1 GWM Edelweiss Investment Research Borosil Glass Works Ltd (Borosil) is a 50+ year-old brand, a pioneer in specialty glass and a market leader in the microwavable kitchen glassware segment. The company is present in two segments — consumer products division (CPD) and scientific and industrial products (SIP). Borosil has acquired two businesses in FY16: (a) Hopewell (CPD segment), and (b) Klasspack (SIP divison). Also, restructuring of Borosil’s businesses will result in Gujarat Borosil becoming a 58% subsidiary. Borosil has a strong distribution network of over 200 distributors/10,000 retailers in CPD and a healthy 5,000 active customers and 170 distributors in SIP. Borosil focuses on growth via the organic as well as the inorganic route. Its strong balance sheet and cash surplus affords investment in brand building and acquisitions to supplement organic growth. Further, the recent GST implementation will support organised players. Increasing market share, a vibrant product portfolio and wide distribution reach should enable Borosil to clock 32% earnings CAGR, teeing off healthy cash flows and robust return ratios. At CMP of INR 8,803, the stock is currently trading at 32x FY18E EPS of INR 272, 28x FY19E EPS of INR 311 and 24x FY20E EPS of INR 371. We initiate coverage with a ‘BUY’ recommendation. Strong, steady, SIP business should support growth in CPD business Borosil’s SIP division has a target market of ~INR 5,000cr and focus on three key segments – laboratory glass, laboratory instruments and pharmaceutical packaging. The company is a market leader in the domestic lab glass market with 60% -share. With acquisition of Klasspack and introduction of LabQuest, Borosil is expected to explore the ~INR 700cr market opportunity in the pharma packaging and lab instrument segments. Borosil’s SIP division is expected to grow at 20% CAGR over FY17-20E with entry into a new market of pharma packaging products via acquisition of Klasspack as well as organic revenue growth of ~16%. Borosil’s CPD has three major focus product businesses – microwavables, storage and opalware. Borosil is the market leader in microwavable glass products with 60% share and continues to penetrate the market. The storage product business has reached meaningful sales in the last three years and is expected to double in the next couple of years owing to the opportunity market of INR 1,000cr. With acquisition of Hopewell, Borosil has entered the opalware market; and significant improvement in Hopewell’s financials (sales doubled, margin improved, excluding one-off expense in FY17) post acquisition, is a clear indication of Borosil’s strategic focus. Borosil’s strong pan-India distribution network, geographic presence and channel loyalty will lead to scale the consumer business and due to this sales and distribution synergy, we expect higher throughput and significant margin improvement. Borosil’s CPD revenue is expected to cl ock CAGR of 19% over FY17-20E driven primarily by the acquisition of Hopewell - improvement in utilization, introduction of new products and investment in brands. Improvement in product mix and backward integration will boost operating margin We envisage Borosil’s EBITDA margin to jump to 16% in FY20E from 10.7% in FY17 riding multiple levers: The change in product mix in favour of consumer-ware is bound to boost margins. Borosil has prudently metamorphosed from B2B to B2C. SIP division expected to improve margins on account of consolidation of Vyline Glass Works and diversification in products. Utilisation of acquired entities is expected to improve significantly, resulting in operating leverage. Outlook and valuation: Consumer and brand focus intact; earnings growth story; initiate with ‘BUY’ Increasing market share, vibrant product portfolio and wide distribution reach amply equip Borosil to clock 32% earnings CAGR over FY17-20E, which in turn is bound to propel healthy cash flows and robust return ratios. We initiate coverage with a ‘BUY’. Year to March Consolidated) FY16 FY17 FY18E FY19E FY20E Revenues (INR cr) 415 557 674 827 970 Rev growth (%) 27.4 34.2 21.0 22.7 17.3 EBITDA (INR cr) 22 59 93 130 154 PAT (INR cr) 28 133 69 82 97 P/E (x) 69.8 15.0 32.4 28.3 23.7 EV/EBITDA (x) 94.5 34.9 22.4 15.9 13.5 RoACE (%) 0.2 3.1 6.6 9.2 10.0 RoAE (%) 4.5 6.5 8.0 8.5 9.4 Praveen Sahay Research Analyst [email protected]Bloomberg: BRSL:IN 52-week range (INR): 9,666/ 3,880 Share in issue (cr): 0.2 M cap (INR cr): 2,045 Avg. Daily Vol. BSE/NSE :(‘000): 5,000 Date: 12 th July 2017 Promoter, 74.3 Public, 25.7 40 90 140 190 240 290 340 390 440 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Borosil Glass Sensex Coverage Stock: Borosil Glass Works Ltd. Performs Beautifully: Market leader and strong brand to drive CMP INR 8,803 Target INR 11,856 Rating: BUY Upside: 35%
