Ladies and gentlemen, good day, welcome to the Q3 FY23 earnings conference call of Borosil Limited, hosted by Monarch Networth Capital. As a reminder, all participant lines will be in the listen-only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Dani from Monarch Networth Capital. Thank you, over to you, Mr. Dani.
Thank you, Michelle. On behalf of Monarch Networth Capital, we welcome you to the Q3 FY23 results conference call of Borosil Limited. We have with us the senior management represented by Mr. Shiva Kheruka, Managing Director and CEO, Mr. Anand Sultania, CFO, and Mr. Swadhin Padilla, Senior General Accounts. I will hand the call over to the senior management for the opening remarks. Thank you, and over to you, Shiva.
Thanks, Rahul and Monarch for hosting this call. Good afternoon, everyone. Borosil Limited board approved the company's financial results for Q3 FY23 on 3 February , 2023. Our results and an updated presentation have been sent to the stock exchanges and have also been uploaded on the company's website. Borosil's consolidated revenue from operations for the nine months ended December 22 was INR 768.3 crores, which is a growth of 24% over the corresponding period of the previous year. During the nine-month period, the company earned a consolidated EBITDA before exceptional and one-time items of INR 92.7 crores, which translates into an EBITDA margin of 12.1% as compared to 20% in the corresponding period of the previous year. Profit before tax during the three quarters ended December 22 was INR 90.2 crores.
The company received an insurance claim net of non-value of INR 9.3 crores as full settlement of the claim in respect of loss of property due to fire at the company's warehouse in Bharuch. During the corresponding period in the previous year, we had made a provision of INR 6.5 crores for loss of property at the company's warehouse due to fire and flood. During the third quarter, the company has also disposed one of its non-core assets which was held for disposal, and the gain on the same is INR 13.5 crores, and the same is recognized under the head of other income.
Taking all this into consideration, during the nine-month period ended December 2022, Borosil recorded a consolidated PAT of INR 67.9 crores as compared to a PAT of INR 50.6 crores during the same period of the previous year. Average operating capital employed in the business, that is capital employed without CWIP and investments, was INR 525.1 crores. During the nine months ended December 2022, the company earned an operating profit before exceptional items and before improvement investments of INR 67.9 crores. That translates into an annualized operating ROCE of 17.2%. Coming to our business-wise performance, Borosil's consumer business comprising glassware products and non-glassware products under the brand Borosil and its cookware range under the brand Larah recorded sales of INR 565.3 crores.
That is a growth of 29.8% over the same period last year. Sales of glassware products were INR 137.8 crores, which is a growth of 26.7%, and non-glassware products grew by 49.2%. Non-glassware reached a turnover of INR 235 crores during the nine-month period. Glassware reached a turnover of INR 137.8 crores. Our cookware brand under Larah achieved sales of INR 192.4 crores, which is a growth of 14% over the same period in the previous year. The EBITDA margin during the nine months ended December 2022 for consumer products was 10.5% as compared to 17.1% during the corresponding period in the previous year.
The decline in EBITDA margin was due to a number of factors, including change in our product mix. As you can see, our non-glassware products have been expanding in sales and comprise about 63% of sales of our Borosil brand and it's excluding Larah. The Hydra range of steel bottles, Steel Fresh products, as well as domestic appliances have all been achieving very healthy growth. These ranges have a lower gross margin than the traditional glassware range of business, resulting in some decline in the overall EBITDA margin. However, as I mentioned before, our focus is on return of capital, return on capital. While the gross and EBITDA margin on the non-glassware range is lower, we have not invested in manufacturing facilities for this range. We can therefore earn an acceptable ROCE from the non-glassware range as well.
The company's spend on marketing expenses for the brand Borosil had been higher during the nine months ended December 2022 as compared to the same period last year. Company has invested its major marketing costs to increase the consumer mindshare and grow the brand digitally. The brand has been actively promoted through influencer marketing programs and celebrity chefs to improve customer engagement across categories. The company is a partner to the Indian Olympic Association and the Haryana Steelers, both of these have given significant brand uplifts in the Hydra category for bottled water glass. Third, these are some reasons for the reduction in margin. The first, as I already mentioned, was change in the product mix. Second is higher marketing expenses.
The third is, the EBITDA margin on Larah, which is our cookware range of products, was much lower than normal. As you are aware, the company is expanding capacity from 42 to 84 tons per day by putting up an additional furnace. This furnace has gone on stream on, I think 2 January , 2023 from a commercial production point of view. This was delayed owing to some implementation challenges owing to global supply chain issues. Consequently, the firing of the furnace and its commercial production took place only in the beginning of this quarter. At the same time, the older furnace had to go and for its regularly scheduled rebuild in October 2022.
With this meant that the company continued to incur fixed costs during the rebuild period and also had no production during the same period, which contributed to lower EBITDA. The net result of this was the company could not service most of Larah's requirements during Q3 FY23 and a part of H1 FY23 through internal production. However, in order to ensure continued availability of brand Larah in the market, the company took a decision to procure whiteware and introduce these into the market with our own design and branding. The company earned a zero margin, in fact, slightly negative margin on this activity. However, it was important that Larah did not lose any potential customers on account of availability. This was a short-term strategic decision. Both our products will be in production during quarter four FY23.
