we buy, which is about 10%, 12% of our requirement, which is directly on the spot quantity basis, the cost had been running very high. And in terms of the other contract, which we have against -- which is linked to oil again, the cost is high, which is another 15%, 20% of the -- to almost 1/3 of our natural gas is aligned to the volatility in the oil and gas prices. So this is impacting, and we don't see it correcting in immediate future.

Okay. So only 1/3 is linked. The remaining is relatively steady. These are -- others are long-term.

Other types of contracts here.

Okay. Got it. And sir, just coming back to that gross margin number. So if I look at the total RM cost for you, excluding the inventory cost, the absolute number is just about INR 11 crores. So INR 271 crores for your RM cost and there is an inventory negative inventory of about INR 154 crores. So the net RM cost comes to only about INR 11 crores on a sales of about INR 136 crores.

Yes. So now it is difficult to look at numbers like this because in this industry, there is a lot of value addition which is beyond the raw material. So raw materials traditionally are about 20% to 23% of the total price. And there is a power and fuel, there are employee costs, there are stores, they are repair, there are natural -- so many things are there. And the inventory costs, which we are deducting from raw material has a lot of those elements, which are part of the cost. So it is not correct way to calculate in our situation that gross margin in this session. So you should actually look at the EBITDA margin as the right parameter to understand the performance.

But I thought that over a period of time, everything should -- I mean, because that would have been there even in the previous quarter, right? When I look at the current quarter gross margin, this is relative to the previous quarter. So...

Yes, you please recalculate the previous quarters and because in previous quarters, there would not be any inventory changes or like that. So it's a significant change because of the inventory having been very high in this quarter because of the Ind AS impact, which was a sales which we had to reverse because of the -- not counted sales, but included in the stock. So it is a full cost of the production. So that's a significant difference. So our -- actually, looking at our gross margin, as I mentioned, it would be about, say, 77%, 78% or like that.

On normalized business.

[Operator Instructions] The next question is from the line of Manali Vora from Centra Advisors LLP.

Sir, my first question is that now that we -- after the 550 TPD installation, you will have a capacity of around 1,000 TPD. How much of the -- how much solar gigawatt requirement could be satisfied?

About 5 gigawatts.

Okay. And -- So coming -- so now that we have these new players that announced gigawatt capacity, they are saying around 14 gigawatts, how much do you expect them -- how many of them would come to you for the solar glass requirement.

This all depends upon many factors, including geographical factors, how many are very close to us, how many are very far from us? And what is the requirement of each manufacturer. And what's the actual product he requires, because solar glass is a generic word, but there are different thicknesses, dimensions and coatings and things like that on the glass, which will determine where the module maker is going to decide regarding procurement of his product.

But generally speaking about 12 gigawatts out of this is other than Adani. And since Adani is also setting up their own glass manufacturing all the 12-gigawatt customers or the potential manufacturers who are putting the capacity are already our customers, more or less. So we believe that all of those -- that market will be addressable to us for us, and we will be able to get certain share from that market.

The next question is from the line of Dhruv Kashyap, an Individual Investor.

Thanks always for the excellent personal stewardship that you are providing not just to the Borosil Group but to the solar and the renewable sector at large. My first question for you, sir, is that on the capacity expansion piece, by July 2022, we would be at about 1,000 tons per day. And we have proposed the 1,500 tons by '23 and 2,000 tons by '24 -- 2024. Now given that we have the experience that it's typically about 18 months from the time we sort of raise funds or get all the paperwork in place to the time we go live. Wouldn't it be -- and given that these dates are quite far away in the future, I mean 2023 is still 2 years away, as '24 is 3 years away, wouldn't it be better to try and target April of each of these years so that we get the capacity in the beginning of the financial year, which means that for '23, we need to sort of start acting by September to give it that 18-month window and for '24, we probably need to act by next September.