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1 GWM
Edelweiss Investment Research
Borosil Glass Works Ltd (Borosil) is a 50+ year-old brand, a pioneer in specialty glass and a market leader in the microwavable kitchen glassware
segment. The company is present in two segments — consumer products division (CPD) and scientific and industrial products (SIP). Borosil has
acquired two businesses in FY16: (a) Hopewell (CPD segment), and (b) Klasspack (SIP divison). Also, restructuring of Borosil’s businesses will result in
Gujarat Borosil becoming a 58% subsidiary. Borosil has a strong distribution network of over 200 distributors/10,000 retailers in CPD and a healthy
5,000 active customers and 170 distributors in SIP. Borosil focuses on growth via the organic as well as the inorganic route. Its strong balance sheet
and cash surplus affords investment in brand building and acquisitions to supplement organic growth. Further, the recent GST implementation will
support organised players. Increasing market share, a vibrant product portfolio and wide distribution reach should enable Borosil to clock 32%
earnings CAGR, teeing off healthy cash flows and robust return ratios. At CMP of INR 8,803, the stock is currently trading at 32x FY18E EPS of INR 272,
28x FY19E EPS of INR 311 and 24x FY20E EPS of INR 371. We initiate coverage with a ‘BUY’ recommendation.
Strong, steady, SIP business should support growth in CPD business
Borosil’s SIP division has a target market of ~INR 5,000cr and focus on three key segments – laboratory glass, laboratory instruments and
pharmaceutical packaging. The company is a market leader in the domestic lab glass market with 60% -share. With acquisition of Klasspack and
introduction of LabQuest, Borosil is expected to explore the ~INR 700cr market opportunity in the pharma packaging and lab instrument segments.
Borosil’s SIP division is expected to grow at 20% CAGR over FY17-20E with entry into a new market of pharma packaging products via acquisition of
Klasspack as well as organic revenue growth of ~16%. Borosil’s CPD has three major focus product businesses – microwavables, storage and
opalware. Borosil is the market leader in microwavable glass products with 60% share and continues to penetrate the market. The storage product
business has reached meaningful sales in the last three years and is expected to double in the next couple of years owing to the opportunity
market of INR 1,000cr. With acquisition of Hopewell, Borosil has entered the opalware market; and significant improvement in Hopewell’s financials
(sales doubled, margin improved, excluding one-off expense in FY17) post acquisition, is a clear indication of Borosil’s strategic focus. Borosil’s
strong pan-India distribution network, geographic presence and channel loyalty will lead to scale the consumer business and due to this sales and
distribution synergy, we expect higher throughput and significant margin improvement. Borosil’s CPD revenue is expected to clock CAGR of 19%
over FY17-20E driven primarily by the acquisition of Hopewell - improvement in utilization, introduction of new products and investment in brands.
Improvement in product mix and backward integration will boost operating margin
We envisage Borosil’s EBITDA margin to jump to 16% in FY20E from 10.7% in FY17 riding multiple levers:
The change in product mix in favour of consumer-ware is bound to boost margins. Borosil has prudently metamorphosed from B2B to B2C.
SIP division expected to improve margins on account of consolidation of Vyline Glass Works and diversification in products.
Utilisation of acquired entities is expected to improve significantly, resulting in operating leverage.
Outlook and valuation: Consumer and brand focus intact; earnings growth story; initiate with ‘BUY’
Increasing market share, vibrant product portfolio and wide distribution reach amply equip Borosil to clock 32% earnings CAGR over FY17-20E,
which in turn is bound to propel healthy cash flows and robust return ratios. We initiate coverage with a ‘BUY’.
