Shifting To Domestic Production Will Expand Capacity And Reduce Import Reliance

Key Takeaways

• Expansion of production capacity and focus on premium lines is set to enhance revenue growth and strengthen brand leadership.
  
• Shift to online sales and domestic production could improve revenue and margins, despite short-term cost pressures.
  
• Regulatory changes, increased costs, and supply chain challenges are affecting Borosil's margins, revenue growth, and profitability.

Catalysts

Manufactures, sells, and trades in consumer ware products in India.

• Borosil's commissioning of their new borosilicate glassware furnace is expected to increase production capacity, reducing reliance on imports and potentially enhancing revenue growth by tapping into increased demand for glass alternatives. This expansion is likely to impact revenue positively.
  
• The company's strategic focus on premium product lines and expanding categories such as non-glassware, including high-grade steel and home appliances, is projected to strengthen brand leadership and cater to evolving consumer needs, thus impacting both revenue growth and net margins.
  
• Shifting focus to online sales due to restrictions in traditional B2B sales channels could result in increased revenue through digital and e-commerce platforms, although it may temporarily pressure net margins due to higher marketing expenses, particularly customer acquisition costs.
  
• Borosil's initiative to move manufacturing for non-glassware items from imports to domestic production in India aligns with increasing BIS regulations and could lead to cost efficiencies, impacting net margins and profitability positively in the medium term.
  
• Investment in new product categories and expansion in distribution channels aims to drive medium-term revenue growth, though the initial costs and supply chain improvements may temporarily impact net margins.

Borosil Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Borosil's revenue will grow by 13.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 9.8% in 3 years time.
• Analysts expect earnings to reach ₹1.5 billion (and earnings per share of ₹12.78) by about March 2028, up from ₹681.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 60.6x on those 2028 earnings, up from 59.8x today. This future PE is greater than the current PE for the IN Consumer Durables industry at 41.3x.
• Analysts expect the number of shares outstanding to grow by 4.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.85%, as per the Simply Wall St company report.

Borosil Future Earnings Per Share Growth

Risks

• The uniform code for Pharmaceutical Marketing Practices 2024 has restricted the ability to offer gifts, impacting a segment of B2B sales, thus affecting overall sales and revenue growth.
  
• Increased marketing expenses due to a shift to online sales channels have put pressure on margins, impacting profitability.
  
• The discontinuation of indexation benefits on long-term capital assets under the Union Budget 2024 has resulted in higher taxation, affecting net margins and profit after tax.
  
• There has been a substantial increase in depreciation and finance costs due to the commissioning of the new Borosil glass furnace, impacting net earnings.
  
• Concerns over BIS norms affecting imports could disrupt supply chains, leading to potential rising costs and affecting revenue if domestic sourcing is not efficiently managed.

Valuation

• The analysts have a consensus price target of ₹440.0 for Borosil based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹15.6 billion, earnings will come to ₹1.5 billion, and it would be trading on a PE ratio of 60.6x, assuming you use a discount rate of 15.9%.
• Given the current share price of ₹341.05, the analyst price target of ₹440.0 is 22.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.