Borosil Renewables Limited (502219) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Borosil Renewables Q3 FY '22 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Kevyn Kadakia from Axis Capital Limited. Thank you, and over to you, sir.

Yes. Thank you, Janice. Good afternoon, everyone. I'm Kevyn Kadakia, I'm part of Research for the Industrial Infrastructure and Logistics Sectors at Axis Capital. On behalf of Axis, I'm pleased to welcome you all for the Borosil Renewables Q3 FY '22 Earnings Conference Call. We have with us the management team of Borosil Renewables, which is represented by Mr. P.K. Kheruka, Executive Chairman; Mr. Ashok Jain, Whole-time Director; Mr. Sunil Roongta, CFO; and Mr. Swapnil Walunj, Head of Marketing. We will begin with the opening remarks from Mr. Kheruka, followed by an interactive Q&A session. Thank you, and over to you, sir.

Thank you. Good afternoon, and welcome to the Borosil Renewables Q3 FY '22 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 Q3 FY '22 on 8th February. 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 net sales of INR 168.5 crores, an increase of 20% over the corresponding quarter of the previous year. The average ex-factory prices of tempered solar glass during the quarter were about INR 141.5 (sic) [ INR 141.4 ] per square meter per millimeter, as compared to INR 112.9 (sic) [ INR 112.9 ] per square meter per millimeter during the corresponding quarter in the previous year. Export sales during quarter 3 FY '22, including to customers in SEZ were INR 44.6 crores, comprising 26.5% of the turnover. The company recorded net sales of INR 465.2 crores during the 9 months ended December 2021, an increase of 51% over the same period in the previous year, of which exports including to customers in SEZ recorded an increase of 84% to INR 131.9 crores from INR 71.6 crores for the previous corresponding period. From the second quarter of the current financial year, we saw inflation in prices of natural gas. Prices of electricity packing materials have been escalating along with a sharp rise in export sale costs. Fortunately, high realizations have more than covered for these cost increases. EBITDA during the quarter, including a subsidy of INR [ 5.3 ] crores from the government of Gujarat, was INR 75.5 crores corresponding to an EBITDA margin of 44.8% as compared to a margin of 38.3% in quarter 3 FY '21 and 36.7% in the previous quarter. Higher EBITDA led to an increase in the profit after tax, and the company has recorded a profit after tax of INR 45.7 crores in the quarter. I'm happy to say that the total EBITDA of INR 202 crores earned in the previous year has been matched within the first 9 months of the current financial year. While the operations of both our furnaces have been optimal with good output, we are continuing to see strong demand for our products. Increase in installed capacity of renewable energy [indiscernible] the strategy of the government of India, which continues to provide strong a [ product ] to the installation of solar power projects. The government has announced 3 major steps underlining its commitment to the establishment of a strong domestic solar manufacturing ecosystem. The first is the announcement of an additional allocation of INR 19,500 crores under the PLI scheme for solar cells and modules, raising the total allocation to a very impressive INR 24,000 crores. The second is the formal announcement of Basic Customs Duty on solar panels at 40% and on solar cells at 25%, effective 1st April 2022. The third is the scheme of approved list of models and manufacturers introduced some months ago, whereby effectively, only Indian manufacturer of solar modules are able to supply to many types of government tenders, which has now been extended to open access and net-metering projects as well. As a result, we are expecting that large incremental capacities already announced will now be implemented. Even though 14 gigawatts of solar module manufacturing capacity exist in India, actual production was about 5.5 gigawatts during the financial year '21. We see installed capacity rising to 50 gigawatts of solar panels within the next 3 years. This will give a great boost to domestic production of solar equipment in India, causing a major shift away from imports from China to sourcing from domestic manufacturers. Consequently, we expect increased demand for solar glass in India. We are in advanced discussions with many of these manufacturers who are all looking to have a local source of supply for solar glass. Solar power is undergoing a phase of intense expansion. European Union has launched a solar accelerator program to promote production of solar modules in Europe. Solar components are likely to enjoy a sweet spot for the next [ 20 ] years. It is heartening to note that the solar installations in the country have picked up momentum in the current year. The installations in first 9 months of FY '22 have been 9.2 gigawatts, which has matched the earlier best for a full year. This trend is expected to gain further ground and the level of annual installations is expected to accelerate to significantly higher levels. There's a growing demand from export customers and looking to the expected significant rise in local production of solar modules in major markets. That is to say, Europe and U.S.A., we see an attractive future growth in company's exports. There have been structural shifts in the demand for solar glass on the back of technological changes in solar sales and modules. The module sizes are becoming larger, and there is a growing preference for Bifacial modules, using 2 glasses in each module as against one in the case of a conventional module. As a result, there is a shift in favor of thinner glass of 2 millimeter globally. Borosil is equipped to meet this to a great extent and is also building significant capacity for such products looking at future growth. The entire global solar PV value chain has been going through a certain amount of volatility in terms of demand supply and prices. We as a country also are similarly impacted. On one hand, the prices of inputs have risen, and on the other hand, the solar glass export prices from China have declined in the last few months. This is likely to cause some moderation in the margins for the company and also for the competition. However, the demand for solar glass for the company remains high in both domestic and export markets. Moreover, the company is active in examining and reexamining avenues for cost cutting and making operations more viable at all times. As many of you are aware, Borosil Renewables is currently undertaking a brownfield capacity expansion, a third solar line with a capacity of 550 metric tons to meet the growing demand. This will enhance our capacity from 450 tons per day to 1,000 tons per day. Commercial production from SG-3 is expected to commence in the second quarter FY '23. Further, the company's Board has already approved a further expansion of capacity through solar glass plants 4 and 5 in order to raise the capacity from 1,000 tons to 2,000 tons per day. Work on the SG-4 project is expect to commence during the second quarter of CY '22. Given the lead times required for capacity expansion, this additional capacity can come on stream in the third quarter of CY '23. With that, I would like to open the floor to the questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of [indiscernible] Capital.