Public 25.05% Borosil 58.38% Public – Borosil 11.48% Public – Borosil 14.83%
Fennel 33.13% Public 25% Public – Guj. Borosil 25.05% Public – Guj. Borosil 25.05%
Borosil 25.25%
Source: Company, Edelweiss Investment Research
Borosil Glass Works Ltd.
15 GWM
Liquidating non-core assets
• The company surrendered a vacant land admeasuring 4,237 sq mt in Andheri
(East), Mumbai upon reservation by MCGM in their development plan for a
recreation ground against compensation of INR 94.44cr out of which it is
required to pay to MCGM INR 3.56cr towards expenses. The company
accounted for an after tax extraordinary gain of INR 87.1cr for this transaction.
• The company is also reducing its non-core non-trade investments.
The company utilized the cash flow generated from this sale to fund its inorganic
expansion by acquiring 100% equity shares in Hopewell Tableware Pvt Ltd. worth
INR 27.13cr and 6% optionally convertible non-cummulative redeemable
preference shares in Hopewell for INR 22cr.
Land sold in FY11; Plans to sell its flat in Samundra Mahal
The company sold its Marol property for a total consideration of INR 830cr.
After paying income tax (MAT) of INR 159cr, meeting all expenses
pertaining to the said deal, repaying loans and payment of interim
dividend of INR 11.55cr with tax thereon, the company is left with a fund of
nearly INR 600cr. The company also has plans to exit from its non-core
investments such as the 1,706 sq ft, three-bedroom duplex apartment in
Samudra Mahal etc.
Fund details (INR cr) – Received from land sale (FY11)
Received 830
Tax (159)
Interim dividend (12)
Borrowings & other liabilities (59)
Net received 600
Uses of Fund
Buyback (in FY13 & FY16) (331)
Flat in Samudra Mahal (21)
Inorganic expansion (54)
Other investment (113)
Property bought (45)
Dividend (36)
Total (600)
Particulars (INR Cr) FY15 FY16
Equity shares- Hindustan Composites Ltd. 25.6 0
Preference Shares- Ravindranath GE Medical
Associates 10 0
Quoted and unquoted debentures 26.2 7.6
Tax free bonds 60.5 15.3
Property 5.0 5.1
Others 48.0 45.0
Total 175.3 72.9
Borosil Glass Works Ltd.
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VIII. Gujarat Borosil Ltd (GBL) – Solar energy play
GBL is engaged in low iron solar glass production for application in the solar power
sector. Solar Photovoltaic market has faced tough times internationally in view of
the extraordinary capacity increase in China since 2011, resulting in an
international market crash. In India, the present Central Government has given
enormous momentum for the use of solar power. The objective of achieving 100
GW of solar energy is now proposed to be realized by 2022.
Gujarat Borosil will become a 58% subsidiary after the scheme of amalgamation.
Gujarat Borosil has also posted healthy results in the previous year with an EBITDA
margin of ~22% on net sales of INR 183cr. We foresee big momentum for solar
energy in India and the Union Budget has reduced customs duty on solar glass,
but has increased the countervailing duty (CVD), As a consequence, Gujarat
Borosil benefits as it will get input tax credits. Previously, Gujarat Borosil had an
inverted tax structure, which restricted the company from getting the credit of
input taxes. Now, since Gujarat Borosil is able to get tax credits, the profitability of
the company per year will improve by about INR 3.5cr.
GBL is the only producer of solar glass in the country and it is constantly evaluating
growth in this sector in the domestic market to remain a dominant player. Its
natural advantage of offering a shorter lead time is helping it to secure business.
With patterned glass in exclusive designs being an attractive product, it is adding
newer applications in the architectural glass segment and expects to continue to
grow in niche segments.
In solar glass production,there are two parts to the manufacturing process – first, to
melt the raw material and make flat glass; and second, to make the glass tough
i.e. to strengthen it by heating and coating it with an anti-reflective coating. GBL’s
toughening capacity was not commensurate with its manufacturing capacity. So,
GBL is allocating INR 60cr as the initial capex to H1FY18 to increase the
downstream toughening capacity to cater to the entire production. This is
expected to improve yields and add ~15% to 17% to revenue in FY18. The other
initiative is to reduce the average thickness of solar glass to 2mm from the current
3.2mm without sacrificing product quality or efficiency. So, this is expected to
increase business volume and enhance profitability. The total capex will be ~INR
225cr.
