Borosil Ltd (BORORENEW) Q1 FY23 Earnings Concall Transcript

Borosil Ltd (NSE:BORORENEW) Q1 FY23 Earnings Concall dated Aug. 09, 2022

Corporate Participants:

Shreevar Kheruka — Managing Director and Chief Executive Officer

Rajesh Chaudhary — Whole-Time Director

Anand Sultania — Chief Financial Officer

Analysts:

Rahul Dani — Monarch Network Capital Limited — Analyst

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Aditi Bhatted — Niveshaay — Analyst

Amit Agarwal — Burman Capital Management — Analyst

Keval Ashar — DSP Investment Manager — Analyst

Amrish Thakkar — Individual Investor — Analyst

Mohit Jangir — IH Consultancy — Analyst

Vipul Anopchand Shah — Sumangal Investment — Analyst

Praveen Sahay — Edelweiss Broking — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Borosil Limited Q1 FY’23 Earnings Conference Call hosted by Edelweiss Broking Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Praveen Sahay from Edelweiss Broking. Thank you, and over to you, sir.

Praveen Sahay — Edelweiss Broking — Analyst

Thank you, Ranju. Good afternoon, everyone, and thank you for joining to the earnings call of Borosil Limited. On behalf of Edelweiss, I would like to welcome management team of Borosil to discuss the results and outlook. We have with us today Mr. Shreevar Kheruka Managing Director and CEO; Mr. Rajesh Choudhary, Whole-Time Director; Mr. Anand Sultania, CFO; and Mr. Swadhin Padia, General Manager Finance.

I would now request Mr. Kheruka for his opening remarks, post which we can open the floor for Q&A. Over to you, Mr. Kheruka.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Thank you, Praveen and Edelweiss, for hosting this call. Good evening, everyone. It is a pleasure to be interacting with all you again. Borosil Limited’s Board approved the company’s financial results for Q1 FY’23 on August 8th. Our results and an updated presentation have been sent to the Stock Exchanges and have also been uploaded on the company’s website.

So, Borosil has made a very strong start to FY’23. Our consolidated revenue from operations during the first quarter ending June ’22 was INR216.2 crores, that’s a growth of 57% over the same quarter last year. Of course, you are aware that last year Q1 was adversely impacted owing to lockdown, owing to Delta wave of COVID. So if we compare the revenues of this year to FY’20, that would probably be a better like-to-like comparison because that was the year there was no COVID, that April to June of 2019. And if we compare our April to June 2022 revenues to April to June 2019, we will see the revenue is INR216 crores versus INR129 crores, that is a 68% growth. And if we were to computation of the 3-year CAGR of revenue from the pre-COVID period, it shows to about 20%, which I would say excellent performance, growing at 20% CAGR right through COVID.

During the quarter, the company achieved a consolidated EBITDA before exceptional items of INR29.2 crores, which translated to an EBITDA margin

Of 13.5%. Profit before tax was INR26.1 crores, including an insurance claim resulting in an exceptional gain of INR5.1 crores. During the quarter, Borosil recorded a consolidated PAT of INR19.4 crores as compared to a loss of INR1.9 crores during the same period last year.

As we grow our business, we also target to improve our capital efficiency. Operating capital employed in the business, that is capital employed with our investments was INR594 crores. During the quarter, the company earned an operating profit before exceptional items and before income from investments of INR21.1 crores. That translates into an annualized operating ROCE of 14.2%. This is expected to be higher in the subsequent quarters as we moved into the festive months. It is important to know that we have a seasonal business and quarter-on-quarter growth doesnt realy reflect, the same quarter of the year was — same quarter of the previous year which is more reflective of performance.

Coming to our business wise performance, Borosil’s consumer business comprising glassware products and non–glassware products under the brand Borosil and its Opalware range under the brand Larah, recorded sales of INR148.7 crores, that is a growth of 77.6% over Q1 FY’22. Sales of glassware products were INR40.7 crores, that is the growth of 82% over the corresponding period. Non-glassware grew by 106% over the same period to reach a turnover of INR59.5 crores, and Opal glassware under the brand Larah achieved sales of INR48.6 crores, that is a growth of 50% over the same period in the previous year. Of course, like I said, growth over the same period in the previous year is not strictly comparable given the

Environment at that time. It is also important to know that probably our brand Larah sales could have been higher had it not been for constraints in our capacity of production and our new furnace is likely to be expected in in November of this year.