We should see normalized margins restored during this period. These three reasons, higher the procurement of large volumes of whiteware from outside, the change in product mix of the Borosil, you know, the consumer sales as well as the higher marketing expenses, have contributed to a decline in the EBITDA. Of these three reasons, the production of Larah is already solved, and Q4 we should go back to normalized margins. Marketing expenses have been slightly higher, but we expect them also to, you know, on a percentage of sales rationalize as our revenues are growing higher than expected. With our new production, the base will be higher. As far as change in product mix is concerned, that is something likely to continue for some period of time.
But the higher volume should end of day give us better margins because of our ability to negotiate on purchases on these accounts. Moving on to the scientific products division. The net sales during the 9 months ended December 2022 were INR 203 crores, which is a growth of 10.2% over the corresponding period in the previous year. Our scientific product business comprises three product ranges: lab glassware, lab instrumentation under the brand LabQuest, and primary glass packaging for pharma customers under the brand Klasspack. During YTD Q3 FY23, lab glassware sales recorded a sale of INR 131.8 crores, which is a very nice growth of 27% over the same period last year.
We continue to enjoy about 70% of the lab glass organized market and expect to get a fair share of any growth in demand from the pharma and the education institutional sectors. The company continues to get repeat business for existing products from existing customers. It has also introduced new products such as filter papers, QR-coded glassware, and Multiport caps, which have got good traction. Apart from new customers with existing and new range of products, we are also developing an OEM business line for supply of critical items to our customers. The instrumentation business under LabQuest achieved a sale of INR 16.5 crores. That is a growth of 24% over the same period.
We are still in the early stages of development of a range of offerings in this business vertical. We expect the addressable market to be about INR 225 crores and growing at 10% - 12% a year. Recent product developments introduced by the Borosil Technologies team include pilot lab reactors, bottle top dispensers for hazardous acid as well as products in the nutrition and environment categories. In the context of Klasspack, due to COVID, Klasspack had two very strong years in FY 2021 and 2022, registering growths of 28% and 56% respectively. During FY 2024, therefore, we are lapping a high base. During the nine-month period ending December 2022, Klasspack achieved sales of INR 54.7 crores, which is a decline of 18.7% compared to the corresponding period in the previous years.
This decline in sales during the current period needs to be read in the context of a high base effect. In fact, last year, almost 18% of the sales were related to COVID drugs, sales of vials for COVID drugs. Exports of vials were also impacted this year owing to various reasons, owing to challenges in Europe. This was, however, more than made up by other geography and export sales have otherwise turned a very good performance comprising about 19% of revenue, compared to 13% last year. Other challenges Klasspack has also been the input price has, have increased up over 25%, and this necessitated price increases, which has also had a negative impact on sales.
In the past, I mentioned that, we are focusing on developing deeper relationships with high-quality customers. This process is ongoing, we expect to add new what we call as pharma plus customers, you know, the highest customers with the highest quality requirements in the next few months. EBITDA margin for scientific products during the period April to December was 16.3% as compared to 20.4% during the corresponding period in the previous year. Margins in scientific glassware have shown improvement in line with the growth of business.
However, the drop in the division EBITDA is on account of lower margins in the Klasspack business, that was owing to lower sales and higher cost of inputs, as well as in LabQuest as we have decided to invest disproportionately higher in our R&D team, which is higher staff cost. While the current productivity and output from LabQuest is lagging behind the cost input that we're putting in there. Borosil Technologies is still a nascent business and the subsidiary is in an investment phase and therefore is currently incurring reasonable losses. As the business scales, these costs will get normalized and the products may take one to three years to stabilize. In Klasspack, EBITDA margin was in the low single digits. The drop in margin is attributable to the lower sales.
Gross profit are also lower owing to higher consumption of cost of material and power. There has been an increase in the cost of tubing input, which has only been passed on to the customers towards the end of the period. We also took a decision at Klasspack to go for camera inspections for all our products, which led to higher process rejections as we continue to raise the bar on specifications and the automatic, camera-based quality control, will help us improve our customer outreach in the future. These initiatives are expected to improve productivity after these costs, initial costs and learning period is through and after which the company should have a better set of customers to address with a higher throughput.
The company has also initiated and finalized conversations to take price increases in order to pass on some of the input cost inflation and the stock markets. As of 31st December , 2022, the company had a net cash of about INR 71 crores. The surplus cash will be utilized primarily for the ongoing expansion projects for the consumer and scientific business. The expansion in Larah capacity, at an estimated project cost of INR 195 crores was commissioned in December, and the commercial production has started in January 2023. The new borosilicate pressure facility of 25 tons per day, at an estimated investment of INR 115 crores, is estimated to be commissioned sometime in the second half of Q2 FY24. Sorry, Q2 FY24. In the scientific product division...