Competitive advantages (format)
• Market leadership in Indian solar glass market
− Cost competitive with China’s supplies
• Preferred brand of high quality solar glass
− Lowest iron content, world’s only antimony-free glass
− Anti-reflective coating
− Superior light transmission and highest glass efficiency
− High resistance to potentially induced degradation
• State-of-the-art manufacturing with strong testing and R&D
infrastructure
− High degree of product innovation to drive down total cost of
ownership for end customers
− Implementing a facility for tempering thinner glass that has growing
domestic and international demand
• Filed for anti-dumping duty; the investigation is currently ongoing.
Key customers – Domestic
Source: Company, Edelweiss Investment Research
Borosil Glass Works Ltd.
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Key customers – International
Revenue growth driven from efficiency and capacity increase
Source: Company, Edelweiss Investment Research
EBITDA & EBITDA margin
PAT & PAT margin
Source: Company, Edelweiss Investment Research
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Borosil Glass Works Ltd.
18 GWM
Valuation and peer comparisions
We expect healthy growth in operating cash flows with improvement in margins across businesses. We expect 20% CAGR in revenue over FY17-20E and 520bps
improvement in margin to result in 32% earnings CAGR over FY17-20E. We believe that the current level is attractive for the medium to long term investment
horizon with the prospect of sales growth and RoCE improvement. At CMP of INR 8,802, the stock is currently trading at 32x FY18E EPS of INR 272, 28x FY19E EPS of
INR 311 and 24x FY20E EPS of INR 371. We have done sum-of-the-parts valuations to value the company, we have arrived at a target price of INR 11,856 by
assigning 35x/25x/20x FY20E earnings to the CPD/SIP/Gujarat Borosil businesses, respectively, resulting a 32x P/E multiple to Borosil’s consolidated FY20E EPS of INR
371. We have valued Borosil’s SIP business at 25x FY20E earnings, versus global peers that are trading at an average of 20x to 25x forward earnings. Given the
huge opportunity in the Indian pharmacetical labware, glass instrument and primary packaging segments and Borosil’s positioning as one of the largest players;
with the improvement in return rations on account of lower requirement of capital employed and further improvement in margins (owing to expansion in product
mix) we believe assigning 25x the forward multiple will be a fair multiple. Similarly, we have valued Borosil’s CPD business at 35x FY20E earnings, versus its domestic
peers that are trading at an average of 33x to 35x forward earnings.
Peers Comparision – Valuation SOTP valuation
Company CY16 CY17 CY18 CY19
SHANDONG HUAPENG GLASS CO 67.9x 56.0x 42.0x 35.6x
SHENZHEN BEAUTY STAR CO 134.9x 72.5x 46.7x 101.1x
SHENGXING GROUP CO LTD 55.5x 49.5x 41.3x 32.6x
LA OPALA RG LTD* 48.3x 51.8x 37.1x 28.9x
PIRAMAL GLASS CEYLON PLC 11.3x 9.8x 7.2x 4.5x
BOROSIL GLASS WORKS LTD* 69.8x 15.0x 32.4x 28.3x
XINYI GLASS HOLDINGS LTD 10.1x 8.9x 8.1x 8.1x
CSG HOLDING CO LTD 12.7x 9.2x 8.0x
ASAHI GLASS CO LTD 23.6x 16.1x 15.6x 14.7x
COMPAGNIE DE SAINT GOBAIN 18.6x 16.0x 13.9x 12.3x
Average 45.3x 30.5x 25.2x 29.6x
Median 36.0x 16.1x 24.0x 28.3x Note: * FY
Huge opportunity market and improvement in profitability justify higher valuation
CMP MCap Sales (INR cr) EBITDA margin (%) PAT (INR cr) RoCE (%) PER (x)
Mr. B. L. Kheruka has 53 years of experience in various functional areas of business and industry. He has been an Executive Chairman at
Borosil Glass Works Limited since December-2010 and has served as its Chairman. Previously, he served as the Managing Director of Gujarat
Borosil Limited from August 1, 2007 to March 17, 2011. He serves as non Executive Chairman at Gujarat Borosil Limited. He has been a Non
Executive Director at Gujarat Borosil Ltd since December-1988. He serves as a Director of Window Glass Ltd., Gujarat Fusion Glass Ltd.,
General Magnets Ltd. and Croton Trading Limited. He served as Executive Chairman of Gujarat Borosil Limited from August 1, 2005. Mr.