We continued to face inflation in direct cost, particularly in landed cost of materials consumed as well as power and fuel expenses. Consequently, there is some decline in the gross profit margins. However, with increase in sales, operating leverage has started to kick in and the EBITDA margins for the consumer products division during this quarter Q1 FY’23 was 12.7%. We believe that once the current inflationary pressure eases, our brands can hold or even increase pricing to expand margins.

At this juncture, the focus of the company is to expand the franchise of our brands. It is bringing more users into the category of glassware and upgrading and converting users from plastic and Melamine into glass storage and Opalware. We continue to introduce new products to expand our range of offerings such as in high-grade steel on-the-go products or even in domestic appliances. With Borosil and Larah, we aim to become the brand of choice of the modern Indian kitchen for everyday use in storing, preparing, cooking, heating and serving

Moving onto the scientific products business, net sales during the quarter Q1 FY’23 was INR67.5 crores, a growth of approximately 25% over the same period last year. Here, it must be noted that last year itself was a reasonable period of performance and we don’t need to really look at pre-COVID timelines for this. Our scientific products business comprises three product ranges, lab glassware, lab instrumentation which is under the brand LabQuest and primary glass packaging under the brand Klasspack. During Q1 FY23, lab glassware sales were INR41.5 crores, that is a very good growth of 48% over the same period last year. LabQuest was INR5.4 crores which is a growth of 20.7%, and Klasspack was INR20.7 crores, which is a decline of about 5%. During Q1 FY’22, conversely Klasspack had actually experienced a one-time bump up in sales owing to a spike in demand for packaging related to COVID-related drugs. EBITDA margins for the scientific products division during this quarter was 15.2%. One must also know that this is also a seasonal business and the first quarter is the slowest quarter for the business historically.

The company has identified a number of levers to ensure a long-term sustainable growth in the scientific division. In the lab glass consumable segment, there is an increase in demand post pandemic. There is improved funding to government run labs and institutes which had seen cut

Back in budgets over the last couple of years. The governments push towards procuring on the government e-market place, that is GeM is seeing traction. This channel reduces the risk of receivables and could potentially improve order flow from the government directly to Borosil.

Borosil has also entered into the filter paper market, which was so far dominated by a single player and this market can be easily serviced alongside lab glassware. And the approximate market size as per our estimate in India is about INR110 crores. Under lab instrumentation, the company has identified two new subsectors of nutrition & environment and process systems to generate new businesses. There is an increase in food testing and food testing laboratories, partly owing to change in food laws. Several developments in the context of environment such as more stringent ETP norms, groundwater, river rejuvenation and soil testing, providing the company opportunities to introduce new products to service evolving testing needs in the country. And this will all be serviced by the LabQuest brand and we are quite bullish on the future demand in these areas.

As of the quarter end, the company had net cash of about INR165 crores. The surplus cash would be utilized primarily for the ongoing expansion projects for the consumer and the scientific business. Work is well underway in most of the projects. However, owing to disruptions in international supply chains, largely on account of China Zero-COVID policy as well as now the Russia-Ukraine conflict, there is some delay in the implementation of the projects owing to delay in receipt of critical items. Moreover, inflation in fuel and a number of inputs such as steel has led to increased freight and also landed cost of input materials.