Well, generally, you are right. We are looking at time lines in that sort of way in the way that you have suggested. We live in a dynamic world and these are -- there are constraints which are beyond financial, there are constraints of travel. We source equipment from other countries and things like that. In those countries, they have their own constraints. Sometimes a number of supply countries were stuck with COVID, and they didn't have people reporting to work. And so there were some delays in supply of equipment, things like that. So you are pretty much on the ball, I would say, in this respect, and thank you for the kind words.

So I meant more in terms of intent, sir. I can understand that a lot of things will go wrong, but I'm sure the intent would be what I stated.

The time lines that you have actually already indicated, pretty much reflect what we are ourselves thinking.

Perfect. So my second question is a slightly a specific one where maybe you or someone from your team can address it is in terms of the shareholding. Now, sir, before the December quarter of last year, before we did the QIP between the 14 and the 17th of December last year, the institutional holding has gone up by about 10.5% after the QIP, right, between both the FII and DII. Now what's a little strange to see is that in the June quarter period, this has come down to 5.5%, which basically means that sort of long-term money entered in December and it exited after 3, 4 months as in half of it. So 5.5% of that 10.5% has gone in 3, 4 months. Has any of these institutions shared as to why they would do this? Or has the promoter entity being buying back from these people? I mean, could you just shed some color because it's very confounding as to why would the institutional investors exit in 3 months?

Well, let me first say that promoters have either sold not bought any shares at all between that date and today. So we are not in that game, sort of buying and selling our own shares. I'll ask Mr. Ashok Jain to answer the rest of your questions.

Yes, you are right. Actually, it was also disturbing us from the perspective of long-term investor versus short-term cash out of the situation. And the prices and the profit was so high probably for those investors and they decided to do it on a short-term measure. So we had a discussion with 1 or 2 of them who are the large ones. And this precisely the same question we raised to them that why did you decide to exit in a hurry? So they said that since the international prices of glass has started to go down and since their profitability was very high in this transition, they have decided to take a short-term exit in the stock. It does not mean that they are not having any positive view on the company or this sector. They might enter any time later. So this is how they have left it. So we also share the same concern what you mentioned and we would like to see -- we believe that they were long-term investor, they are very large investors, but still they decided to act in this manner, which is also -- which we also found it not right.

So just to close this point, and this is not my third question, but just to close this point. See, you would appreciate that when we talk about the first time QIP after so long we talk about marquee investors and pedigreed investors and FIIs and DIIs and all those fancy brand names, but to see some of them leave in 2, 3 months, whereas we all know the objective of these funds is they would have wanted to see you through 1,500, 2,000, 5,000 tons per day. Why are they exiting in 2, 3 months is very confounding the behavior. It's very atypical of FII, DII behavior.

Yes, you are right, and we share the same thoughts actually. And this large investor who exited also had probably invested into some Chinese companies. And they -- I mean, on an overall basis, they decided like this. So we cannot find any other reasons. This what they confirmed to us that they are solidly behind the solar or renewables and they value the company and the business is very high.

Correct. Because I'm talking more from the next set of QIP because if you're going to go to 1,500 and 2,000 tons per day, we might have more rights issues, and I'm sure we all want marquee investors to come in and to stay the course because it doesn't help any of us if they start leaving in 2, 3 months from that perspective. I'm talking more from the future than from the past.

Totally agree with you.

The next question is from the line of Tushar Sarda from Athena Investments.

Yes. I wanted to understand this on the capacity, which is coming up in terms of solar module, which is on your Slide 8. So when you say solar module, is it the glass or is it the whole module, which is being put up.

So the entire module is being put up. And to the extent that the module is being manufactured, there is obviously a glass that's going to go from that.

So you will be supplying glass for all this? Or you're being one of the suppliers?

Yes. We would -- we would be a potential supplier to such a model makeup.

Okay. And in terms of glass manufacturing, what is the scenario? Is more glass manufacturing capacity also coming up or your competition is mainly from imports?

Our competition as on date is only from imports. Adani Associates with Vishakha Industries have sort of announced that they are going to come into production by the beginning of the next financial year. and that is what we've heard. Other than that, there is no firm advice as such in the market.

