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Gujarat Borosil Ltd: Sun will Smile on It

For earlier post on Gujarat Borosil: Click here and here

Gujarat Borosil is still under scrutiny and I am buying it very slowly at every fall. But due to current scenario of solar power in india and globally , I feel it is better to wait for some more time to let the things fall in place and in order. However one of our reader Sh Sridhar has posted some interested queries on Gujarat Borosil. I am trying to answer them with this post.

First, let us have a firsthand detail of the solar panel industry. Solar panel is a combination of many components, which are encapsulated and bind together. First quartz sand (silicon) is processed into polysilicon, which is a very energy intensive and costly process. Around $100 million are required for setting up 1000 tonnes polysilicon facility. So no wonder, we have none here in india. Around 70% market share is with top 3 companies from Germany, USA and China. This Polysilicon is used to make ingots and then ultrathin Wafers which are finally used for making a solar cell. This is also a capital intensive process. This process of sand quartz to solar cell accounts for around 60% of total cost of a solar module.

                                Polysilicon

Cell manufacturing involves creating the all-important pn-junction, coating and layering. It is an important step in the value chain responsible for about 20% of the total value addition, and it is here where significant technical differentiation is created.

While the largest Indian manufacturer has the cell production capacity of less than half Gigawatt (500MW), the average being less than 100 MW, Chinese manufacturers have the average capacity of morethan 1 GW. This is the combined cell manufacturing capacity of all Indian producers. Even the US has anaverage manufacturing capacity of about half a GW. China’s total annual production is around 40 GW.

Due to this smaller size, Indian cell manufacture companies are unable to reap the benefits of scale of operation. Also during the good times of 2005-2007, when Europe was on a growth phase and Govt were supporting solar power big time by giving high tariff and huge subsidies; all this resulted in huge solar cell manufacturing capacity which was way above demand. So when recession crept in Europe, Governments there discarded their renewable energy bandwagons. This coupled with rise of china resulted in huge global over capacity and prices crashed world over.

Indian opportunist companies, which didn’t have technical and financial clout for solar business, also joined the race somewhere around 2006-2008. But they were just assemblers…they imported everything and then made solar modules (Indian Module capacity is around 2700 MW) of them without any value addition and they were very happy that they would capture the Indian market after initially focusing on export market as they were thinking that with low cost assembling they would be able to penetrate into global arena (poor dreamers). Yes, they added small cell manufacturing capacity also but this was not a very high tech process. But they underestimated Chinese producers who came with a bang and shaken everybody.

So after Global meltdown and death of many western solar producers, Chinese and western producers started dumping their solar panels everywhere in order to capture market share and to recover some of fixed costs. They suffocated tiny Indian producers with their cheap prices. Indian Government is investing big on solar power to stave off the coal crisis and providing power to the farthest corners of india which are far away from the grid. Cheap solar panels from Chinese and western producers brought the cost from 15 Cr per MW to 7 Cr and now it will achieve grid parity soon.

 Indian producers were forcing Indian government to impose anti dumping duties on them as they were dumping their products. Although they were right but Indian government did not approve the same. Indian producers cannot meet the high capacity requirements of solar power producers who are investing big in solar power and so far around 3000 MW capacity has been  created in india. Indian Government has plans of 100000 MW by 2022 and Indian producers are just not capable of supplying this much solar panels. So any imposition of duty will only raise the cost of solar power and will defeat the very purpose of affordable power to all.

Moreover unless we create big capacities for upstream raw materials like Polysilicon in india, we can’t harvest the best out of this whole solar power process. So even if we create huge cell manufacturing capacity, the benefit to Indian economy is minimum as long as we continue to import Polysilicon wafers. This is just the other side of the same coin, at one side we are importing 100% for 50 and on the other we are importing 90% and after adding 10% we are paying 80. This is just wastage of resources.

Indian solar power producers are using Thin film solar panels which are cheaper as compared to Polysilicon solar panels, but they require more land. The term "Thin film solar panels" refers to the fact that these types of solar panels use a much thinner level of photovoltaic material then polysilicon solar panels. Thin film solar cells consist of layers of active materials about 10 nm thick compared with 200- to 300-nm layers for crystalline-silicon cells.

So where land is not a issue, producers are using it. But they are not efficient, with their efficiency is around half of polysilicon cells. So you take into account high land cost, high installation cost per MW due to more panels per MW, Lower efficiency, rapid decrease in power production and all the cost benefits disappear. Against a global average use of 10%, Indians are using it at 60%, which is way high and i think it will come down with more rational policies from the Government.

Now coming to the Glass part of the Game: For crystalline cells, solar glass is used for protection and performance enhancement. In the case of thin films, glass is used as a substrate. Solar cell inside the panel is a very delicate and costly component, so it should be protected from any external shock and dust which can impact its performance badly. Glass is best for this due to its strength, durability and most of all it can allow uninterrupted transmission of solar rays and with some coating can prevent reflection of sun light of its surface. All this is just perfect for solar cell.

