Borosil Renewables continue to focus on expansion. Now decides to grow inorganically too.

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?

  • Valuations
    • 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.
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