Borosil Renewables Ltd (BRL) is currently in the process of quadrupling it’s production capacity to about 2000 tonnes per day (TPD) over the next couple of years.
The Company has now announced 100% acquisition of Interfloat Group, Europe’s largest manufacturer of solar glass. Key points to note –
- Interfloat Group comprises of two entities –
- GMB Glasmanufaktur Brandenburg GmbH (GMB), an entity based in Germany, engaged in the solar glass manufacturing business with a current capacity of 300 TPD. This is about 66% of BRL’s current size of operations.
- lnterfloat Corporation (lnterfloat), an entity based in Liechtenstein, focused on selling glass to customers in Europe for about 40 years.
- Consideration for acquisition
- GMB – 100% cash. Upfront Euro 24.91 mn + performance incentive based on CY 24, 25 & 26 (not exceeding 50% of EBIT)
- Interfloat – cash + share swap
- Upfront Euro 5.09 mn + performance incentive based on CY 24, 25 & 26 (not exceeding 50% of EBIT)
- Share Swap equivalent of Euro 22.5 mn
- Financial performance of the acquired companies. Only revenue numbers are disclosed as provided below.
- GMB – Euro 46.2 mn, 45.4 mn and 38.8 mn in CY 21, 20 and 19 respectively
- Interfloat – Euro 59 mn, 51.5 mn and 44.4 mn in CY 21, 20 and 19 respectively
Rationale for the acquisitions?
Without doubt, they are targeted towards BRL trying to get access to the European solar glass market. Parallely, it gets access to a permanent base in the region, local manpower, established customer relationships, local manufacturing facility and the technical know-how.
What about the broad deal contours, financing and balance sheet impact?
- GMB is a manufacturing entity. It’s being acquired at about 0.5x of trailing revenues + future profitability driven incentives. This seems reasonable.
- Interfloat in contrast is a trading entity and is being acquired for it’s relationships. It’s also acquired at similar valuations as GMB. However, intelligently, instead of cash, most of their fortunes have been linked to the BRL’s stock. This must be to ensure it’s continued long term interest in increasing international sales for BRL.
- Financing of the deal
- BRL would need upfront cash of Euro 30 mn i.e., about Rs 250 cr to conclude both acquisitions. Board has approved for an acquisition finance of Rs 275 crore to fund this.
- BRL had a comfortable debt equity of 0.1x as on September 30, 2021. Adjusting for Rs 260 crore of current investments, it was actually negative. Company has sufficient headroom to fund the subject acquisitions and the Balance Sheet position should remain comfortable.
- Though the Company is currently also undertaking significant organic expansion, it’s spread out over couple of years and hence combined with internal cash generation, I personally don’t expect a cause of concern for now. However, I will continue to watch this closely.
- Share swap against Interfloat acquisition would result in about 2% dilution for the existing shareholders which is marginal.
- Impact of acquisitions on the financials
- On topline, it’s expected to be significant.
- BRL had reported Rs 659 crore of revenues in the last 12 months.
- GMB + Interfloat had reported combines revenues of Euro 105.2 mn in CY 21. However, given that Interfloat was only a sales entity and hence there might be overlap, let’s conservatively only count Interfloat’s revenues of Euro 59 mn to get added to BRL’s consolidated numbers i.e. about Rs 500 crore. This is 75% of BRL’s current annual revenues.
- On margins, it’s difficult to comment as no information is available. That is a key to be watched and I look forward to get clarity on the same asap.
- On topline, it’s expected to be significant.
Some additional key points from the press release issued by BRL –
Timelines for BRL’s ongoing expansions in India –
BRL will also expand the capacity of GMB from current 300 TPD to 500 TPD by end CY 2023
Including everything, BRL is targeting to grow almost 5.7x of current scale by end FY 25 i.e., over next 3 years.
No further disclosure is available on profitability of European operations as of now. BRL has only mentioned about it’s focus on efficiency in manufacturing operations and lower costs.
I will continue to seek more clarity on the same.
Update on European business margins –
In the quarterly results conference call, on being asked management informed the following –
Other than these markers, BRL has requested for couple of months to provide greater disclosures as the transaction is very new and need more detailed lookin by them.
Original schedule of expansion was detailed in this comment (https://www.inves4.com/imp-information/borosil-renewables-continue-to-focus-on-expansion-now-decides-to-grow-inorganically-too/#comment-432).
Given the experience so far, neither will I rely much on the budgeted costs nor on the timelines.
Next stage expansion (2nd + 3rd of 1100 TPD) would depend upon multiple factors especially the demand and industry dynamics, which is difficult to predict at this stage.
This company needs to be watched very closely especially on the capital structure. Company is talking about big expansions and would need significant funding to manage the same.
International expansion further adds to the operational dynamics and needs to tracked very carefully.
May 26, 2023 update
Company has mentioned in its Q4 FY23 concall that it has put up a pause on next stage expansion (2nd + 3rd of 1100 TPD).
It will watch the industry dynamics closely before taking a call for planned expansion.
This is in line with my previous comment.