Okay. So in terms of your ability to market and sell your product, you don't foresee domestic competition as of now, right? That would be the right thing.

Because we are currently producing 2.5 gigawatts worth of glass. And with the new capacity on, we will be doing 5 gigawatts. And the production in India is much more than that. So therefore, we do not see that there should be an issue pertaining to our ability to sell what we produce.

Basically, the competition here is international. Actually, right now, also, we are competing with the world's largest players. And we are only having a market share of about 36%, 37%, let's say, the large players, which are sitting from sitting in China and Malaysia. So whether the competition is there from the outside production or domestic production, we are already competing with the highest produce service or quantity producers who have certain benefits in the sense that they are having subsidiaries and other things. So we are not particularly worried as long as we can keep our quality right and costs in control, we will be through.

Okay. And last question, do you also export? Are you in the exports market? And what is the scenario there?

Yes. So we have been exporting about 16% to 18% of our production. And in the last quarter, which we are discussing, our exports were higher at about 22%, 23%. And that growth was described by Mr. Kheruka in the opening remark that we are expanding our reach to other geographies and other customers. And there's the Atmanirbhar Bharat program is running in India. There are similar kind of other programs running in Europe and U.S.A. also where they want to incentivize domestic production of modules. Instead of importing everything from China, Malaysia, Taiwan and other places. So there's a lot of growth in those markets in terms of the module manufacturing, which also means there is a lot of growth likely to happen in the demand for solar glass. And we already started our outreach in those markets. We have started commercial supplies to many large players who are setting up plants. And we see that as a future potential for the company.

The next question is from the line of Nikhil Chowdhary from Kriis PMS.

Hello? Am I audible?

Yes, please.

Sir, I have just one question. Sir, I wanted to understand, Asahi being in the automotive glass space. And we have been -- like for us to almost 6 to 7 years to perfect this space. Will Asahi just being into the glass manufacturing already, will it shorten the learning curve for this player like drastically or using the solar glass is still a very product -- a very niche product, which requires a lot of precision in respect of the thickness and the thinness. And it will definitely -- we will definitely not be [Indiscernible] existing customers.

See, Asahi is a very large, well-established international player and granted, it is a niche product. But we can well imagine that they would be successful within a certain period of time to develop the correct product from their facility.

All right. All right. And sir, like sir rightly explained, like 12 gigawatts is excluding Adani, we don't see -- like we have been really bullish on this solar glass industry altogether. But how -- what threats do you see when all the large players are trying to build their captive capacity, like build the capacity for the captive consumption? What sort of threats do you see like the market is large enough for everyone to do.

See, as of now, as we said, that we are only supplying 35% of the total demand, which is today's demand. And we are looking at very serious escalation in the output of solar modules in India going by the government's plans. And as such, we do feel, in our opinion, that whatever glass we are planning to make will all be consumed.

Got it. Got it.

Yes. In addition, we are increasing our exports, which will also be substantially rising going forward as we have more glass available. So we do not foresee a challenge in terms of selling the capacities what we plan. But as has been said, the glass demand has been rising by almost 30%, 35% on a compounded annual growth rate, which is going to accelerate even further now, with all those capacities or model coming into the play and the government program to -- which has been written from 100 gigawatt to 300 gigawatt by 2030. So there is going to be a certain amount of spike in the demand for solar glass in the country.

I might add that the demand in exports is really very, very robust. And we are not able to meet the demand, so we supply whatever we can. But actually, the demand is much greater than what we are supplying. Meaning our potential to supply is very high.

Sir, I wanted to understand this last thing. Probably on the financials if you see the closing the changes in inventory has been a large negative figure. So if my understanding is correct, the closing stock was very high. Like -- so was it like we were not able to transport it? Or like I just wanted to understand, we have the demand. We already produced it what kept the closing stock very high into our books. Like, I wanted to understand that aspect.