So my first question is regarding the soda ash. So as I understand, we had a fixed one contract that ended in December. So going forward, what is the status of how we are going to [ procuring ] soda ash and do we expect margins to be affected despite the higher solar glass prices?

I shall ask Mr. Ashok Jain to answer this question.

Yes. So soda ash contract, which we had, in fact, has spilled over to the current quarter, which is January to March, certain quantities were balanced out of the earlier contract. And also, we had negotiated certain additional volumes at a slightly lower price compared to the current prices. So in fact, in the quarter, January to March is going to be minimal in that respect. But going forward from April onwards, the impact will be felt fully, which is like the prices of soda ash have run up by almost 60% in the last couple of months. And that is true for all the buyers of soda ash, including our competitors. So to that extent, it will impact the costing for all the solar -- solar glass manufacturers. And that will certainly lead to compression in the margins in case the selling prices do not expand.

Right, sir. Sir, my second question is regarding the scenario in India. So I think it's -- the domestic production is not going to be ramping up as quickly as -- since this 5.5 gigawatts. So do we expect a transitionary slowdown in the solar demand in India as production price will catch up with the supply?

I don't think there is going to be a letup in the demand for solar modules. The question is on where it will be met. And the second question is that we do have a manufacturing capacity of 14 gigawatts in the country, which is existing. So there is -- I don't see that there's any possibility of any reduction in the demand for solar modules or the supplier of solar modules in India.

In fact, just to add here, in fact, a lot of tenders have already been awarded and a lot of pipelines is already existing for the solar installations. Almost, I'm told, almost 75 gigawatt of pipeline exists in the country in order to make the installations in the next couple of years. So in terms of the installations, we see a significant rise. In fact, on the contrary to what you are statement is. Now in the case of module manufacturing capacity also, all the large players who have announced their plans are quickly adding up the capacity. So even the capacity would be -- considerable quantity of capacity would be added in the next 1-year time. So there should be a significant increase in the activity of manufacturing and installation both.

Right, sir. And sir, if I could just squeeze in one last question. So where do you see solar glass prices in the next couple of quarters? Do you see them tapering off from [ INR 141 ] or do you see some kind of [ rise from ] here as well?

See, this is a very difficult question to answer, which I simply cannot have any guess on this matter. Our prices are dependent on the international prices. And what turn they will take is something which is fully speculative, so I would not like to add any guess on this.

The next question is from the line of [indiscernible] Investment.

Congratulations for good results. Quick questions on the next leg of growth, right? So our capacity is SG-4 and SG-5. Could you help us understand in terms of the financing? Or how would these be financed?

So SG-4, we had planned to finance by way of equity and debt mix and the right mix will be known in a couple of months. In terms of the equity rate, we do have plans to raise equity for SG-4, and the exact amount will be known in few months, maybe after April. In terms of SG-5, it is still away. So we will see whether the internal accruals would be sufficient, and we do not able to raise further equity for SG-5.

Okay. Got it. And in terms of export, there is a pattern of healthy mix of export growing in each quarter right now, a little bit [indiscernible]. If you can throw some light in terms of medium term, how do you see this percentage spanning out from here?

So we are confident to maintain this trend of about 28%, including the [indiscernible] exports of solar glass. We could potentially increase the export even beyond this, but we have to balance out between requirement as well as the export market. Just for the information of the participants, the export markets are growing significantly, particularly in Europe, Turkey and also U.S.A. So there is very much balancing those markets in terms of requirement for glass as the module manufacturing activity is significantly rising in those geographies. So we do have a good amount of growth prospects in those markets.

Great. And just connected question. In last call, you alluded that export margins are slightly increased to what we get in India. Is that still the trend? Or do you see that improving given the demand is exploding outside India as well?

The margins are slightly lower, but they are not very abnormally placed in terms of the comparison. But we see that similar trend to continue for some time.

The next question is from the line of Jimesh Sanghvi from Jimesh Sanghvi and Company (sic) [ Principal Asset Management Pvt. Ltd ]

Sir, a couple of things. If you can share the volume numbers this quarter because if I look at the sequential trend, we have seen the revenue growth of around 5%, wherein the realizations have grown by around 20%. So has there been a dip in terms of volumes this quarter? Or is there some slowdown in terms of demand that has been seen in this quarter? If you can throw some light on that.

