Borosil Glass Works Ltd ~ amalgamation to improve profitability & returns matrix

  • The proposed amalgamation of Borosil Glass Works Ltd (Borosil) with Hopewell Tableware Pvt Ltd (Hopewell), an 100% subsidiary of Borosil; Vyline Glass Works Ltd (Vyline), an associate entity, and Fennel Investment and Finance Pvt Ltd (Fennel), an investment holding company, is an important event for the company as this will curtail related party transactions, which are significant at this point, bring all manufacturing operations under one entity, simplify the group holding structure, and also give a controlling stake in Gujarat Borosil Ltd (Gujarat Borosil).
  • Going by the shareholding structure of the amalgamated entities as on March 31, 2016, the amalgamation will result in 9% dilution, increasing the promoters holding to 74.58% from 72.26%.
  • The implied acquisition price of Vyline stands 28x FY16 earnings, and the profitability and RoCE (excluding corporate overheads) of the consolidated operation of Borosil’s scientific and laboratory ware segment and Vyline stands at 33% and 57%, which are significantly superior to the next biggest player, Glassco.
  • The implied acquisition of Fennel Investment is at a 17% premium to the market value of Fennel’s existing holding in Gujarat Borosil and Borosil. This premium could be attributed to the controlling 58.4% stake that Borosil now gets in Gujrat Borosil.
  • Besides the amalgamation. Borosil has appointed Knight Frank to value its non-core real estate assets. A possible restructuring of these assets could provide a big flip to the Borosil’s return ratios, which are currently marred by non-core investments. Taking into account the consolidated operations of the amalgamated entity and excluding the non-core financial and real-estate investments, Borosil’s RoCE stands at 12.5% in FY16, excluding Hopewell which was acquired towards the end of FY16.
  • Given this backdrop, and factoring in a 20% fall in demand of consumer ware and opal ware products in H2-FY17 on account of demonetization, Borosil’s core business trades at 46x FY17 estimated earnings, and the value of liquid investments (~87% of the total Rs.2.7 billion investments as on March 31, 2016), at a 65% discount on Borosil’s holding in Gujarat Borosil, stands at Rs.1,337 (~20% of Borosil’s CMP of Rs.6,558).

Implication of Amalgamation on Outstanding Shares ~ amalgamation to result in 9% dilution; no. of outstanding shares to increase from 2.30 million to 2.51 million, excluding the treasury shares resulting from cross holding between the amalgamated entities

  • On November 25,2016, Borosil announced the amalgamation of Hopewell, an 100% subsidiary of Borosil; Vyline, an associate entity, and Fennel, an investment holding company.
  • The table below illustrates the existing shareholding of Fennel Investment & Vyline Glass as on March 31, 2016 –


  • Taking into account the above shareholding, the proposed swap ratios & cross holding between the amalgamated entities, we arrive at the no. of shares post amalgamation.


  • Amalgamation to result in marginal dilution; # of outstanding shares, excluding the treasury shares to increase from 2.3 million to 2.51 million, resulting in an increase in promoter holding to 74.58% from 72.26%.

Implied Acquisition Price of Vyline Business Stands at 28x FY16 Earnings


Implied Acquisition Price of Fennel Investment Stands at 18% premium to the Market Value of Fennels’s Investments


Amalgamation with Vyline Glass to Boost Profitability and Return Ratios of Borosil’s Laboratory & Scientific Ware Segment ~ the numbers are much superior to Glassco, the #2 player in the business

  • Consequent upon the disposal of Andheri property in FY11, Borosil does not have any manufacturing facility for laboratory & scientific segment. The company currently outsources the entire manufacturing to Vyline Glass.
  • Amalgamation with Vyline Glass to help improve profitability and return ratios. We also compare Borosil’s laboratory & scientific ware business with the #2 player in the business in the table below –


Possible Restructuring of Non-Core Real Estate Assets to Provide Big Flip to Return Ratios ~ FY16 adjusted RoCE of consolidated operations of Borosil and Vyline stands at 12.5%

  • Fund support to Vyline Glass in the form of investment in manufacturing plant, loans and customer advances, has historically been a drag on Borosil’s return ratios. The table below highlights the same –


  • Post the amalgamation, adjusting for the capital blocked in financial assets, non-core real estate assets, and loans to Hopewell we take a look at the return ratios of the consolidated operations of Borosil and Vyline. Since Hopewell was acquired towards the end of FY16, Hopewell nos. are currently not factored in the calculations below.


Valuation of Core Business ~ factoring in a 20% fall in yoy demand for consumer ware and opal ware products in H2-FY17



Liquid Investments Valued at Rs. 1,337 per share (~20% of the CMP Rs. 6,558)