Yes. We explained that in the opening remarks that we had to derecognize the sales of about INR 17.6 crores due to the impact of Ind AS. So actually, the matter has been sold dispatched, but since it has not reached the customers, there is a requirement under Ind AS to not recognize this as sales. So it is not inventory sitting in the factory of the company or inability to sell the glass, the glass has been sold, dispatched everything, but the sales could not be recognized, which is why it is reflected in the inventory increase. But practically, it is not there.

So you might say that these inventories are sitting on the back of trucks on the way to the customer. Physically, there is virtually no inventory in the plant on the30th of June.

Understood. Understood. So Ind AS 116, the revenue recognition.

Yes, that's right.

The next question is from the line of Jimesh Sanghvi from Principal India.

Sir, if you can focus on light on the pricing outlook going ahead, like as you said, the prices have had the old bottom. How do you see that scenario panning out over the next quarter or 2 or over the next 6 months, 2 years, if you can share your thoughts on that? And secondly, what would be the realization currently, like you said, Q1 realization for us was around INR 140. What would be that number at this point of time?

Yes. So it is very difficult to predict the prices of solar glass as we have seen in the last one year or so, it has been so volatile that nobody could have estimated that prices would move from RMB 22 to RMB 42 in a span of 6 months. And then again, it will come back to RMB 22. So as we speak, the prices have come back to full circle back to RMB 22 as of now. And because of the countervailing duty or CVD against Malaysia and because the freight has run up so much, there has been additional cushion in the pricing. So in terms of the international prices, the prices are at the rock bottom, that's what we feel because it has not gone beyond -- below RMB 22 in the past. In terms of the realization, currently, we already said that the prices have declined gradually, and the full impact is not seen in the April to June performance. Because in April, we held back to the prices, we dropped to some extent in May. And from June, we have stopped dropping the price. But as we speak, in the current quarter, the prices are going to be lower than what they were in the April to June maybe by about 12% to 15%, but that's an estimate.

There's another issue. There has been talk of China setting up solar installations up to 60 gigawatts this year. And they're going to go up so far, we haven't heard much about it. But if they go ahead with the 60 gigawatt plan, what happened last year around this time was the same thing that there was a huge rush for supply to the Chinese government demand. And then there was a shortage. So now we don't know about what the future holds for us, frankly.

And sir, when you say RMB 22, it is the price for the 3.2 mm glass?

Yes. It is the FOB price but.

Okay. Okay. And sir, from a long-term sustainable basis, what kind of a margin would you -- one expect in this business. Because our margins right now or EBITDA margins right now are pretty much on the higher side. So from a long-term sustainable basis, where do you see the margins to settle, probably in this business?

Yes. So basically, the -- as I said, the prices are very -- very much a deciding factor for the EBITDA number. And this again would depend on what prices we would like to take into account. But as you've seen, the EBITDA has gone up from 28.5% in July to September last year to 55% in March quarter, again, came down to 50%, you might see about 38% or so in the current quarter. But on a normal basis, on a sustainable basis, I would imagine between 30% to 35% should be a realistic margin to assume.

Okay. And sir, lastly, when you say the FOB price is RMB 22, what is like at what price to resell in terms of RMB, if I have to calculate what will be our right, including the landed question other things which are there over and above the FOB?

It all depends on the negotiation with each customer actually and how much he imports, how many buys from us, how loyal is, what are the other conditions and terms. And as we said, our prices are aligned to the landed cost for each customer. Now each customer will have a different freight, different rate. So it all depends on how we can negotiate with them. But as I said, 10% is CVD and 6% impact is on account of freight. So 16% clearly is the extra thing over and above the FOB price. But it could be anywhere from 15% to 20%, 25% depending on the customer to customer.

The next question is from the line of Cheranu Nandukoor, an Individual Investor.

Just I think you have already answered. I just would like to ask once again to get more clarity. Let's say, many big players are already announced. They will also be manufacturing solar glass and very from next year. I'm not -- when they start doing and like how many years or months it will take for them to make a loss-free product or get the accuracy. Like will it take 6 months, 1 year? Or how is that?

