Borosil Renewables Limited (502219) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Borosil Renewables Q3 FY '24 Earnings Conference hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jiten Rushi from Axis Capital. Thank you, and over to you, sir.

Thank you, Manoja. Good evening, everyone. On behalf of Axis Capital, I am pleased to welcome you all for the Q3 and 9 months FY '24 earnings conference call of Borosil Renewables Limited. We have with us the management team represented by Mr. P.K. Kheruka, Executive Chairman; Mr. Ashok Jain, Whole Time Director; Mr. Sunil Roongta, Chief Financial Officer; and Mr. Swapnil Walunj, Head Marketing. We will begin with the opening remarks from the management, 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 Financial Year '24 Investor Call. The Board of Borosil Renewables on 7th February approved the company's financial results for the third quarter of the current financial year. Our results and an updated presentation has been sent to the stock exchanges and have also been uploaded on the company's website. We will discuss the operations of Borosil Renewables on a stand-alone basis as well as on a consolidated basis. During the third quarter of the current financial year, the company recorded -- sorry, the company recorded stand-alone net revenue from operations of INR 240.7 crores, representing an increase of 94% on a quantitative basis, as a result of commissioning of a new 550 tonnes per day new plant SG-3 from 23rd February 2023. Sadly, the dampening effect of a reduced sales price restricted the revenue increase to just 49%. Export sales during the third quarter of this financial year were INR 19.1 crores, comprising 8% of the turnover and also registering a decrease of 67% over the same quarter last year. Average factory selling prices during the quarter were about INR 102.4 per millimeter as compared to INR 134.3 per millimeter in the corresponding quarter in the previous financial year, a sharp decline of 23.8%, thereby causing a steep erosion in the margins. The domestic selling prices continue to remain low after discontinuation of antidumping duty against China in August 2022, as a result of dumping from China, Vietnam, Malaysia, despite rising the import prices. On a sequential basis, the average selling prices during the quarter show a decline of 7% over the preceding quarter as a dumping continued unabated and intensified, taking its toll on a declined export share. EBITDA during the current quarter was INR 22.7 crores, corresponding to a margin of 9.4%, which was a steep decline as compared to an EBITDA margin of 26.7% in the same period last year, when the EBITDA amount was INR 43.1 crores, reflecting the impact of 23.8% decline in the average selling prices. As a consequence of dumping of solar glass and absence of a level playing field against imports, the company recorded a loss before tax of INR 15.4 crores as against the profit before tax of INR 30.1 crores in the same quarter last year. The decline in profitability was due to lower EBITDA and a higher interest depreciation as a result of capacity expansion in February 2023. For the 9 months ended December 2023, the company clocked a revenue of INR 758.6 crores, a growth of 52% over the similar period in the previous year. The company earned an EBITDA of INR 105.8 crores, a margin of 13.9%. However, at the net level, the company suffered a tax loss -- a loss before tax of INR 3.8 crores due to lower margins and higher interest depreciation costs. The exemption from payment of import duty of solar glass, which was set to end on 31st March 2024, has been extended till 30th September 2024. This has left the industry bewildered and disappointed. The solar glass imports continue to remain completely exempt from payment of any sort of import duty post discontinuation of antidumping duty against China in August 2022. The application requesting imposition of antidumping duty on dump imports from China and Vietnam has been filed with the authorities. This will be taken up in due course and they may take at least 6 months to get any final decision from the authorities. In the meantime, the local industry will be forced to continue facing unrealistically low import prices. While ALMM mechanism remains suspended, keeping the door open for unrestrained imports of solar modules, leading to a decline of 60% in prices of solar modules, no significant jump in solar installation has been seen thus far. The solar installations in the current financial year for the 9 months were merely 6.5 gigawatts against 9.3 gigawatts achieved during the same period last year, when we had achieved 12.6 gigawatts for the full year 2023. The overall demand for solar glass, albeit at a reduced price, remains much larger than domestic production so far. With increased domestic availability of solar glass from new plants, this will go to meet the demand. It is essential to bring back the ALMM mechanism from 1st April 2024 in order to have a continued robust demand for solar glass. The government has announced setting