Okay, the capital outlays continuing as per plan, and we expect these outlays also to be through by March of 2024. These expansion projects indicate our optimism about the long-term growth prospects of both our consumer and scientific businesses. Some of the margin pressures that we have experienced during the first nine months of the year are temporary in nature. For example, I mentioned on the furnace challenge or the furnace rebuild, as well as the delay in starting of our OG-2 furnace, and these sites are to be restored in the coming months. Our focus remains on expanding our consumer franchise in the consumer division and growing the size of our opportunity set in the scientific business while expanding our current relationships with the customers.
The consumer business is supported by tailwinds and remains under-penetrated, and we expect Borosil to have a long runway of growth. Scientific business is expected to see steady growth in lab glassware and faster growth in lab instrumentation as well as in Klasspack. Moreover, there are other new categories that we are planning to enter or we have just entered, including process systems. As we scale Borosil business, we expect to achieve healthier margins in both these business units. Borosil has, they undertaken a structured program for implementing ESG. Last year, we had identified material issues and took stakeholder feedback. We have mapped a journey to address key ESG opportunities and identified priorities towards a greener plant, social equity and robust governance.
High priority areas for Borosil include management of wastes, water, greenhouse gas emissions and energy, recyclable materials for packaging and data and customer privacy. Over the next few quarters, we expect to disclose quantifiable targets and transparently report performance against them. We had earlier announced plans to restructure the business of the company into two separate listed entities via a composite scheme arrangement. Post receipt of observation letters from stock exchanges and directions received from NCLT, via its order dated 25th November 2022, separate meetings of equity shareholders and unsecured creditors of the company have been convened on 6th February for seeking the approval to the scheme. We anticipate that the entire process can be completed by June 2023. However, the timelines for some of the steps involved are not in our control, and we will keep you up informed on the progress in this regard.
Thank you. With that, I conclude my opening remarks. Sorry they were a bit lengthier, but I can now open the floor for questions. Before that, I'd just like to add one broader point, that while the operating results for Q3 and even YTD have not been, you know, very attractive, the real picture is, lies elsewhere. Our revenue growth has been extremely interesting and I would say industry-leading revenue growth in both consumer and scientific businesses. That has given me a lot of, let's say, confidence that whatever processes or whatever, you know, products we have established in the market are being appreciated by end customers.
The margins have definitely been under pressure this year, but many of those reasons are specific to Borosil and not macro in nature, which also means that we are able to reverse or change the inputs and therefore have a better margin in the coming months. We remain extremely confident about the growth of the business in terms of revenue, and we expect the margins to also flow through in the next few periods. With that, thank you, and I open the floor for questions.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Rahul Dani from Monarch Networth Capital. Please go ahead.
Yeah. Yeah. Thanks, Shiva, and thanks for the detailed explanation. Just wanted your outlook on, you know, the consumer division, if you are seeing some division reports slow down. How do you see with the new Opal capacity coming up? Do you think it could absorb very easily with both our competitors also increasing capacity? In the scientific division, how do you see the new product category, like filter paper, performing? What's your outlook on Klasspack?
Thanks for that, Rahul. As far as consumer is concerned, we have quite a few categories, right? We do see some slowdown in some categories. For example, appliances. You know, COVID had a very big positive impact on appliances. While we do see continued healthy growth in that area, that is it's not as good as it was during COVID. On the flip side, the specific question you asked on Opal, I think Opal Glass continues to see a very healthy demand. We so far believe that we should be reasonably well placed to sell the production from both our furnaces, even though, as you mentioned, there is competition increasing capacity in this area.
We also see exports, you know, as an opportunity for us, given the, you know, macroeconomic shocks in the world, from a, from an energy point of view. Indian production costs as well as Indian geopolitical, let's say, relationships are very strong, and therefore, India is being looked upon as a preferred supplier of, and a safe supplier of, products across the board. It's not just specific to consumer. This is giving us, you know, tremendous, you know, scope of growth in all export geographies for both consumer and scientific. I'm particularly... I'm not, I don't feel that there is any broader story of a demand slowdown. Yes, there may be one or two categories where demand is a bit slower.
We are quite confident of the growth and even exceeding the growth that we had, that we've been forecasting or that we've been kind of guiding for a while. On the scientific side, while Klasspack has been a bit of a challenge this year, I think Klasspack, you know, the focus on COVID for the last couple of years has gone away. Therefore, we have to get back to, let's say, the basics of adding customers in other product categories, which we have been doing. I think we will go back to a growth path in the next, you know, few quarters. The guidance which we have always given for Klasspack, that 15%-20%, I think revenue growth should be there.
I think we should be able to match that guidance in in in in that particular division. Broader scientific, I'm seeing really tremendous opportunities in new products, including filter paper. So filter paper, we have very good traction. Our next step will be to set up some degree of manufacturing of filter paper once we get a certain volume. That should further improve margins in that area. Under Make in India today, we can't play in many of the tenders, which we will then get be able to play in once we have the production in India, which will further improve the market size, let's say, for us or the market opportunity for us. The other areas like exports, I already spoke about in scientific, as well as new, other new product developments.