Kheruka is a B. Com Graduate.
Mr. Shreevar
Kheruka
Managing
Director &
CEO
Mr. Shreevar Kheruka, grandson of Mr B. L. Kheruka, has been the Managing Director and Chief Executive Officer of Borosil Glass Works
since August-2012. He has been working in the company from June-2006, first as Vice President and then as Chief Financial Officer. He has
obtained dual degrees in Bachelor of Science and Economics with specialisation in Entrepreneurship & Finance and Bachelor of Arts in
International Relations from Wharton School and the College of Arts & Sciences of the University of Pennsylvania, United States of America
(USA).
Source: Company, Edelweiss Investment Research
Key Risks
• Failure of acquisition – Not able to exploit the “Borosil” brand, distribution reach and innovation.
• Unfavorable government policies could affect sectoral growth: India imposed an anti-dumping duty on the import from China and UAE for five years,
effective from August 2011. Any reversal or non-continuation of the same by the Government of India may negatively impact the profitability of the
company.
• Rising competition from organised players e.g. CELLO and unorganised players. The tableware industry is dominated by small unorganised players. Though,
Indian consumers are gravitating towards the organised segment that offers branded products, any increase in the competitive intensity from the
unorganised segment may be detrimental for the company.
Borosil Glass Works Ltd.
20 GWM
Business Overview Company Brief
Borosil Glass Works Ltd. (BOROSIL) is the market leader for laboratory glassware and microwavable kitchenware in India. The company operates through two segments. The
company operates primarily in 3 business segments (post restructuring of subsidiary, Gujarat Borosil): Scientific and industrial products division (~28% of revenue), Consumer products
division (~37% of revenue) and Gujarat Borosil (~35% of revenue).
Business Model
The company has 4 segments.
1) Lab ware
2) Consumer ware
3) Pharma packaging
4) Solar glass
Strategic Positioning
The company is the leader in laboratory glassware and microwavable kitchenware segments in India and is also a key player in the glass
tableware market and the domestic pharmaceutical packaging segment. Borosil has also entered into the international lab ware market,
recently.
Competitive Edge
Brand with a 50+ year legacy
Consumer product division: Entire product range from microwaveable glass to storage, tableware and appliances
Diversified product portfolio
Financial Structure The company is focusing on the high-margin consumer-ware Opalware market which it entered, with the Hopewell acquisition; it is also exiting
from non-core assets. The operating margin is expected to improve
Key Competitors La Opala, Year, Ocean Glass
Industry Revenue Drivers Opportunities across the domestic market (Consumer and scientific glass market) as well as in the international pharmaceutical segment
Shareholder Value
Proposition The company will likely record an EPS of INR 371 in FY20E. A 32x valuation should give a price target of INR 11,856 which offers an upside of 33%.
Borosil Glass Works Ltd.
21 GWM
Borosil Glass Works - SWOT Analysis
• Strong Distribution Channel & Brand Name
• Expansion through inorganic way and new
product lunches
• Market leader in lab glassware &
microwavable kitchenware
Strengths Weakness
• Pick up in consumption may create a virtuous cycle
of higher demand-improved capacity utilization –
higher manufacturing investment – higher job and
income growth – higher consumption
• Pay revision by the Central Government
• Demographic shift
Opportunities Threats
Growth
Opportunity
• Demand can be adversely impacted by a shift
in customer and consumer preferences
• Low entry barriers, there could be an increase
in the number of competing brands
• Counter campaigning and aggressive pricing
by competitors- May lead to Disruption to its
market share
• Competition from organised sector in trading of
scientific and microwave glassware.
• Use of Plastic as a substitute
• Substantial erosion of global demand
• Uncertainties in Government policies
Borosil Glass Works Ltd.
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Scientific and industrial products (SIP) division
Borosil’s entire range of scientific and laboratory glass products includes laboratory glassware, instruments, disposable plastics, liquid handling systems and
explosion proof lighting glassware. The company’s products have acceptability in over 2,000 different products and app lications, in areas as diverse as
microbiology, biotechnology, photo printing, process systems and lighting. Borosil has a strong distribution network of 170 dealers country-wide. The range of
laboratory glassware includes nearly all the items items required for general laboratory usage. The company’s expertise in melting and forming low expansion,
chemically inert borosilicate glass for over 50 years has made its products preferrable globally.