So practically, there is no dip in the volume, which is significant. In terms of the India's requirement, we have to actually account -- we have to rather exclude a certain amount of sale, which has not reached to customers. So there is a reversal of the sales to the [indiscernible] about INR 5 crores or so on cost basis, and that has led to this kind of situation. But on the volume front, we are straight out running full capacity and selling full capacity. As of 31st December '21, actually, if you look at the finished goods store in the factory, it was virtually 0. So there is no problem from the demand side, and we continue to believe that the entire production can be sold without any difficulties. We actually have only about 35% market share in India, which also means that a lot of demand is available for us to service. We only have a constraint on the production side, which we will be addressed after we expand the capacities to some extent.

Okay. So basically, this INR 5 crore reversal on the cost side would kind of get accounted in the Q4 numbers. Is that right?

Practically, yes, provided there is no such kind of carryforward at the end of March, which we -- generally, we would like to avoid, but it all depends on the situation.

Yes. And sir, last -- a couple of other things. One, if you can share the current realizations of the solar glass prices, which is there. And on the new capacity, how fast can the new capacity ramp up post commissioning?

So we already mentioned about the new capacity coming up in the Q2 of FY '23, which is July to September '22. So that quarter, we'll see the production from current expansion coming up. In terms of the prices, we already said that there has been certain correction in the moderation in the prices. So to what extent exactly it will pan out for the entire quarter, we can't commit anything right now, but there is a small decline in the prices.

Okay. Sir, on the ramp-up. Just wanted to understand, can it be ramped up to 70%, 80% immediately or it would take around 5 to 6 months to ramp up and stabilize the capacity?

Yes. So in terms of the production, generally, we like to operate the furnace at full capacity more or less. But one can imagine that for initial couple of months, the capacity utilization could be a little lower, 85% or thereabouts. But in a couple of months, one can come to higher capacity. This we already displayed in expansion of SG-2, where we could come up to higher capacity immediately in a couple of months, 2 months or 3 months. So we'd like to operate it at optimum capacity.

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

Yes. And congratulations on a very, very good set of numbers. Sir, my question is when you say that you are tying, you are in talks with the new developers or new solar manufacturing capacities coming up, are you looking at some kind of volume tie-up? And will there be any price -- price [indiscernible] also? That's the first question.

Yes. So in terms of the -- how the prices work in the solar glass market, as you have seen is based on the month-to-month contracts. It's not annual prices or like that. But generally speaking, the customers also expect the landed cost as a benchmark to be [ mashed or ] in the same ballpark. So that's how it operates. But there are some large buyers who are also willing at tying up at some fixed price or some formula, which is different than market prices. So it will all depend on how negotiations with each of these buyers take place finally. And based on that, we will arrive at the pricing mechanism for each of them. It would -- it cannot a uniform mechanism. So whether it is cost plus basis or whether it is some standard price or some -- or in most of the case, it will be market-related price.

Sir, my second question is that given that the PLI scheme has been large and the number which you're talking about, maybe 25, 30 gigawatts. Is there any plan to ramp up the capacity more than 12.5 gigawatts which you need the sales at this point of time?

At this time, I think we are just thinking of 12.5 gigawatts and no more because there are other capacities which have been announced by different players in the country, and we'd like to see what happens with them. So for the time being, I think this is it.

Thirdly, what is the status of anti-dumping duty from the Chinese solar glass? I think it's tying this fiscal year, right? Am I right in saying that?

Yes, it is coming to an end in July. We have already applied for an extension of the same because there is no change in the circumstance, they continue to dump. And so we are awaiting the results of our applications.

So one more question, sir. Sir, given that our gas requirement, our gas requirement will go up, can you just let me know what is the demand requirement at 2,100 TPD? What is the gas requirement in [indiscernible]? And are you procuring gas at spot markets? Is there any plan to tie up in slightly longer term, given that cash would be a significant cost item for us?

So we are not buying any significant amount of gas in the export market. We hardly buy any quantity. We have long-term contracts or medium-term contracts with the GAIL Limited, and we are, again, negotiating with them for the expansion that is SG-3, and we should conclude the contract with them in the next couple of months. For SG-4 and 5 also, we will similarly require the gas which would like to cover under certain contracts, which would be medium term. But we restrict our buying in the spot market.

Sir, will the pricing willing to [indiscernible]? Is that the right assumption?

There are different basket or different benchmark contracts are available. Generally, they are -- there's some crude, but there are different indexes available like, JKM or oil-related or [indiscernible] United States. So the different contracts are available. We have a mix of these so that we reduce the volatility.

What's your requirement, full requirement at 2,100 TPD, if I may know?

It could be -- it could be closer to 3,00,000 cubic meter per day.

The next question is from the line of [indiscernible] Consultancy.

Hello, am I audible?

Yes.

You are.

Yes. Congratulations on a good set of numbers. Can you just brief about the EBITDA margins? Every quarter, there is a huge fluctuation in our margin. What is a specific reason for this?