In LabQuest, we're seeing a lot of traction in specifically process systems. you know, our, the orders are good. This is a new category with a complete import substitution over there. Even we see opportunities in health and, let's say, environment, for testing, for protein testing, fat testing, fiber testing. Frankly, we are very bullish and we're very excited about both our companies and both our product portfolios. While the great thing about being diversified is when you do see demand slowdown in one, typically you're able to make up somewhere else. Overall, it's, it-- we have a good franchise, I believe.
Thank you so much. Thank you, all the best.
Thanks.
Thank you. The next question is from Dalaila Pratik Dharamsi from Safe Enterprises. Please go ahead.
Hey. Hi. Thanks a lot for giving me the opportunity to ask questions. A few from my side. On the margin front for the consumer business. You highlighted three main pain points for us. One was the mix, other was outsourcing, and the third was higher marketing spends. If I recollect correctly, in the past, I think, past few quarters you have been highlighting about the raw material pressures, trade costs, et cetera. Have we seen the worst of it? And do you reckon we have bottomed out in terms of those sort of costs, and they are not getting much worse out? One. Second, few of the things which you mentioned, outsourcing, which is generating 0% margins.
The second was, as the new volumes comes through from the expanded capacity, the marketing spends will rationalize. Should we expect you guys to revert back to your EBITDA margin, which was like 17%-18%, last year, nine months? That will be a big problem from my side.
Okay. Thanks for that. The first question, yeah, I think the cost pressures, I think we've seen the worst of it behind us. I think raw material prices, if not having corrected, they are going up, they're not moving anymore, or in the upper direction. While they have not yet come back down to, let's say, pre-COVID levels, things like soda ash, as an example, or even packing material, as an example. The price increases have stopped and they're stable, which is great. We have seen some downward momentum as well on prices, but like I said, they're not anywhere close back to being to pre-COVID levels.
Energy continues to be a challenge. The energy costs are kind of determined over the last six months of fuel surcharges and all are averages of six months. If you see the last Every time the last six months, the averages are still going up. They'll probably start coming down six months later when energy prices have corrected just recently. In general, I see no further cost increases, substantial cost increases in the future, and maybe slight cost decreases. The next point is on the overall margin. Frankly, I would be disappointed if we just achieved the 17%-18% margin before. With the economics of scale, we should definitely surpass that.
There will be some period of, you know, I think this year is a period of high CapEx. Once the utilization comes through, once the capacity utilization comes through, then I think your operating leverage will be substantial. Till that happens, there may be some quarters of a little bit of a depressed margin because more stuff is going into inventory, for example. When you go into inventory, there's also cost of holding that inventory, warehousing and so on and so on. The key question is how quickly, with our, you know, large CapExes that we are doing, we are able to achieve 80%-90% capacity utilization. If this happens, which we expect to happen in a shorter period, then margins should bounce back much more than what they were before.
Fair enough. The second one you mentioned, the outsourcing because of the new capacity is not there and the furnace wasn't there, existing furnace was out of work or, yeah, technical reasons. How much did you pay for outsourcing? Can you quantify the number, like out of this INR 70 odd crores of overall sales? Was it like,
I would not like to say the exact number that we bought and get into that. What I can tell you is that our owing to these two reasons, the furnace being shut and the fixed cost being there, as well as the higher cost of outsourcing compared to our own production, I think our EBITDA loss would have been in the range of between INR 16 crore and INR 20 crore in this in the nine-month period. I can't put it on every quarter because each quarter there will be some impact of it on at least Q2 and Q3. Q2 and Q3 put together would somewhere be closer to the INR 20 crore number.
Sure. Just the last one, let me try. I tried before as well. Now the business mixes with appliances really growing fast. The non-glassware is like 40% of your business. Opalware is another place to copy, rest is your glassware business or some sort of a thing. In terms of... I understand you won't be able to quote the numbers in terms of gross margin. In terms of at least the differential, is it like possible to quantify the differential at least in terms of gross margins?
Frankly, the gross, it doesn't. I mean, of course, we quantify it on a regular basis. That's not something I would like to share. What I can tell you is looking at it just from a gross margin point of view is probably, in my view, not the. I mean, it's one way to look at it, but that's not the only thing, okay? Because when you have higher gross margin, as we do, say, in the case of Opal, Lara, and we will have this in glassware also when our new production line starts up in June, July of this year. The gross margin comes at a cost of capital employed, okay?
One must look at a return on capital employed metric, which in my view would be much, it's a more risk-adjusted way of looking at the business versus looking at only gross margin. We give up gross margins on one side, but we, what we get is much lower capital employed on the other side. If you look at it from both perspectives, I would say both businesses would be comparable. They're not the same. They are comparable within plus-minus few % for the, for percentage points of each other on a ROCE basis. So that's what I can share with you, and that's how we look at the business, not simply from a gross margin perspective.
Sure. Thanks a lot. Thank you.
Thank you. The next question is from the line of Saurabh Savla from Multi-Act. Please go ahead.