I don't think it is appropriate for us to answer that question. We took a long time. I can only speak from our own experience. We took a long time. And when we were out in the market selling glass, people who are buying a few pieces of glass making modules of it, sending it for certification, getting it approved and coming back and then placing orders for larger volumes from us. That is what the protocol is or that is what the law demands. Now if somebody else does something else, I don't know. But the first year can be very painful. I mean, it was very painful for us. I can certainly say that. But I would not like to speak on behalf of anybody else.

Yes, sure. And one more question. So right now, there are many players, module manufacturers, they've lost bigger capacity and expansion. Do you already have any long-term strategic partners with any of them? For example, Vikram also announced capacity expansion. I think Vikram is already your customer. So can you name such large strategic customers.

I think we would be valuating confidentiality, if you were to share names of customers on this call. But I would say that like with everything else in life, there are things where you've established a repo between buyer and seller whether the buyer is comfortable with what the seller is providing. And the seller is comfortable with the dealings of the buyer is timely payments and things like that. So Borosil is a well-established brand, and we have very sound policies and principles. And so we have a steady set of customers on whom we rely and who rely on us. So as and when those customers increase their size of their operations, it goes without saying that they will also be giving us a corresponding increase in the size of the requirements, so the total volume of the requirements. So I think this is the best answer I can give you.

Sure. And one more last question. So basically, the capacity expansion until 2024 will be a 10 gigawatt. And is it all the brownfield expansion or...

It is all brownfield.

Okay. And assuming that there is a huge demand in solar. And also, there is a lot of talk about hydrogen power, like hydrogen power will be used everywhere in the industries and also in the transportation and everywhere. So there can be even more demand coming up in the future. So let's say, because of that, if there is another requirement of additional CapEx, will all these SG-3, 4 and 5 will they account more capacity like how you bid in SG-3, which was planned for 500, but you added another 50. Will SG-4 and 5 also will account at more capacity as per the demand in case required.

See that possibility is always there because as a company, we are very scientifically inclined. And the team that we have is a hard-working team. And they squeeze out the maximum from every situation from every equipment. And this is their job. They constantly keep on doing that. So I would be very surprised if the capacity that we've announced of 550 tons is going to stay at 550 tons. It would be more in the line of the past experience that the capacity is actually delivered would be higher than what we have mentioned as being the rated capacity. And for the rest of it, there is another factor, which I don't think has come up anywhere in the entire all so far, which is the factor of the glass-glass modules. Now in China, last year's installations accounted for 30% glass-glass modules. And this year is going to be 60% glass-glass modules. So if you have a glass-glass modules that straightaway requires double the amount of glass. So from that standpoint, and considering the robust demand for solar glass for solar modules, I mean to say, or solar as a source of power. At the moment, whatever plans we have announced, we feel are quite are quite achievable. And they should hopefully fructify properly. But for the rest of it, nobody could foresee COVID coming in, nobody could foresee the huge shock that it gave to the whole world. So in that sense, we are still humans and there is god above and whatever wills, that is what happens.

Yes, that's. And also I would like to appreciate the growth Borosil's effort for COVID relief because Borosil is first company, which did that providing like education and all, that has set an example in India and many big players follow Borosil. So I really appreciate you for that.

The next question is from the line of Prateek Agarwal from IPI Mutual Funds.

Just one basic question kind of bookkeeping question, sir, regarding the utilization. So as you mentioned that Q1 average realization was around INR 140. So, sir, if I use the sales number and this realization number, just confirming that would it give volume sold and showed us like -- is it fair to assume a 5% to 10% efficiency loss that you were mentioning earlier to get a production utilization?

Yes. So actually, there is an Ind AS impact, first of all, which will affect the overall volume because that volume has been -- has not been recognized as sales. And this number of like 140 or whatever we talk about, this is ex-factory number. This does not include the freight and other things, which are part of the sales. So when we are discussing these numbers, we are giving at the expected level, what company involved. Because the freight could be different for export different for various geographies and all. So you cannot straightaway reach the number of units production from this sales number and dividing by the average realization.

Okay. Sir, what would be the utilization number for Q1?