Also, the company has chosen German technology for better quality of products, which restults in some higher project cost on the Borosilicate glass furnace. The expansion in Larah’s capacity in its Jaipur plant from 42 tons per day to 84 tons per day is now expected to be commissioned in Q3 FY2’3, that is instead of Q2. And the estimated project cost owing to aforementioned reasons has increased from INR175 crores to INR195 crores. The new Borosilicate Pressware facility of 25 tons per day in Jaipur, which was expected to be commissioned by the end of the financial year ’22-’23, is now like to be — that is, by say, March of ’23, is now likely to commissioned by June of 2023. Here again, owing to aforementioned reasons, the project cost has escalated from INR75 crores to INR115 crores. This, however, includes some additional scope of work, like I said, which includes some German technology to incorporate superior capability in the factory. Ans as well as enhancment of our production where we are putting the entire infrastructure for 40 tons per day furnace. We will be starting the 25-ton per day furnace, but this will allow us to quickly upgrade from 25 to 40 tons per day at a much lower capex in the future.

In the scientific products division, the company has plans to create capacity in glass tubing due to uncertainty in global supply chain as well as increased cost. In addition to this, it also plans to increase its capacity in pharma packaging under Klasspack, to 500 million vials and 700

Million ampoules per annum. The capital outlay for these two projects combined is estimated to be about INR170 crores.

We had earlier announced plans to restructure the business of the company into two separate listed entities via composite scheme of arrangement. I am happy to say that company has received observation letters from BSE and NSE conveying no adverse observations or no objections on the scheme. The company is in the process of filing the scheme with the NCLT Mumbai branch. We anticipate that the entire process can be completed by March 2023. However, the time for some of the steps involved are not in our control and we will keep you informed on the progress in this regard.

Overall, we remain very optimistic about continuing to achieve sales growth and the margins and improve ROCE in the medium to long term. The consumer business is supported by tailwinds and remains an underpenetrated market providing Borosil a long runway of growth. The scientific business is expected to a steady growth in lab glassware, and we are quite excited about the opportunities we are now seeing in lab instrumentation, in pharma packaging as well as in the new categories of process systems. This will provide a fill-up to the scientific division’s growth trajectory.

I would like to conclude my opening remarks by saying that we feel that India is well placed in the global context as a bright spot with relatively lower inflation as well as very resilient demand scenario from an economic perspective. And we believe that such strong second half of the year even in a difficult global environment.

So, with that I like to throw the floor open to question. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from the line of Rahul Dani from Monarch Network Capital Limited. Please go ahead.

Rahul Dani — Monarch Network Capital Limited — Analyst

Yeah, good afternoon, sir, and congratulation on good set of numbers. Just wanted to check, sir, in Opalware, is there a possibility for outsource manufacturing to bridge the current gap in production?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yes, there is a possibility Rahul, and we are evaluating it. We expect to bridge the next quarter with some outsourced stuff.

Rahul Dani — Monarch Network Capital Limited — Analyst

Okay, that’s great. And Just wanted to check, sir, how do you see commodity pricing now, have we taken further pricing action?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Look, commodity prices across metals have definitely reduced. The inflation cost on non-glass products is lower now. Meaning, to say that, we don’t see that increasing. The challenge is on our own production is power and fuel costs and gas prices are going upwards unfortunately and gas is an important contributor of our costs. I expect that other costs are on the way down. So the gas is the only price which is continuing to remain elevated, other costs are intrincible on the — I think have peaked and they are on the way down.

Rahul Dani — Monarch Network Capital Limited — Analyst

Have we taken any pricing option further?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah, we took some price increase during the quarter as well, but I think that covers every other increased cost so far. So, I don’t see any further price increasing in the short run.

Rahul Dani — Monarch Network Capital Limited — Analyst

Okay. Thank you so much and all the best, sir.

Operator

Thank you. Next question comes from the line of Manav Vijay from Deep Financial Consultant Power Limited. Please go ahead.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Yes, thank you very much, sir. Am I audible?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yes.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Okay. Thank you. Sir, one question regarding the capex that you guys are doing. So, actually some slight confusion, so quarter four you had mentioned that the total capex between both the division is close to INR450 crores. So there was an article in which you mentioned that your total

Capexc is now increased to actually INR625 crores. You mentioned the same figure even in your AGM. Now in the today’s press release you have given some flavour regarding the increased cost on the Larah side as well as on the Borosilicate side of close to INR60 crores or so. So, we

Move from INR450 crores to INR500 crores, again INR125 crores gap I have been — let us say struggling to fill the gap, can you please help with that?