Yeah. This is Rahul Ticha from Multi-Act. Thanks for the opportunity. Wanted to understand firstly on the opalware trading side. You say that the traded portion, you call them as whiteware. Are they comparable in quality to the opalware that you manufacture or it's some other material?
Just to be clear, firstly, it's not traded. We bought raw material, which is whiteware, and we decorate it, we temper it, and we do all the quality checks on it. The... We are, we have product. This is a full, this is full-blown production. The only thing we don't, we are buying the plates, the white plates, which are, which aren't tempered, white plates, or the bowls or whatever it is. The quality is Borosil quality. There's no difference in the quality metrics between what we have sold this quarter from that versus what we make ourselves. It 100% goes through the same quality control processes. And it's, like I said, it's not traded, it's fully produced.
Okay.
Manufactured by us.
Okay. After the capacity expansion that you are doing in that segment, the current capacity plus the new capacity both combined on a combined basis, what kind of annual revenues could that support?
If we achieve 100% capacity utilization, I think the number would be closer to INR 400 crores. INR 400 crores or INR 20 crores.
Okay, got it. On the marketing spend, for the consumer division, what was the marketing spend for this quarter and the nine months in percentage terms?
This quarter. Roughly 7%.
7% for the quarter?
Yeah, that's right.
For the nine-month period?
More or similar.
Okay. Okay. Thank you.
Thank you. The next question is from the line of Manav Vijay from The Financial Consultants. Please go ahead.
Yes, thank you very much, sir, for the opportunity. Sir, my first question is regarding the expansion that the company is doing. First is the Larah, which you said is done. Second, you mentioned is the borosilicate, which will complete by quarter two. If you can also enumerate what is left, which will become operational in next two more quarters. That would be really helpful, sir.
Yeah. The, as far as the consumer, I guess your question is for consumer, right?
Sir, I'm looking at, I would say, the entire expansion that the company is doing.
Okay. Look, there is the borosilicate, the press production. We're investing roughly INR 115 crores. This will be concluded by June, July, August, in this timeframe. Again, the reason I'm not able to give a very specific date is because of, again, supply chain challenges, from some machine suppliers that we have. It broadly in that phase. We have an injection molding unit, which is supposed to make plastic lids for these products. That should also start somewhere in April of this year. These are two CapEx both in Jaipur that we're doing.
On the scientific side, we have CapEx done in Klasspack, which is to increase our production of vials as well as ampules. This was, I think, broadly put INR 65 crores there, which we had discussed about two years ago. I think all of this should be through by July, August as well on this particular year, maybe by September. Again, some delays on machine supplies. As far as we had announced a tubing project as well. The tubing project has, is been on hold for a certain period of time. Probably in this quarter we'll finally go ahead with that as well.
That would take, depending on the way it works, it would take anywhere from 12 months to 18 months for it to fructify. For that, the land is already available and all the infrastructure is broadly available, so it's a faster one to implement. These are the main CapExes. On the front end, we have done a bunch of CapEx on the IT side. For example, we are upgrading to, you know, SAP to S/4HANA. We are upgrading our front-end data, the data management systems, we know. All of that is in process. That also will be through.
The entire CapEx, which we have, I think, highlighted many times in the calls, let's say in the previous quarters' calls, would be through by December of this period, this year, or let us say by March of 2024.
The total CapEx amount stands at what, sir?
I think it was roughly INR 600 crores.
Including tubing plant.
Including the tubing plant. INR 600 crores, INR 625 crores, somewhere in that range.
Sir, my next question is on the PPT that you have issued. On page number eight, slide number eight of this PPT, when you provide the console numbers, so you provide one number of EBITDA as INR 39.1 crore, and then exceptional items. So I would say EBITDA is an exceptional item of INR 21.3 crore. This is around INR 18 crores of difference as the exceptional item. Is this the exceptional item which you called out in the, in the consumer ware as three items of the Larah buying from outside, the ANP and the higher, and also the product mix?
No, no. The that's very much a part of normal business, so that's hardly an exceptional item. The exceptional item is owing to sale of land at Tarapur, which was about INR 13 crores profit. INR 13.5 crores of profit booked in that. Some insurance refund we got of roughly INR 4 crores. These are the exceptional items which are one-off in nature. The those three things which I mentioned on Larah and all, that's a part of normal business and is accounted as such.
The INR 13 crores of profit that you have booked by selling the land in Tarapur is actually forms part of the other income. Am I right?
Yes, that's right.
I'm talking about what you've disclosed is an EBITDA of INR 21.3 crores. In the PPT, you mentioned EBITDA before exceptional items of INR 39 crores. I'm just trying to understand this. I would say, this INR 18 crores of exceptional, so what this number is all about? This INR 13 crores of profit that you have made from sale of land forms part of other income.
That's right. We are trying to explain what is EBITDA from operations, okay? The EBITDA from operations is INR 21.3 crores.
Correct.