up of rooftop solar over 1 crore houses in the next 1 year under Suryodaya Yojana with a promise to provide free electricity up to 300 units to the household, and a provision to sell the surplus power to the grid. This will give much required flip to the rooftop solar program and generate demand for solar modules. It is expected that this policy will specialize the use of domestically manufactured modules, but there is no clarity as yet. This could generate demand for solar glass. I will now discuss about our German operations. The solar glass manufacturing furnace in Germany was operating during the second quarter of the current financial year at almost 85% and the operational performance has started to improve. However, the European solar module manufacturing started to suffer a serious setback as unbridled imports for Chinese solar modules in Europe at dump prices by the end of the second quarter of this financial year has severely impacted the ability of local producers to achieve sales, as mentioned by me in the previous earnings call. Now during the current quarter, all the major players have severely curtailed their operations and canceled their orders on GMB for the third quarter and fourth quarter of the current year. Also, they are unable to confirm any orders for the next year in view of uncertain situations. The solar PV industry in Germany has sought immediate intervention from the European Commission and German government as is expected that some concrete measures to safeguard the local production will be announced by the end of February. It is sufficient -- if the sufficient measures are not announced, there's a possibility of large manufacturers discontinuing their operations from 1st April in case there is no support coming from the government. In the meantime, the plant at GMB is operating only about 55% to 60% production in view of lower demand in Europe. Certain cost optimization steps have been taken to contain the negative impact of lower capacity utilization and lower sales realization. Now I come to the consolidated results for the quarter, which includes the operations of the subsidiaries abroad. The overseas subsidiaries, including those step-down subsidiaries has generated net revenue of INR 89.4 crores and EBITDA of INR 1.4 crores. And the consolidated net revenue and EBITDA for the third quarter or for the current quarter stands at INR 330 crores and INR 24.1 crores, respectively. We continue to maintain a positive outlook on the sector in view of expected growth in the domestic manufacturing in India. The new large capacities expansion have started to come into production and more are requested in the -- more are expected in the next 2 years, which should further increase the demand for solar glass. However, sustenance and growth of solar glass manufacturing in India will depend largely upon the levy of duties on imports of solar glass. The position is a very important markets [indiscernible]. In Turkey, the market continues to show weak demand as the economy faces increased challenges arising from continued high inflation and very high interest rates. The customers are operating at significantly lower levels. Demand in the U.S. is yet to pick up. We expect a great demand from U.S.A. towards the end of 2024 as the local production of modules starts to pick up. In view of low demand from Europe and Turkey, which are our major overseas markets, exports from India have suffered serious decline. We will increase our sales in the domestic market, which unfortunately at very low prices in view of continued Chinese dumping. This is affecting our average sales realization. We are constantly trying to improve the performance by increasing productivity and controlling costs. Over the next few months, we expect to take further steps on setting up an additional solar plus wind hybrid power plant, which is expected to further cut costs and allow us to use major portion of the power by captive sources of renewable energy. In order to strengthen its balance sheet and financials, the company has decided to raise funds up to INR 500 crores. The Board has approved raising of funds through the issuance of instruments or security, including equity shares or any other security convertible into equity shares, including warrants. By way of one or more offerings, including a rights issue and/or preferential issue and/or QIP or through a combination thereof, in one or more tranches for an amount not exceeding INR 500 crores. In accordance with the regulations and subject to necessary approvals, including the approval of the members of the company and such other regulatory/statutory approvals as maybe required and also approved, constitution of a committee of the Board of Directors of the company for dealing with all matters pertaining to the proposed fund issue. The fund will be placed for a reduction of debt at both the company's will and as subsidiaries and general corporate purposes. With that, 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 Nikhil Abhyankar from ICICI Securities.