Shreevar Kheruka — Managing Director and Chief Executive Officer

I am sorry, I don’t know where you got the INR450 crores number from. I don’t think I had ever mentioned that number. So, if you could just forward where you got that from that will be helpful, but I think the number was always higher than INR450 crores because in Klasspack we had always mentioned we are going to do something like INR65 crores. if I am not mistaken. Our tubing furnace was going to be INR100 plus crores. And I thin we had factored the Jaipur as well as — I think it was more that INR500 crores the original number itself, If I’m not mistaken. But certainly, inflation and some changes in the scope have also increased this cost by about INR60 crores. And there is also the whole IT initiatives which we have taken, which would also contribute about INR25 crores of capex, which was also in my view announced before. So I am not sure where that 450 number is

Coming from. It was closer to 550. But yes there is roughly a INR60 odd crores increase and the 625 crore number is approximately correct. This includes everything not just the furnaces, but also includes capex for our technology and information technologies too.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Okay. Fair enough. And all this capex gets done by quarter two or maximum quarter three next year, ’24.

Shreevar Kheruka — Managing Director and Chief Executive Officer

By Q4 ’24 I think. By March by March ’24.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

By March by March ’24. Okay. My second question is regarding the assets you had declassified last year for the sale, any update on that?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah, there is some — look, real estate is something that you put it in the market and then it is a little bit of luck also. So I think one of the three assets which put up are hopefully on the last legs of the transaction and may be in Q2 or early Q3 all for that. Other two we are still hoping to find something. We have already given the mandate to companies to liquidate these assets, but we are still waiting to get offers which are acceptable.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Okay. My next question is regarding your other income. So last year you booked in total INR24.5 crores of other income, of which roughly INR14 crores was actually gained on fair value, I believe some of the liquid expense that you are holding so becasue of that. Now in quarter one since the interest rates have moved on the reverse side, so I believe that you have booked some losses. Is it possible for you to actually mention that number, how much losses were booked in that liquid portfolio?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Anand, can you answer this question, please.

Anand Sultania — Chief Financial Officer

Yeah. So, we do not hold significant instruments bascially which has a longer duration. So there are about only INR50 crores of investments which have a longer duration and where have a mark-to-market impact. So that impact is about INR21 lakhs. So there are certain other instruments that we hold, which is in the form of alternates as well as the real estate funds. And moreover, the liquid fund returns have been lower. As and when we are also using the liquid fund returns. So that is the reason why the income is lower in this quarter.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

But last year, I think you have to talk about the fire side.

Anand Sultania — Chief Financial Officer

The last quarter, the income on investment was higher because of the onetime income that was given. There was an unusual income which was distributed by one of the alternate funds whichg was fireside side where we hold. That income was approximately INR4.5 crores in quarter one.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Okay. And the probability of again, any kind of an M-to-M benefit coming and this is considering the environment on the interest rate is low?

Shreevar Kheruka — Managing Director and Chief Executive Officer

So, we can hold these instruments to maturity. It is not that we have to liquidate these instruments today.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Sure. Okay, fair enough. My last question would be sir.Sir, for your three costs, power, packaging and freight, these three costs put together forms roughly 16% of your sales. Now you have given some flavour regarding the power cost where you are still facing higher cost due to the gas prices. If you can elaborate more on packaging and on freight, are you seeing any kind of respite on that?

Shreevar Kheruka — Managing Director and Chief Executive Officer

See, packaging costs have come down in the last three months. Let me rephrase that. They started coming down in April, May, June, and they started increasing again in the last couple of weeks. However, these are not dramatic increases or reductions. These are normal, and I would say routine. There was a sustained dramatic increase in the last year which has stopped happening. There is some level of stability there. And I would say that the general cost of packaging is with a downward trend, if I have to look at it holistically from the beginning of the year till now.