So EBITDA margins are fluctuating largely because of the -- mainly because of the selling prices. If you really look at the prices in the first quarter of this financial year, we had good prices, good set of numbers. And in the second quarter, the prices declined because the international prices dropped. So we had to, of course, align the prices to that level. And third quarter, again, which is what we are discussing, again, the prices moved up, which is closer to the first quarter. So there has been significant upside, downside in these prices, which has impacted the EBITDA levels. And because this is a volume business, and it is important to -- or the [indiscernible] are very important in terms of the EBITDA numbers, this is impacting to a great extent.

Agreed. But there would be some range with which we would be working because our cost and everything is passed on. So beyond the point, we would not be looking to expand the margins. I mean, a certain range is fine, but even considering that the selling price is fixed for a month or so. Overall, a year -- in a year, our margins would be fixed somewhere in the range because at times, your selling price would be increasing in another quarter, the cost would be increasing in another quarter, so quarterly margins can be here and there. But overall, in a year, the margin should not be very much here and there, if my understanding is right.

Actually, we do not have control on this kind of situation because the prices are depending on the landed prices of imports and our buyers look at those prices. So when the prices are low and even though our costs are rising, it's not that the prices, we can charge higher prices. I hope you understand what I say. And when the prices are rising internationally, there is no reason for us to charge lower prices because a similar thing has not happened when the prices were low, and the costs were higher. So it all depends on how the prices are behaving in the international market. And in international market, also, if you see, currently, the costs are rising for all the solar glass manufacturers even though the prices are moderating. So it is not having any direct relationship, so to say, and it is more to do with the demand supply, the inventories and all those facts, which are also largely connected to the Chinese manufacturers, so to say. So you can -- you are right that there will be some ballpark numbers, but there's no control over that number from our side as well.

So on the higher side, what would be the margin? I mean, it won't be that we would be charging any X, Y, Z amount. So on the higher side, what can be the margin expected? And on the lower side, what will be the margin which we'll be protecting at any cost?

I think this question cannot be replied to your satisfaction probably because prices could be -- prices have moved by 70% up also, and prices have moved 70% down also. So you really can't have any ballpark number for what could be the band within which the higher margin or lower margin will work. So obviously...

We won't be doing business by doing a loss, right?

Sorry?

We won't be selling our products at a loss. There would be something cost plus percentage which, at least, we would be expecting when we are selling.

I was about to say that the overseas manufacturers also are listed companies and they also report their numbers on a quarterly basis, and they also have certain costs based on with their price. So obviously, they would not like to sell below cost. Similarly, we will also not like to sell below cost.

[Operator Instructions] The next question is from the line of [ Sharan ], an individual investor.

Just would like to know like, already, there is a discussion or news around solar glass recycle. So in terms of that -- from that perspective, do you have any plan for that like in the future? Like any opportunities for Borosil?

At the moment, there is no really -- there is no established process for recycling of solar glass in any significant volume. It's -- so far, it's very time consuming and we -- it's a tedious process to be followed because all the plastic parts have to be separated, which are stuck to the glass. So, so far, we are not aware of any proper recycling.

Also, the volumes in the country are very, very low. The installations in the country have picked up only last 4, 5 years. So when the significant volume is there and the year-end -- life cycle of the model is over after 25 years or so, the recycling will start at that point in time. So it is still some time away, maybe 15 years away or 10 years away from now, when the recycling will happen in a meaningful way. And by that time, we can expect that some technology of the right economics will come into play, which will be of interest. That time, we will think about it.

Yes. Having said that, we are keeping our eyes and ears open, and there are certain technologies that we are looking at with interest.

Okay. And the SG-4 and 5, that will be planned in the existing land type. Those are brownfield. For any, let's say, considering there is a huge plan of government by 2017, now they are talking about everything in renewable energy. So do you have already anything planned for buying more land for additional capacity? Or beyond SG-5 also, still you have place for additional capacity in the existing land. What is the...

I think SG-5 would take up the existing land, but we might be able to acquire [ still more ] land. But that's really going so far into the future that any speculation on that is not very meaningful.

And also, we continue to evaluate whether to expand -- continuously expand in the same location or whether we should also explore any other location in India or elsewhere in terms of our -- being -- derisking our sales from the single location point of view. So we'll keep evaluating all those aspects and take appropriate call.

Okay. And last question, apart from glass in the solar plates, any other components or any other technology or [indiscernible] what is their wiper or something? Any other technology or products you are planning to come up with in future?

In Borosil Renewables Limited, at this moment, there's nothing other than solar glass.

Okay, sure. And sorry for asking one more question. So just I would like to know, after the Borosil Limited and the Borosil Renewables restructuring and remerger -- merger, remerger process, I would like to clarify one thing is, is there directly or indirectly anything still with Borosil Limited or it's completely separate and there is no [ shared ] valuation between both?

There is no relation between the 2 companies, except the promoters are same and they continue to hold majority. And on the board, the promoters are there. The total management and everything are different. And shareholding-wise, there is no growth relationship. There are no meaningful related party transactions, so to say.