First question was regarding the delay in renewing the BCD assumption. So what exactly can be the reason for it? Is it that it was just a vote on account and not a full-fledged budget that it did not get removed? So just can you throw some color on that? And how confident are we that it will be brought back again after September?

So I think we clearly do not have any communication that why it has not been levied or the exemption has been extended, but we should understand that this was vote on account and not the full budget. And all the exemptions, which were supposed to have a set of sunset have been extended. So it is not a single case where the solar glass basic custom duty has not been introduced, but it is for all the products which were to help sunset. So we expect that some decision may be taken by the government in due course at the time of presentation of final budget or maybe closer to the end of September when this deadline ends.

Okay. Understood. And sir, regarding the fund raise of INR 500 crores, what exactly is the purpose, sir? Will it just be for debt reduction? Because we have already put on hold our expansion plan so are we thinking of expanding again, bringing that plan back to work?

No. As of now, the purpose is clearly identified as the reduction of debt because the company has taken debt for its own expansion in India as well as abroad, for our subsidiary. So the idea is to reduce the debt levels.

Okay. Understood. And sir, one of the large IPP players who had won PLI and solar manufacturing recently announced that they might not go ahead with their plans so -- due to the low module prices. So is -- how do you see this trend? Is it like there are many players who are thinking something like this? Or can you just throw some light on that?

Look, other people have generally gone for expansion. And like I say, large players like Renew Power and others have gone for expansion and also Reliance is probably going for a large plant itself. Adani also has gone. So we believe that most players are going ahead with the expansion but yes, some people might feel that there is some challenge in the margins or the margins are not right because of the low prices of modules and then they decide as per their own understanding whether to go for expansion or not. But whatever expansions are taking place, they are quite sufficient in terms of the large demand for glass production in the country.

The next question is from the line of [ Sherin Nandikur ], an individual investor.

Sir, in the last call, you mentioned that even you are exploring the expansion or any acquisition plans in the U.S. or any other region apart from India and Germany. And also, U.S. government is also planning to put on restrictions on Chinese import. So are you still exploring that opportunity in the U.S.?

No, I do not think at this juncture when the profitability of Indian operations is not very robust. And also because things are not very clear as regards to manufacturing in U.S.A., we will rather depend on exporting from India, instead of setting up any facility there.

Okay. And regarding the recent announcement of Suryodaya scheme, any update on that? Like is it only -- the -- all the components must be used in that scheme, which are manufactured in India or it can be imported as well from the China?

So while we are still seeking that clarity, but generally, wherever there is a subsidy involved from the government, the government wants the component or the models to be used for production from India. So like say, KUSUM scheme, which is for farmers, the models have to be used from Indian production. So similarly, this is another scheme where the subsidies are subsidized program. So we believe that it is likely to be a local production of modules and once the local production modules take place, we will have glass demand for that. So -- but this is yet to be clarified.

And not just module, if you say module, that includes the glass as well, right?

No. For glass, there is no mandate for the use of total -- local glass production, but it is only at the module level or at the most at the solar cell level. But other components could be locally sourced or imported depending on the pricing or availability and all factors. But yes, there will be a demand. Demand will get generated if the modules have to be made from India.

The margin and improve the profitability in a couple of quarters till the antidumping duty is applied in September month?

So we are working on whatever cost optimization and production efficiencies, improvements can take place in the company. But besides that, there are no major significant drivers for increasing any margins in the short term up to September. By this time, the BCD or antidumping duty should get a certain view. Whether it happens or doesn't happen will be a process, but the chances are that by September, it will -- we will know by September, that whether antidumping duty can happen or not.

Even the Suryodaya scheme will not help much until they put the antidumping duty or BCD?

Yes. On the demand front, it will increase the demand if it is the module to be made in India. But on the pricing front, it doesn't impact much because...

It is the government's rights to include glass in the domestic content requirement under the scheme.

Okay. Okay. Are you pushing for that? Or it's -- you are just waiting for government to decide on that part for the including -- inclusion of solar glass also in the scheme?

Yes, yes, we are definitely pushing for it.

Okay. Okay. I request whenever you have that update on whether the glass will be included in the scheme or not, please make an update announcement in the BSE?

Sure. Certainly.