With exceptional items, EBITDA goes up to INR 39.1 crores. Okay? Those exceptional items are the sale of land, which is the Tarapur property, which is roughly INR 13 crores of profit booked there, and another INR 4 odd crores from insurance. That's the difference. INR 17.8 crores, which you see between INR 21.3 and INR 39.1, the difference is coming from there. This EBITDA which you see is the reported EBITDA. This includes those exceptional items. We are trying to call it out. Last year, you can see the EBITDA and the EBITDA before exceptional items on the same slide is the exact same number.
This year we tried to, in this, in order to show our operating performance, because neither the insurance nor the sale of Parafour is a part of operating performance, our EBITDA was actually INR 21.3 crores and not INR 39.1 crores, which is reported. When you do other income, you're right, it will come in other income. When you look at the results, the other income is already coming as a part of the EBITDA. We are trying to show you that the EBITDA is not actually INR 39, it's lower than that. The EBITDA from operations that I'm saying is lower than INR 39.
Sure. Okay. My next question is now on Larah. Couple of quarters you had mentioned that now in the anticipation of this new furnace becoming operational, you have put up a sales team so that as and when this furnace becomes operational, you will start to hit the ground running in terms of sales from very early. If you can, let's say, help us to explain as to so in terms of efforts that team would have made, by when can we expect, let's say a 40%, 50%, 60% kind of utilization from the new furnace, including the old one, including. I believe the old one would be running at full, but the new one.
40, 50% we will get should start immediately.
Okay.
The question is how to get to 100%. That's really the focus.
Okay. By when... I would say, since that sales team is now there for I would say last few quarters with you, how soon can we expect this team, I mean, this thing to happen?
I... Look, it's hard to give an exact timeline, but in general, the reason we put up a furnace is because our sales requirements, and I mean, I'm not sure exactly what you're referring to about sales team, because our sales team has been growing for many years now. The... In general, the point here is that we expect 30%, 40%, 50% capacity utilization from the starting point itself, from day 1 itself. That should happen immediately. The key challenge is not that. The key challenge is how do I get to 100%? How do we get to 100%? Which is, as per our projections, will happen next year, we would like really...
By the next year, I mean in 2024-2025, and we would really like it to happen in 2023-2024. That's really the difference. We are trying to achieve that. Our goal would be to achieve 100% capacity utilization in 2023-2024 itself. That may not be a realistic stretched goal, but by 2024-2025, I'm reasonably confident we can achieve that 100% number. As far as 30%, 40%, 50%, that should happen straightaway from this quarter itself.
Okay, last question.
Sir, I would request you to rejoin the queue for follow-up questions.
Sure.
If there are many others. Thank you, sir. We have the next question from the line of Vaibhav Gogate from Ashmore Group. Please go ahead.
Thanks for the opportunity. I joined the call a bit late. I just wanted to know, the reasons that led to a low EBITDA margin this quarter, and how do we look at margins in the upcoming quarters? What are the key headwinds that you sort of expect will go away?
Vaibhav, I already explained this in detail during the call. Rather than repeat, what I would urge you to do is I'll ask my IR team to send you the call transcript. Because otherwise it's repeated. It's a very long explanation.
Yeah, sure.
Yeah. Yeah, I hope that works for you.
Yeah. Thank you.
Thank you. The next question is from the line of Aditi Bhattacharya from Niveshaay. Please go ahead.
Hello?
Yeah, please go ahead.
Good evening, everyone. My first question is from the glass tubing CapEx that was kept on hold. You just mentioned that you will be carrying it on from this quarter. To my understanding, this CapEx, you are not looking for any other alternatives now. Till the time it is operational, our requirement will be imported. What is happening till now? Is it right?
The, Yeah, I mean, we are working on what are the exact options available to us. We are evaluating all options, but I think we will take a final call on which option to pursue before this quarter ends.
Okay, okay. The glass tubing cost, which was, which we see an increase in prices since the last quarter, do you see that to normalize in the coming quarters?
In general, the main reason for the increase in pricing was the freight costs.
Okay.
Which had skyrocketed. Those freight costs have since gone back down to more or less before COVID. Therefore our tubing costs have corrected substantially.
Okay, okay. My next question is from the pressware facility. When we see the pressware facility being operational from the quarter one or quarter two of financial 2024, how much % do we see the offset in imports that we are currently doing from China, outsourcing it from China?
As far as all the pressware we are buying today from China, not just China, we buy from Europe also, we will be able to substitute 100% of that with our own production.
Okay, okay. What is the, like revenue, quantum of revenue that you see from the pressware facility?
Look, here, there's a big gap between what we currently sell and what pressware production we'll have, okay? I think we will have somewhere close to 6,000 tons per annum. But our sales may only be 2,500 tons per annum at the moment. Currently 40% of asset utilization, and that's our biggest challenge going forward, is how do we grow again from 40% to 100% of asset utilization. That's what we are working on in terms of new product development, in terms of distribution enhancement, in terms of export sales. I hope this will not happen in year 1 for sure.
Like in the case of Opal, we have a chance that our second furnace we can sell within one year, okay, and achieve. The presswork will take at least a couple of years for us to come to 80%, 90%, 100% capacity utilization. Even if you achieve that would be a very good achievement for us. The margins are worth it because, you know, the return on capital will be extremely attractive if we are able to do that.