The next question is from the line of Samir Gandhi from Greenergy Sustainables.

Am I audible?

Yes.

Yes. Sir, who will be our top 3 competitors for the manufacturing of the solar glass in India? Secondly, who are the top 5 customers by turnover?

The answer to the first question is not possible for us to give because so far, nobody has come up. So first of all, the person has to come up [indiscernible] has to be established and become a force in the market, then we can say. So that is one thing. And the second thing is confidential information. I'm sorry, we cannot pass that on to you.

Okay. Sir, in the manufacturing of these glasses, how much percentage of the raw material is being imported, and are you facing any [indiscernible] procuring that looking out to the logistic problems which we have faced in last [ 6 months ].

So [indiscernible] material is all being sourced domestically, just something which are, say, chemicals are sometimes imported. But I think I would say more than 99% -- more than 99.5% of materials that are imported domestically -- available domestically.

Domestically, but the final manufacturers [indiscernible] 10 years for the warranty for those glass or any mechanical part of the solar panel. Whether same warranty is extended by the Borosil to the OEM and if so, then how much percentage of these warranty claims are there for last quarter or last year?

I don't believe we have received any claims so far. Sometimes we do, but there is -- it's not a question of a delayed claim. And if there's a problem, it happens on the spot and then we deal with the claim as...

Just to explain to you, the warranty is actually given by the module manufacturer to the developer or the buyer because he's getting the module certified and he's certifying that, so much of output will be there. Glass is only one of the components, which is fitted into the [indiscernible] which the module is being made. And to that extent, the fluctuation in the power output from the module can be associated with many products which are other than glass. So in terms of our product supply, we only supply the glass to the specification, which are agreed with the buyer, and there are no further guarantees. Yes, if there is a breakage or if there is a quality claim, we, of course, settle the quality claim or breakage in the glass to the satisfaction of the buyer. But there is no warranty for 10 years or 25 years from the perspective of glass supply.

One more thing that these safeguard duties are not continued beyond July. Then, what will be the kind of margins you are expecting?

You mean the anti-dumping duty on glass? Is it?

Yes, yes.

So in a meaningful way, the imports are coming from now Malaysia and Vietnam, lesser from China. And to a certain extent, of course, the import come from China. But if the duty is not extended, the imports from China may arrive. And that can, of course, affect our ability to command a certain price. To what extent it will happen and whether it will happen or not is hypothetical as of now because we believe that we have a good case to get the anti-dumping duty extended for a second term. But should it not happen for some reason, then there will be definitely some amount of headwind in the prices.

Sir, in such a scenario, do you feel that completely depending on only one product like solar panel glass is slightly what we call as difficult for company to plan for the long future?

Yes. We believe that this is a good product where the government is completely focused on solar renewables and solar energy, where the demand is going to rise significantly. And we have been trying to achieve economies of scale by expanding our capacity in order to become more and more competitive. So in terms of innovation, in terms of whether raw material costs or whether energy cost, we have been trying to economize on all fronts so that our costs are under control. So despite all these uncertainties, what you have mentioned about the discontinuance of duty and all, we believe that the margin which we can achieve from this business is quite satisfactory. And that's the reason we continue to remain invested, and we will continue to be investing more money into this business.

Sir, in DCR panels, sales and manufacturing is supposed to be in India, and mostly DCR panels are made compulsory, I do say. So whether in DCR panels, glass [indiscernible] compulsory to be manufactured in India?

No. Glass, unfortunately has never been a part of DCR, or DCR is only on the module and solar sale. Similarly, the BCD, which has come, or Basic Custom Duty, which has come, is also on solar module and solar sales only. Glass, like any other component of solar module, is left out for whether it is to be sourced locally or imported, but we produce a competitive product and price it competitively. We believe that once the expansion of the demand is taking place by way of increasing the module manufacturing activity, the scale will rise for us and other component manufactures also. And the demand itself will actually ensure that we earn good margins.

And last question, [indiscernible] yourself using some solar power for your factory?

We do have a wind power, which we had installed some years back, and now we are going to set up solar and wind hybrid project, which will be commissioned in the coming financial year. So we will probably ship to close to 25% to 30% of power from our own renewable sources in the foreseen future, maybe after October '22 or so. And I think that is a maximum allowed as per the policy, so -- though we wish that we can consume more power from renewables, but there are policy restrictions due to which we will need to be satisfied with that.

Thank you. The next question is from the line of [ Dhiral ] from Phillip Capital.

Sir, as you mentioned in your opening commentary that currently, the glass prices has come down globally, particularly in China. So assuming the price remained same for the quarter and with the current prices of raw material, which is there right now, how much impact we can see on the margins? .

See, the impact of raw material prices, as I mentioned earlier, in the quarter, January to March, it will not be significant because of our earlier contracts of soda ash are still balanced and the increase will be marginal in that sense. So from the perspective of any meaningful or significant contraction in the margins, we don't foresee a significant drop, but there will be some impact. And on the selling price also, there will be a certain amount of impact, which I already mentioned that prices are fluctuating almost every 10 days. So we cannot have a certain sense that by end of March, what will be the next realization, which will be whether plus or minus or how much minus.