The next question is from the line of [ Prafful Bhojak ] from [ Perficient Advisors ]. He got disconnected. The next question is from the line of Kushagra from Old Bridge Asset Management.

Just 2 questions. One, from a policy perspective, if I have to understand, like are there any positives if you have to put your case to the government because all the incentives, duties are there on solar modules and nothing on solar glass, the solar glass, which goes as one of the parts in the solar module. So the lower the cost of solar glass would probably help solar module manufacturers. So in your case, it's basically your customers as well as government subsidies and policies all looks in favor of no duties on solar glass. So in that sort of a scenario, I mean, how would you deal? And are there any positives to put or to sort of turn government towards introducing some sort of a duty on Chinese imports or Chinese dumping?

So one is the antidumping mechanism, which is basically really for remedy available under the law, where the dumping is restricted by way of putting antidumping duties. Now here, the question of whether the glass model will become costlier or does not become costlier is not arising because it's a level playing field provided under the law -- under the international laws. Another case is regarding the basic custom duty. Now when we import glass into India or like our customers import glass into India, there is no duty, whereas if we export glass to China, there is a 21% duty. So Chinese have increased their production capabilities and capacities by imposing restriction, whereas in the case of India, we are staying away from it. Now unless we create certain situation in which the glass industry can become economically prosperous and creates the capacity which is the world class in that sense, their cost will not get optimized. So it's a chicken and egg situation, that you impose duties and -- you don't impose duties and ask the industry to come up, that's not going to happen because unless there is a sufficient return on equity or return on investment, nobody will put the money. So -- and the supply chain -- creating a supply chain locally is of very utmost importance in this sector because it's the energy sector. And anything which China does to reverse their, say, export or to India or changing their policies can put into jeopardy the entire solar [indiscernible] program of the country. So government should take a stand that to create a local capacity in solar glass, which is a very important part of the solar valuation, there may be some pain in the cost and the pain is not very high because the solar glass in solar module is a very small percentage and the cost of increase in power price by levying certain duty on solar glass is hardly INR 0.01 or INR 0.02. In a power cost of INR 2.50 or INR 2.60, which the bidders are bidding. So this is a call which government will have to take, whether that is possible to observe or not possible to observe and whether the duty should be levied on solar glass or not. But we are continuously pursuing with the government and we had positive indications that BCD will be -- BCD exemption will be withdrawn, not from one, but both the industries which are concerned to the manufacturing as well as power sector. But some of these exemptions have been extended for all the products for next 6 months, we'll have to see whether by September, we are able to get this BCD or not.

Fair point, sir. That's very well explained. And just a second question on the domestic capacities. If I remember, Reliance is something who is putting some -- Reliance is putting some capacity and then there are 3, 4 other players as well. If you can give some context with the quantum of the players -- the quantum of the capacities? And are there any additions in the number of players or reductions in the number of players considering the current environment who are putting up solar glass?

There are 5 players in action today. And the sixth one is on the cards, in another 4 or 5 months will come into production. So as against 1,000 tonnes per day that Borosil is doing, we have about 1,300 tonnes already extra and another 300 tonnes coming up. So altogether, India will have a capacity of 2,600 tonnes which will be nearly balancing the quantum of modules that are expected to be made in India. So now there's no capacity constraint, and we have a large enough industry with 5 to 6 players. Reliance will be on top of that. So if Reliance comes up that they have another 2,000 tonnes per day, we believe that they're going to do. So that will mean a lot of glass in the country and the government I think would not really want to shut their eyes to the situation.

[Operator Instructions] Next question is from the line of [ Jalaj ] from Swan Investments.

Am I audible?

Yes, sir.

So I had first question with regards to the exports to the U.S. markets. So what I understand is a lot of Indian players are right now, at least the module manufacturers are exporting to the U.S. market. Is it because the -- why are we not be present there is it because the Chinese players there have the antidumping on the module part, and it's not on the glasses? And what sort of glasses are those guys otherwise using?