The furnace utilization was at 96%. And in terms of the net production, we were lower by 10% compared to the previous quarter. So we were at about 71% or so in net production, I think.

Okay. Sir. And just like if possible to give a similar number for the last 4 quarters in FY '21, like Q4, Q3, Q2, Q1?

All the quarters had different challenges actually. So it will not be comparable. There was COVID, there was less demand, and there was high demand and all those things. So on the furnace utilization front, the numbers are already shared. We have been running at about 93% in all the quarters, except for the COVID period, that is the first wave. All other quarters, we have been running at more than 93%.

Right, sir. And just a final question on the realization that you were discussing earlier that it can be assumed to be taken at a 15% to 25% above FOB. So sir, that would be true in the -- for last year also? Or this 15% to 25% above FOB for the present situation.

Yes. Actually, why we are saying these are extra factors because of the countervailing duty, which has come into effect from, I guess, Malaysia, until March '21, it was not there. So what used to happen is that the people would report from Malaysia without any incidence of additional dumping duty or CVD. And though there was a duty against China. So the more goods are coming from Malaysia, almost 80%, 85% imports were happening from Malaysia. So that benefit was not available. And the freight was normal until 6 months back. So the freight impact also has been very peculiar to the current situation. So these 2 are additional factors, which is why we highlighted.

So basically, before 6 months, the -- our prices would be maybe 5% to 10% above FOB or not as much as 15% to 25%, just confirming that data.

Not 5% above FOB above the landed cost. Because the freight, whatever was being paid was anyway added and whatever the incidental expenses were clearing forward in all. So what we do is the landed cost we calculate for the respective customers and try to charge them 3% to 5% premium on the landed cost. Just because of the advantage of being a local source. And because he has a lot of savings on account there because he does not have to carry inventories. He does not have to have warehouses and cost of carrying plus he has flexibility of ordering. Suppose he has got certain kind of certain size of sale from the market. And he has placed the order for a particular type of sale, but he didn't get it. So he places order on us where he's having flexibility to change even the size. Suppose he had placed order in China or the module shipped already, then he will have a problem. So all these are additional advantages, which we provided from a local source, which is appreciated by the buyers, and that's how they consider paying a little extra in order to have them -- their logistics in place, their costs are saved and the flexibility is retained.

They have to pay up front over there.

Yes. And also, they have to -- many times they open LCs, they pay advances, but the Chinese decide not to ship. Here, in our case, we strictly adhere to whatever the conditions of sales are there.

All right. The next question is from the line of Tariq Hussain from [ Gringo Capital ].

My question is just on the exports. You alleviated in your opening statement that the demand is growing and you can see in the numbers in your deck as well that. It's one of the areas where you have kind of paying emphasis to. Can you just elaborate on what kind of plans you have in that segment? Because I understand the EU and Latin America has more demand and they also have import duties against Chinese antidumping. So just your thoughts on that sector.

Yes. So we have been working on all the geographies where the potential customers are there in terms of manufacturing because up to some time back, there a lot of installations were happening with imported models as you could see in India also imports are very high. In European Union, U.S.A., those installations were very high, 22, 23 gigawatts, but hardly 10% of that was getting manufactured in the respective geographies. So now these geographies have decided to expand their manufacturing effort, and they have incentivized by way of subsidies and other incentives to develop high efficiency solar cells and models. So that's how they are running their program and they want to create more capacities of module manufacturing in their own countries and which is why we feel that those geographies would be very interesting for us to watch out for in the next couple of years. We have already started negotiations with many of those who are participating in those programs. And to a couple of them, we already started making commercial supplies. So that's the reason why we feel very confident that the U.S.A. market, the European market, Turkish market and for that matter, other markets like Brazil, like Tunisia or many of the markets, we feel that a lot of capacities are going to be operational in terms of model manufacturing, and there will be a lot of demand coming from those countries.

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

Thank you very much for the questions, which have been raised by the investors. We appreciate the level of interest. And we look forward to sharing our results for the next quarter with you at the appropriate time. Thank you, and goodbye.