So what is the reason for sort of volatility in the pricing as [indiscernible]?

Basically, the -- what we believe is that the Chinese manufactures or the Chinese-owned companies, which are set up in other geographies like Malaysia and Vietnam, they all operate based on certain comfort of keeping inventories and certain level of infrastructure where they have to keep the inventories. And in case the inventories rise beyond control, they try to liquidate the stocks at a lesser price, which creates the results in the market in terms of the price fluctuation. And of course, the expansion plans for those companies or the demand supply situation could be -- could be additional features why the stock is fluctuating like this. And this all demand supply scenario nutshell why the prices fluctuate so much.

Okay. And sir, lastly, what would be the peak debt that you are comfortable with by the time our SG-5 commence?

The internal policy of the company or the management, we would like to restrict our debt to 2x of EBITDA.

Okay. And sir, lastly, what is the contribution of the thinner glass or bifacial glass from the overall revenue?

So when you say thinner glass, we call thinner glasses 2 millimeter, 2.5 and 2.8 millimeters, which comprise of nearly 30% of our portfolio. Whether it goes in the conventional or bifacial module, we are not much controlling that, but this is a thinner glass portfolio, which is at 30%. And the share of 2 millimeter is going to go up in this or it is going to be more than 30% going forward because the thinner glass demand is going up.

Sir, [indiscernible] higher prices also or the pricing remains same?

Yes, it is a better per millimeter price -- per square meter price because the output is also slightly impacted in terms of the yield and the cost with that becomes a little higher. So the -- but still the margins are relatively better in the thinner glass.

The next question is from the line of [ Devesh from DS ] Investment.

I just wanted to get some sense on the cost part, right, because once we have SG-3 coming up, which is more than doubling the capacity, could you help us understand in terms of operational efficiency or the -- any internal metric like cost per ton or something? How do you see that improving? And if you were to sort of, take it a little longer term than all the [indiscernible] exist. Are we -- do you have a sense that we are getting to a more steady state level playing field against Chinese or those players? Just qualitative, quantitive -- any thoughts would be helpful.

So in terms of the expansion plan, we will certainly accrue certain economies of scale because the overheads and the wage cost, which will be spread over the larger portion, will definitely help us to expand our margins, EBITDA margins. Whether it would be 2% or 3% or 4% that we have to see, but one can say between 2% to 4% accretion in the margins could take this on account of this scale. I think one should look at that. And what was your another question?

Yes. So just if you were to zoom out a little longer-term horizon, and I know that this is a little hypothetical, but if you're comfortable answering, [indiscernible] all those [indiscernible] eventually when we have SG-3, 4, 5 in place, what would be foundation pillars for [indiscernible].

Sir, your line is not very much audible.

Okay. I will try to join back in.

The next question is from the line of [ Tariq Hussain ] from Gringotts Capital.

I just have one question. So we are seeing demand for bifacial modules increasing in China and other places. I just wanted to get a sense if you see the same demand in India, and how is it impacting the demand scenario at your end?

So in India, so far, there was no much demand for the bifacial or thinner glass of 2 millimeter, but it is now catching up. And all the large manufacturers in India, maybe 10 of them are their large manufacturers. Everybody is talking of big-sized modules, which are currently in fashion and also the thinner glass. So we believe that we will soon catch up on the bifacial module trend. To what extent it will penetrate, we have to see in the next 1 or 2 years. But the demand for the thinner glass and the larger size -- and for bifacial module is going to grow significantly worldwide and India will also be in the similar -- similarly.

All the best for the next quarter.

The next question is from the line of Anuj Upadhyay HDFC Securities.

Sorry, sir, I joined a bit late, so you probably would have answered this question, but still, I want to have a clarification. One thing, sir, could you just mention what kind of premium does 2-millimeter glass have compared to the other bigger glass module over here? You also mentioned that the margin across the 2-millimeter glass is much better, so if you can just give a ballpark figure of the premium which it has over the conventional one?

So in the Indian [indiscernible], the 2 millimeter glass demand is not -- virtually not there as of now. It has just started, and how it will be priced, we will see as we go along. But in terms of their international markets, the prices are higher by close to 25% to 30% compared to the normal 3.2-millimeter glass -- 1 millimeter -- 1 square meter basis. So -- and the cost is also slight -- I mean, higher compared to manufacturing 3.2. So margins are better. What exactly is the number I cannot really talk to you on this line. But the profitability in making thinner glass is definitely better.

Okay. Fair point. But do we export 2 millimeter as on date?

Yes, we do export 2 millimeter.

Okay. And you mentioned that probably it could be in the range of 20% to 25% of our total portfolio or...

That also includes 2.5 millimeters and 2.8 millimeters. A significant amount of this thinner glass portfolio, what we have is 2.8 millimeter. And that goes -- all of it is going in the domestic market. So from the perspective of what is the share of 2 millimeter and what is the export, so that is not very high. It's really about a couple of percentage, 3%, 4%.