So Indian exports are just going to U.S.A. because the prices in U.S.A. are much better compared to other parts of the world. And the Chinese are facing the problem there because they are using the equipment or the components from restricted area. So for them, it is becoming difficult to prove that they are not using those items. And a lot of times the goods are held at customs and all. So there is a preference given to produce coming from India. In terms of the duty structure, on the glass and all, there is no duty from -- on the exports from India. I think it's about 5%. But in the case of Chinese, there is antidumping duty in the U.S.A., which is currently on hold, they have suspended the antidumping duty in U.S.A. All said and done, the manufacturing activity in U.S.A. is low, module manufacturing activity. They are depending on imports from, say, Chinese or South Asian countries as well as India currently. Under the IRA program, which they have come out with, a lot of manufacturing activities have to -- are supposed to start in this calendar year. which will increase the local demand for glass. And we are looking at that market. We are already supplying to a few customers, but very small quantities. And in future, we expect that to be a bigger market for us.

Okay. So just a follow-up on that. So we have better realization on the glass, which has been sold in U.S. versus in India?

Well, U.S.A. also is a very competitive market, but realization is better than India. It is, however, less than the European or other markets. But the market is attractive -- market will become attractive once the manufacturing starts. Currently, there is no meaningful export from India of glass.

Okay. And one last question. So the modules which have been imported from China to the U.S. antidumping duty as of now, there is nothing on them also?

Currently, there is nothing on them.

No, the restriction relates to the position of any item in that from the Xinjiang province. So currently, the importer has to prove that the entire module, nothing is coming from Xinjiang comments, which they have declared that Xinjiang province is using slave labor. So therefore, they are not permitting any product which might have had its origin in Xinjiang province from entering the U.S.A. Even if it is a small part of the whole module, it will be ceased. And they have a lot of modules which have been ceased by U.S. customs and lying in the customs warehouses.

Okay. Okay. And with regards to the capacity for the glasses. If I were to compare it domestically, you covered it well that Reliance and other players are coming up. But worldwide, if you were to check the capacity, what is the situation right now vis-a-vis the supply and demand and considering both China and U.S. also in Europe?

So in U.S.A, solar glass production as of now. In Europe, we are the only one who are producing. In India, now we have 5 players and sixth one will be coming. So besides the Chinese, these are only plants producing solar glass. So Chinese are controlling almost 97% of the world solar glass production. And between say China, Vietnam and Malaysia, they have some plants in Vietnam and Malaysia as well. So that's all Chinese plant. So most glass production is controlled by Chinese.

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

So my question was that, currently, what is the market size of solar glass in India? And how much is it expected to grow by FY '28? And what could be the reason for the same?

So from the data available, what we see is that the total demand for solar glass in India is at about 2,500 tonnes to 2,600 tonnes per day of net glass. And this, we expect to double in the next 3 years' time. Now, it will be led by higher module manufacturing activity, which is continuously increasing because a lot of module plants are coming and India needs to install almost 25 to 30 gigawatts every year. Currently, we are only at a run rate of 12 gigawatt to 13 gigawatts. So this consumption of glass and production of modules will increase in due course, which will increase the demand to almost double. This figure is outside of the requirement for hydrogen because that sector we are not including in the solar glass requirement as of now. So 5,000 tonne per day should be demand alone for the solar power sector, solar PV sector.

Right. Got it. And sir, what is the demand for solar glass if you compare domestic versus the imports?

So domestic is about 35% as of now. where it will go up because the domestic production of the last -- recent plant has just begun in last quarter, and they are still ramping up their capacity. So it might become 50% or 55% in the next 1 year or so.

Understood. And sir, with respect to the capacity utilization of various solar glass manufacturers, what could be that figure approximately?

So for us, it is almost 95%. But for the new players, it is gradually going up. So we do not have individual share -- individual data for all the manufacturers. But I think they may be running at close to 50% to 60% of their capacity as of now.

Got it. And sir, with respect to -- just last question with respect to the solar module demand that is there in India. What could that be approximately?

So when -- from the glass consumption, what we understand is that the module production is close to 17, 18 gigawatts per annum. And part of this is getting exported, maybe 4, 5 gigawatts. So consumption in India may be about 13 to 14 gigawatts.