Okay. Okay. Thank you. That's all from my end.
Thank you. A reminder to all the participants, anyone who wishes to ask a question may press star and 1 now. The next question is from the line of Jay Modi from TINS. Please go ahead.
Sir, I had a couple of questions around consumer business. One was when we look at our nine-month, three -year CAGR for this division, but glassware as a business has been growing only mid-single digit. Is this how we should look at the growth for this category and incrementally all the growth will be driven by non-glassware and Opalware or for multiple of other reasons, the glassware currently would be showing subdued growth and this would likely pick up going forward?
No. Frankly, that, the whole reason to put up the production here is to grow this business aggressively, the glassware. We believe we can. The challenge in the business has been a substantial increase of procurement costs, which, we are haven't passing on to the end customer. At some point the end customer is not wanting to pay for it. When we have our own production here, we should be able to give the customer a value proposition that makes it a everyday use product. Which, why has Opal grown so much and why has, you know, the non-glassware, like some, say, appliances or why it has grown so much, is because as a product family, customers are using these product families on a day-to-day basis.
The glassware people are using only on occasions, and that is because of the pricing. We would have to give an attractive offering to the end customer and say, "Okay, we will replace this." That is really the key driver for us to give an attractive price offering to the end customer and make them more accustomed to using to serving, eating, storing in glassware. If that happens, then we are through. Unfortunately, in the last 3 years, because of the tremendous price pressure of imports from both Europe and China, both in terms of material cost, energy cost as well as the freight costs, we had to take a lot of price increases, which we can reverse once this is Make in India.
Understood. The borosilicate press line is predominantly to backward integrate for these glassware products that we are currently selling.
Exactly right. Exactly right.
Okay. Earlier you mentioned that 40% of the capacity will be utilized for captive consumption. This 40% essentially substitutes our import by 100%.
That's right.
Is that how it works? What would be the cost savings that we would have on this backward integration?
I think it's more than 30%.
Okay. Okay. Secondly it was around the marketing expenses. You mentioned one of the reasons being higher marketing spends for subdued EBITDA margin in consumer business. When we look at your historical range, it has been in the range of 7%-8%, right? The spend in consumer business.
I think last two years, COVID years have been lower than that. Yes, before COVID it was higher than. You're right.
Okay. 7%-8% has been the normalized range, pre-COVID as well?
Yeah, pre-COVID it was. During COVID of course we reduced the spends. Now they've gone back to pre-COVID levels.
Got it. These were largely advertisement spends or even promotional activities would form part of this?
No. I mean there's many ways of the definition of promotional activities needs to be clearly understood. Effectively this is mostly advertising spends. Promotions, any kind of price promotion is added in sales only. Meaning there's, that's not a part of this. Sometimes there are promotions which are linked to, let's say a prize trip for a distributor which is on achievement of a certain, let's say or even for a retailer for that matter, for achievement of a certain volume of sales at the end of the year. That would classify as a sales promotion expense, and that is a part of this, advertising and sales promotion.
Any price discounts or customer offers, which are anything related to pricing is coming, gets netted off from the sales.
Got it. Got it. Then I have a question on the margin. Earlier you alluded to the question that you would likely reach back or exceed your 17%-18% margin that you've historically done. Until we have our utilization on press line and 100% utilization in opalware, for FY24 the margin would likely be tending towards the lower range and it is only by FY25 that we see a pickup?
FY24 also I think we should come back at least to this range because, the, I mean, I gave a number earlier in the call about the difference of this quarter and lastly last four, five months on the difference of whether if we had manufactured the same product which we acquired, as well as the shutdown costs. My sense is that we should be able to come back to the original margin levels in the coming period or periods themselves. Higher, yes, to get a higher margin than before, I think, we would probably look at the period where our utilization is better. In which case I think it's safe to say that it will happen post April 2024.
Got it. Sir, how has the demand scenario been for the month of January? Also, have you seen any competitive pressure with respect to pricing or import products when it comes to Opalware specifically?
I don't wanna talk about quarter on quarter. In general, I can't speak of January specifically. I would say that in general, this question was asked in a different way earlier also, that different categories, we see some months higher demand and other months lower demand. Overall, I don't see much challenge from a, from a, you know, market demand angle. Pricing pressure, I think all the players are quite strong in the market. There's enough demand, whether in domestic or export markets. I don't see that high level of pricing pressure in the market, frankly.
Got it. Sir, this last question from my side was on the CapEx. You said around INR 600 crores of total CapEx is what we are doing.
That's right.
Okay. Can you break this down? We have the breakup of consumer business, and what is the amount which is going in scientific business and in between Klasspack and other segments?
I can just come back to you on this. This number was shared before, but I don't have it right now, exact numbers. I can come back to you on this.
Okay, sir. That's it from my side, sir. Thank you.
Thank you. The next question is from the line of Priyank Chheda from Vallum Capital. Please go ahead.