Fair enough, sir. And you mentioned this could go closer to 30% going ahead, considering the international and domestic demand.

Yes. That's what the projections by various agencies show that bifacial models will grow 30% of the overall installation. It has already happened in China, and it is also catching up in India and other geographies including the U.S.A. and Europe.

Got it -- got it, sir. And lastly, sir, just a follow-up on the PLI scheme. Now, we are seeing that many local manufacturers are now planning to expand their existing capacity and also many new players who have planned [ on a huge ] capacity in the solar manufacturing. So I mean, can you just throw us some highlights whether they would be manufacturing the glasses as well or it's only a particular equipment that is the [indiscernible] and modules is what these guys are targeting? [indiscernible] Obviously, we're not [indiscernible] the glass side that probably would be a much higher beneficiary to this scheme. So just a clarification on this, sir.

So it is entirely at the discretion of each of the manufacturers to set up and integrate the -- backward integration to the extent they would like to. But generally speaking, in the Chinese market or other international markets, the glass production has been with a different set of people, and module and cell manufacturing has been with a different set. But in India -- but in India, some people have taken that kind of call to produce solar glass also internally. More particularly because the significant capacity is not available in India, but the market is not mature to that extent as in China. And also, they would like to restrict -- or like to rather ensure that their supply chain is not disrupted because of the dependence on the imports and all these geopolitical situations. So they have taken a call to install certain capacity for their [indiscernible]. Now whether one will do or everybody will do is for every individual company to make that kind of decision. What we know is that only 2 companies have so far discussed this kind of situation. The rest of the people are still looking at the glass suppliers for the glass supply.

The next question is from the line of [ Dhruv Kashyap ] an individual investor.

Yes. Let me begin by thanking you for the excellent stewardship that you have provided to the group over the last few years and especially in these tough times. So thanks a lot for that.

Thank you.

My first question to you, sir, is that just looking at the landscape in terms of opportunities in [indiscernible], everybody has a grandfather [ who is talking ] solar and investing in solar and getting into solar. But if I was to flip that around and look at it from threat perception, especially as bigger and bigger conglomerates get into the entire chain. Would not too many people start sort of fully integrating, putting up their own glass units over a period of time because some of these guys would be big, they could also start arm-twisting the government in terms of saying that we need a lot more glass than it is being manufactured, so remove any kind of protection and let us buy from outside, which will be harmful to us? And thirdly, also that as we know that while 25 and 40, BCD and all is on the module, et cetera. But on the glass, other than the countervailing duty of 9-odd percent from Malaysia and maybe a bit from China, even from Vietnam, we are not protected. So is there -- I'm just trying to play a devil's advocate that is there a cause for significant concern in terms of our growth prospects for the glass manufacturer although solar will be booming in the future?

The answer is simple on that. You see, until the 9th of March 2021, there was no kind of duty or tariff barrier on the entry of solar glass from Malaysia. Malaysia has a large production of solar glass, and they could easily service a lot of the requirement of the Indian manufacturers as and when required. And when they were there, without any -- their goods were sort of entering the country without any hindrance, we posted our most interesting results that was for the quarter ended March 2021, which if you notice, we did well in that quarter. So the fact is that while -- I mean, the question about competition is open-ended. We faced competition. I mean, I've personally been in the business for 50 years. I've had competition all the time, I understand how price competition and we do it. So I'm not really worried about it. Let's put it that way.

Okay. So that's good to know. Second question, sir, is more on the expansion. Now, I think the first time we raised money was in December 2020 for SG-3. And we pretty much had most board approvals and -- or let's say, internal approvals for SG-4 in place starting 2021. My understanding is that if we raised money in December 2020 and if we are likely to see SG-3 come up onstream between July, August, September, it's roughly an 18-plus-month lead time. So earlier, if you saw the chart on progressive expansion of capacity, people always were leading towards Q2 of FY -- or CY '20 -- or FY '23 or Q2 of FY '24, now it's more Q3. And given that we haven't even started the process, let's say, if we start in April, May, would we not be looking at the next one only towards the end of '23 and the subsequent one towards the end of '24? So if there is so much of interest in the solar sector and there's an advantage of getting in first and sort of building scale so that everybody has to come to us later, why is it that we are taking longer than anticipated on SG-4?

See, we have to balance many things. And one of the things we have to balance is also our risk appetite. And there's a certain amount of risk that we are prepared to take. And beyond that, it's not safe for the organization and for the -- for the investors, for everybody. So we can only take measured steps, and I think we are doing well on that. To answer your question about the time that we took, I'd like to say that our second furnace that we did, we were -- we had a list of furnaces in under 14 months, and that was a remarkable achievement. I don't know if anybody in India has ever done that. The reason we've taken longer on this furnace is because it's a completely new furnace, it's much larger than anything that has been done before. And so therefore, there's a lot to be done in the design aspects of that thing. The other thing which has caused a lot of delay in this particular SG-3 is COVID. So we faced COVID twice. Once, first wave, second wave. The first wave came up only in August, September of 2020, didn't come up in April or May. So we faced 2 waves of COVID within, I would say, less than 9 months of each other between the tapering off of one and the starting of the next. And these things [ did set ] back procurement and stuff like that for a bit. But we are on track now, and the chances are that SG-4 should not take as long as SG-3 did.