13, 14, got it. And the current market size of solar glass that you've told is 5,000 TPD at the moment in India, which is expected to grow.

Currently is 2,600 tonnes almost. And in 2, 3 years, it might be 5,000 tonnes. When we say this market size, it is a net glass. And when we discuss the capacity, that is a gross glass. So when I say India has -- we have 1,000 tonne capacity that can give about 650 tonne net glass, like that. So the 5,000 tonne net will require the capacity to be almost 8,000 tonnes or so, like that.

Understood. And sir, what would be the current installed capacity of solar modules in India, if you have any idea on that?

It is supposed to be around 60 -- 55 to 60 gigawatts.

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

This is a follow-up question. So sir, I wanted to know like, are there any marquee investors like big names like they invest in many companies, right? Anyone like that big investor, individual investors approached for long-term investors? Or you are working with them, you are trying to get some big marquee investors for a long-term investment? Like this question is from the point of view of investors, especially the retail investors and long-term shareholders who are looking for such a big investors for long term, which gives them confidence, so any update on that?

So Board has just approved the proposal yesterday, and the committee has been appointed to look into this and decide on which instrument and which mechanism to be followed. So I think it is premature that to discuss it, whether we are looking at marquee investor or not, but of course, it will be welcome. So we will, along with the banker which -- whom we will appoint in next few days, we will have to see what all can be done and what is the right mechanism to say, issue the shares of up to INR 500 crores or whatever amount we can work out. And once we do that, then only we'll be sure whether -- which is the way we are going.

Sure, sir. And these investors basically, they will be for long term. That's what is planned?

Currently, we don't know actually, but we will, of course, welcome the long-term investors.

The next question is from the line of [ Karan ] from Niveshaay Investment Advisors.

Am I audible?

Yes.

I wanted to understand like what would be the cost of producing solar module in India versus the Chinese players? And what percentage of those costs would be concluding for the solar glass that we produce?

So cost of production of solar module has been undergoing change for last 1 year in a very rapid way. And post, which used to be about $2.25, $2.26 and has come down to almost probably $0.17, $0.18, in that sense. So the solar -- prices of solar cell and other items also have gone down in the value chain. So this is a very dynamic situation as of now. And in terms of the solar glass as a percentage to solar module costs, it would be about 10% for a normal conventional module, where we use only one glass. And for the glass-glass module, it may be about 14%.

And the percentage one would be similar for the Chinese and the other modules, right?

Yes. Glass because of course is a part of module cost will be similar, yes.

And how would the Chinese module prices would be? Would it be that significantly lower than the other module produced, the overall module?

No, they will not be significantly different. They will be almost say, 4%, 5% lower probably.

[Operator Instructions] The next question is from the line of [ Bharani Kumar ] from Avendus Spark Institutional Equities.

Apologize, I just joined a little late. Could you give the realization for the quarter and 9 months for us? Meaning realization per millimeter, you would see, right?

Yes. In the call, we have mentioned that for the realization, average expectation has been INR 102.40 for the quarter as compared to INR 134 (sic) [ INR 134.3 ] for the corresponding quarter last year.

And my second question is more on the module's front. What would be the landed cost of a module when it's domestically procured versus when it's imported? Let's say, per watt peak sells for watt peak in a nutshell..

I think the conventional modules, we may be selling at about INR 16 to INR 17 per watt peak in India, Indian-led modules. And the imported maybe INR 1 or INR 2 lower than that.

So when you're telling INR 1 or 2 lower, it will include the BCD numbers and all?

Yes, after the duties.

And what would be the realization somebody exporting would be getting compared to this?

Module export side, we don't have right numbers, but we believe to U.S.A., the module exports are at about $0.26, $0.27. So that would be about INR 23, INR 24 I think.

As there are no further questions, I would now like to hand the conference over to management for closing comments.

Thank you very much for your participation in this investor conference call and for the questions that you've asked, we hope that we have been able to answer your questions to your satisfaction. And till our next report, we sign off now with a thank you.

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