Due to BOROSIL brand acceptability and reputation, leading pharmaceutical companies, R&D labs scientific, health and educational institutions have been
loyal customers for the last 50 years. As a testament of its quality, to get ISO 9001 certification, it is recommended that a laboratory use BOROSIL certified A-class
glassware. Its apparatus for measurement of volumes rank amongst the most accurate in the world.
The company has a 60% market share in the laboratory glassware market in India. In FY17, the company acquired 60.3% stake in Klasspack Ltd, which is a leading
manufacturer of glass ampoules and tubular glass vials for pharmaceutical packaging. It complements Borosil’s analytical vials product range and provides a
viable second alternative to its pharmaceutical customers for their packaging needs. The company has a 10% market share in HPLC vials market in India. Under
its LabQuest brand, the company has recently introduced a range of laboratory tools and equipment.
The consumer products division has a wide array of products in the microwavable, flameproof kitchenware range as well as in glass tumblers supported by a
strong distribution network of over 10,000 retail outlets. Borosil’s consumer products fulfill all cooking, serving and dining needs. To cater to changing lifestyle
needs, the company also offers a range of small appliances which include mixer grinders, juicers, salad cutters, oven toaster grillers, pop up toasters and
induction rice cookers. Major product categories offered by the company include glass microwavables, tumblers, appliances, opalware, tea/coffee crockery
and storage products.
In FY16, the company acquired Hopewell Tableware Pvt Ltd. which manufactures a range of fine opal glass dinnerware under the brand name ‘Larah’. The
Larah range is known for its immaculately designed products with an impeccable finish. Borosil’s expertise in glassware has made the products stronger and chip
resistant. The company has a market share of 60% in the glass microwavable market.
The glassware products market has been one of the rapidly growing markets in the Indian kitchenware industry.
The glassware products market has been one of the rapidly growing markets in the Indian kitchenware industry.
Source: Company, Edelweiss Investment Research
Some of the leading glassware manufacturers operating in this market are:
• Borosil Glass
• Yera
• Ocean Glass
• La Opala
Category Market Size (INR cr) Market Growth (%)
Glass Microwavables 80 10%
Tumblers 440 10%
Appliances 9000 10%
Opalware ~400 20%
Tea / coffee 400 (incl. ceramicware) 15%
Storage 1,000 15-20%
Melamine 300 15%
Borosil Glass Works Ltd.
24 GWM
Major brands in Opalware
LARAH BY BOROSIL
Larah dinnerware sets are available in two series - Opalglass and Oriole.
• Larah Opalglass — Opalglass is a specially treated glass with impurities making
it look white in colour due to the diffusion of light. Dinnerware sets made from
Opalglass come with attractive designs and finish. They are dishwasher safe,
made from 100% food grade material, chip resistant and microwave safe.
• Larah Oriole — Dinnerware sets in this series are made from melamine, a
thermostat plastic that can be moulded into any desirable shape and form.
The material is lightweight and durable. Oriole dinnerware sets comprise
saucers, plates, dishes and trays. They come in eye-catching designs and
shapes, and make use of colour and designs to give a fancy finish.
LA OPALA RG LIMITED
La Opala RG (LORL), the largest organised crockery player in India, is engaged in
the manufacture of opalware and crystalware products. La Opala basically sells
via three brands- 1)La Opala; 2) Diva further divided into: a) Ivory and b)
Classique collections; and c) Solitaire. The company’s products are spread across
the value chain where Diva and Crystal - its high-end brands - have a distributor
network of around 200-strong, covering all major towns of India. The company
also channelises its products through modern retail stores. There are ~12,000 retail
touch-points through which the products of LORL are sold.
Acquisition details
Hopewell Tableware Private Ltd under Borosil CPD
The company invested approximately INR 50 crore towards acquisition of
Buy appreciate more than 15% over a 12-month period
Hold appreciate between 5-15% over a 12-month period
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Borosil 5 years price chart
Disclaimer
31 GWM
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