So would it be safe to say, sir, that SG-4 work is happening and fund rate, et cetera, should happen soon, and it should not take 18 to 20 months, so maybe onstream will happen faster? But more importantly, are we looking for a fund rate sometime in the next 1 or 2 or 3 months? Or is it going to be longer?

So we cannot say the exact timeline for fund rate, but fund rate will definitely be done in the first half of next financial year, which is from April to September. So that much we can commit. And in terms of the possibility to come faster, the fourth furnace will be more or less identical to the third furnace. In the third furnace, we had done a lot of changes in the design. It was a large furnace and a different set of equipment have been used, larger diameter things have been used from that perspective. But the fourth furnace will be, or equipment will be exactly duplicated. So there will not be any time consumed on the designing the things and all, and the orders will be just repetitive. So it should be done faster. On a -- on a conservative basis, we have put the dates, but we would like to do it faster than what we commit actually.

So just to close this point, sir, just for my clarity. If you're saying that we do the work starting April to September, then if we are still putting a Q2 of FY '23, '24 as the timeline, which means that even if we delay our fund rates or our work start to August, September, we still feel confident of landing it in 12 months from there on to hold on to Q2 of '23, '24 hypothetically? If there no further drawbacks along the way?

You see, we like to be conservative. That's why we're saying in the event that we do start in April 2022, we should be in production in 18 months. I mean, that's what we'd like to say. We would -- there's no joy in overpromising. So I think 18 months is a good time for any large factory, and I think that's the good one. So we can always try to advance it. And it might happen also, but that's speculative, frankly.

But bottom line is that the fund raises and the all activities internally and externally should start in April to September to be able to target September of next year kind of on stream?

The question of fund raising is one can also take in debt. One can take term debt and start the SG-4. So it's not necessary that we go for a fund raise or we would like to do it. But as I said before that this is a subject of careful consideration, and we have good advisers for financing. And we take their advice in so and so. That's why we are not able to put the finger on exactly when and in what way we will do this. So it's, frankly speaking, over. And the moment we do it, at the moment we decide, we clearly have to go public. That goes without saying that.

But principally speaking, you're working backwards to say that you're still targeting Q2 of FY '23, '24, so hence, working backwards by when do you have to take a decision. Correct? I mean, principally speaking, that would make sense.

Yes, yes, you're right.

So this will be my last question, if I can squeeze one in, and this is the one I love asking you always since you are an absolute expert in this sector. See, currently, solar and renewables are still being used largely for power generation, right of electricity in layman's terms. To me, the application is a lot more. For example, what role can solar, or renewables play in the electrification of vehicles, locomotors, I don't know what else we can do. There would be B2B applications, there would be B2C applications well beyond just electricity. So have we, as a company, look at these in a -- seriously evaluating some in prototype stage or in some shape or form to sort of action beyond just electricity?

So to answer your question, see, the thing is this, that we -- our specialization is in glass making, okay? And we are making glass now. So what happens here is that when we foresee that there would be an opportunity to have small panels for sort of portable solar power. So if you have a mobile phone, maybe you just need a small solar power, the size of your laptop or smaller, where you put it out in the sun and just allow that to charge your phone or maybe your computer. And a lot of mobile power in the sense of perhaps cooking a small induction heater or something of that sort. Now, we are limited to supplying a small size glass. The actual panel and the other device somebody else would make because we are not in that. And therefore, I cannot say that we can -- whether we -- how people will take it forward. So if people want glass of smaller sizes, larger sizes, we are ready to give it to them and then they do what they must with it.

So sir, just to understand this well, if, for example, there is a way to use solar to power automotive or there's a way to -- solar to power cooking or solar to power locomotive. And if the application or the operators or the module is being developed by someone, we can at least do the prototyping of the glass at our end to be ready to supply to any such use case?

Very correct. We can work on the glass that somebody would need for a special application. In fact, people come to us from time to time. We set our interest and then they back off. But the point is that we are ready to work on glass anytime.

So for you, it's not a very long process. I mean, you can just quickly prototype it and get into production if required, if there's such a serious...

[indiscernible] I cannot say really if what shape we want, et cetera.

Can we have more discussion offline, [indiscernible] this is a call to [indiscernible].

[indiscernible] we can talk about this separately, and I'd be happy to answer your questions.

Sure. And thanks once again for the excellent stuff that you and [ Shreevar ] have been doing for both the company.

Ladies and gentlemen, due to paucity of time, we take that as the last question for today. I would now like to hand the conference over to the management for their closing comments.

So I'd like to thank my team in Borosil for the wonderful work that they do. We are proud of our team. We are proud of the work they do, and we are proud of our investors for their faith in us. We are proud of all stakeholders, our customers, who [indiscernible] their faith in us. And together, I hope that we are taking large steps towards making India [indiscernible], and we hope to continue to serve you better as time goes by. Thank you very much.

Thank you very much. On behalf of Axis Capital Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.