Contrary to silicon, india is having all the ingredients available for making high quality solar grade glass starting from raw material to technology. Saint Gobain is doing the same in india. Gujarat Borosil was only Indian company to do the same and it has got all the necessary European certifications for export. Gujarat Borosil manufactures low iron glass all the way from making glass from silica and then curing the iron impurities.

So far it is supplying the glass to Indian cell manufactures (with only 1000 MW capacity!!!) which are just working at only 30-40% capacity (only 300 MW). It is also exporting some of its production.

I am putting by faith on Gujarat Borosil due to some reasons. Like, Some Chinese companies will surely look to shift some of their manufacturing base to india in order to stave off the high import duties imposed on Chinese solar products by USA and European union. By sourcing solar panels from india, Chinese manufacturers can become more competitive in the U.S. and the E.U. The move could lower the duties and related trade-restrictions that they face on its cells and modules that are currently manufactured in China. Earlier this year, the U.S. International Trade Commission approved the imposition of final duties on Chinese and Taiwanese photovoltaic imports, anti-dumping duty of 30%40 and a countervailing duty of 50-60%.

Infact , One Chinese company Trina solar has big plans to invest $500 Million india for creating 2 GW solar manufacturing capacity. Apart from avoiding USA trade restrictions, It can take advantage of low labour cost of india. The hourly labor cost in India for manufacturing averages $0.92, compared with $3.52 in China, according to Boston Consulting Group. Although I think they will only create Cell and Module capacity in india, but Gujarat Borosil can take advantage of this. Due to its integrated production capabilities, it can compete. Actually Glass is a heavy product, it comprises a low value part of a solar panel, but it comprises of 60% of weight of a solar panel. So it is very costly to transport glass to long distances…so I am very doubtful that any company can cater to global markets from a single source. Glass market will be regional. Gujarat and Rajasthan Governments are supporting solar power big time, so Gujarat Borosil will surely capture the major part of this market.

Also, at present indian solar power producers are importing Thin Film solar panels, which use glass as base, hence these can't be imported without glass. but when indian producer will focus more on Crystalline solar panels due to their benefits and life cycle cost advantages, then it will be best for them to import them without glass to reap the benefits of low transportation costs and then encapsulating the panel in Glass in India. This game can be played also by foreign supplier who can create Glass assembling facilities in india to compete with others. There can be another face of this game like any big indian solar panel producer can do the same by importing solar cells and supplying them to solar power producers in india after adding Glass onto them. But it is best if Glass is applied here in India...it will surely save big costs along with breakage during transit.

I am sure Indian Government will make supporting policies for local industry but only when it will be big enough. We will surely see big investments in solar panel manufacturing in india.

I  think Gujarat Borosil is doing right by waiting at the corner. It can enhance its production capability any time when scenario will turn favorable. Its low debt will enable to take debt for any such capacity enhancement. It is recognized globally due to high quality of its products. 

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)

TVS Electronics Ltd

Made a small entry in TVS Electronics Ltd around 43.50. i remember when i picked Gati/TCI and other logistic companies 2 years back focusing on coming demand from E-commerce sector when nobody was aware of it. It worked great and all of these turned multibaggers. stock market is all about seeing in the future; that too ahead of others.

Now I am focusing on outsourcing of warranty and after sales services sector. There are crores of Laptops and smart phones in india and number is rising fast. Companies need to invest big in setting dedicated Warranty services units. But they can save huge money by outsourcing these services to third party service providers like Logistics. So I feel this can be a big business in india.

 I bought smartlink sometimes back around 50 on the same theme although it has a great name in networking solutions and other IT hardware products.It is now around 94/- and  with one good quarter can touch 150 as it is having 113/- cash per share in its books as a result of sale of its Digilink brand few years back. It is investing big in setting up distribution channels for its IT and networking products under the brand names of Digisol, Digilite and Warranty service business under Digicare.

Now I find another one..TVS electronics Ltd which is a leader in Dot Matrix printers in india the demand for which is on a decline. So it has set its eye on retail sector and established a great brand in Point of sale devices like cash registers, Scanners, POS terminals, displays and POS systems etc with the brand name INDIPos. One can see these in all retail chains across india and demand of these will only rise with the growth in organized retail. Even small stores are investing in these due to huge savings in time and ease.

TVS-E has a great name in warranty services business in india and it is the authorized partner in india with Xiaomi. This is the business which along with retail POS products will change the fortune of this company.

It achieved turnover of 270 cr in 2014-15, however raw material costs are good at 102 cr which means it is manufacturing significant amount of products in its own units. Interest cost at 7 cr for a debt of around 57 cr is high but with proper planning this can be taken care of as it is working capital debt. Inventory, debtors all looks under control. Profit margins are not that great because of scale of operation and high interest costs which is eating away 90% of operating profits. But all these constraints represent prospects for high growth. I did not get much time for further study into its products and financials…will post second post on it with greater details.

I strongly feel that this sector will see huge growth. But invest with caution as it should be treated as risky although it is from the house of TVS. I always prefer risky stocks from good promoters like we did for NIIT. It is already trading near 50/- after we picked it up at 37/- as market is realizing the strength of its focus on changing its business model with more focus on corporate learning and skill development.

CMP is around 44/-

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)