Hi. Thanks for the opportunity. Sir, I heard you that You said that there are chances of a new capacity in the opalware getting sold within a year. Just wanted to understand what are the demand drivers for this category while the, you know, the other kitchen appliances are witnessing a slowdown from the COVID pent-ups that we have seen? Specifically looking for the steps that the players like you or the market leaders are undertaking to convert this category into a strong demand?
I think there's a lot of replacement happening here. Look, there's no formal research, so anything is basis, just ideas we get from the market and, They are not validated by third parties. My sense is, in principle, that there is a lot of replacement demand, which is happening, change from steel and plastic to melamine. People in general want to upgrade their lifestyles, and opal is very, very price attractive, from a end usage point of view. It's very attractive from a design perspective. You can microwave it, and so on. Even if the market overall may be having a slower growth, but because of the replacement from one product category to the other, I think opal is a little bit insulated.
Plus, like I said, HORECA, hotels, restaurants, catering, is opening up again after COVID, and that is also a demand driver. Finally, exports. You know, our competitors for opal, which were in Europe, are in severe financial distress, and therefore they have shut down some production, and therefore, export opportunities are also open for all the players here. These are the three probably reasons why we see, you know, that opal glass is still growing.
Sure. I'll try my luck once again. I know you do not disclose the margins with the categories within the consumer. Just wanted to have a sense around the indicative margins on the steady-state level. What would be the margins for the Opalware? In case post-capacity addition, would the margin profile change significantly or would it remain same?
Sorry. I'm sorry I can't share that data with you. I can tell you that operating leverage, which is the second part of the question, yes, there will be some level of operating leverage, and that could increase our margin by 3-4% compared to what it were before. I think the Larah EBITDA margins we have shared, EBITDA, not gross margins, in the past. Yeah, they were around 27%-28%. Yeah, so in that range. The EBITDA margins could improve once we have the full capacity utilization by 3% - 4% basis operating leverage.
Thank you. Thank you.
Thank you. The next question is from the line of Amrish Kakkar, an individual investor. Please go ahead.
Thank you for the opportunity, congratulations on a very good set of revenue numbers. Shame we just missed the INR 1,000 crore mark by a little bit over 12 months. two questions. First one on operating capital. Is there something we should read into the decline we are having quarter-on-quarter, or are there too many moving parts in this quarter to really think about that seriously?
No, nothing to read. It's all business as usual. There's nothing really going on over there. There's a lot of moving parts.
Moving parts. Yeah. Lower inventory because we didn't have more production, et cetera?
I mean, there was slightly lower inventory, no doubt about that, but it was made up from other areas where we had more inventory. I don't think there is. I mean, we are not controlling for that number, frankly. We're controlling for sales and profitability. The operating capital employed, whether inventory, obviously we try and optimize it, but that's not a strict, let's say. That's not. The inventory is not the goal. The goal is to sell more.
Right. Sure. Sure. The second question is on on the scheme of arrangement restructuring? Is there anything you can share with the stage on where you see your role? As a request, would it be possible also to introduce us to the presidents of the two divisions, perhaps from the next call, just so we can get more familiar with them?
Yeah. The idea is that from the next, as soon as the arrangement, scheme of arrangement is done, the heads of the business units will start taking these calls. As far as my role is concerned, frankly, the businesses are anyway operated as separate units. Frankly, the scheme of arrangement only captures in a legal format what has been happening in the last many years. I don't anticipate any change per se in my role. Obviously, because of legal reasons, I have to be MD of one company. I don't think I can do both. I have to, you know, figure that part bit out.
In principle, the business operations will be business as usual from our perspective because, that's how the business has been run and will continue to be run.
Thank you, sir. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thanks, Michelle. Well, thank you all for, you know, lively set of questions. Really appreciate it. Like I said before, we are very bullish and excited about not just what's happened in the past, but what's going to happen in the future. The margins definitely have been under pressure in this, in this period, but the good thing is that most of these problems are, or these challenges are related specifically to Borosil, and therefore in our control and not macro challenges. Therefore, we feel reasonably confident that we should be able to get back to levels before and even exceed them. Our main challenge here is really capacity utilization of the borosilicate furnace and how quickly we can achieve that.
Of course, Opal Glass furnace, we have more reasons to believe that we should be able to achieve a higher level faster than we had originally anticipated. The borosilicate glass furnace, we need to spend a lot of thought on how do we make that product category everyday use. If we are able to successfully do that, I think, we will solve that capacity utilization problem also. On the scientific side, the things are broadly on track. Klasspack and Borosil Technologies has been a drag on margins, and Klasspack on revenue growth also, at least for this year. If we look at the long, larger themes, there are many, many green shoots in Borosil Technologies which we are seeing develop.
Klasspack should come back to a level of growth and therefore, better operating margins. Both of these, say, divisions will do well, I think, in the periods ahead. We should be able to, you know, be market leading, in terms of growth and profitability in both of these areas. With that, I thank you all and look forward to interacting in the next quarter.
Thank you, sir. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us. You may now disconnect your lines.