On the freight also, import freights, containers were at a very high level and I think till July they were very high, but in August I am seeing a reduction in import freight. At least these are the initial signs. Whether that sustains or not, only God can answer that question. I don’t know. Because it is so volatile this market of freight, which was actually very stable for years on end. Suddenly the volatility is very high. But what I can tell you is freights have started coming down at least on the container side. Domestic freight has not changed much because fuel prices are constant or they are changing very little, so domestic — freight which we use from our warehouse to the end customer that has not changed. But the main impact of freight was the import freight and that we are seeing some relief.

Manav Vijay — Deep Financial Consultant Private Limited — Analyst

Thank you, sir. All the best.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] Next question comes from the line of Aditi Bhatted from Niveshaay. Please go ahead.

Aditi Bhatted — Niveshaay — Analyst

Hello. Am I audible sir.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yes, yes.

Aditi Bhatted — Niveshaay — Analyst

Yeah, thanks for the opportunity. Sir, I have three questions. So, first my question is pertaining to the scientific division. I wanted to understand the competition that we are facing from the plastic instruments in the scientific ware. So do we have any particular threat from the plastic instruments or any of the instruments are able to replace our glass products?

And then my second question is regarding to the Opalware segment. I wanted to understand that because of the melamine price and the Opalware price difference, Opalware was demanded till now, but because melamine prices are coming in competition with the Opalware segment, so do we expect that melamine will again take over the market? Sir, if you can elaborate and then I will be asking the third question.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Okay. Sorry, I didn’t get your name.

Aditi Bhatted — Niveshaay — Analyst

Aditi.

Shreevar Kheruka — Managing Director and Chief Executive Officer

So, Aditi. The first question you asked. I think I answered this in detail in the last conference call, If I’m not mistaken. So it would be great if you could check that. But I’ll repet myself. I don’t know why this question is coming up. There is no switch. Again I am repeating, there is no switch from plastic to glass, okay. The plastic to glass switch that had to happen in healthcare and biotech happened 20 years ago. At the moment, we don’t see in pharmaceutical industry any switch happening from plastic to glass. Whatever syringes have to be done in glass can only be done in glass because of certain properties. You can heat glass, you can cool glass, glass is very neutral, it doesn’t leach and so on and so forth. Whatever experiments can

Be done in plastic which are for use and throw which require any touch of human blood or there is any gentics involved where you are very fearful of cross contamination, that will not be done in glass, that will be done in plastics. So, there is no switch per se. Yes, there is a situation when biotech industry and healthcare is increasing in leaps and bounds because of COVID and so on. So, growth of plastic may be higher than growth of glass, that I think is a very reasonable statement to make. But to say there is a dramatic shift happening from glassware to plastic, at least we have not

Experienced it in any of our customers. And It would be great if people who are saying this, they should back it up with data.So, that is the first point.

As far as the second point is concerned, the question on melamine. No, we don’t see this as competition, no matter the pricing. There is a clear understanding that heating out of plastic is not good for health. Melamine is not the right material at all to heat out of. So, we don’t see melamine as competition to Opal. It has very few use cases. It could be used for children where there is some fear that the opalware glass can break. So, it will not be used for children for their food, but not widely as a substitute for Opalglass. I hope that I have answers your second question.

Aditi Bhatted — Niveshaay — Analyst

Yeah, okay. And sir, for the Opalware, if I see the margins, if I compare it with the competitors, our margin is a little lower. So are we considering any price, considered it is sold at the same price. So can you elaborate on that. Like, we are selling the same product with a rigid margin — less margin. So could you elaborate on that?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah, Aditi, see — this question also been answered probably every quarter. So please, again just look at the earlier transcripts. The only difference between our margins and competitor’s margins would be the advertising and sales promotion expenses. We spend about 8% of our turnover on advertising and sales promotion, which may be our competitor because they have been around for much longer and they are much more established brand in Opalware category, they don’t need to spend that much, okay. So their spend may be less than 1%, so, it is about 7 odd percent gap as per my calculation is that. And they are 2%, 3% further gap which could be because of economies of scale, efficiencies or pricing, you could put all of that in the bucket, but the bulk of the gap is coming from [Indecipherable]

Aditi Bhatted — Niveshaay — Analyst

Okay, sir. Got it. Thank you.

Operator

Thank you. Next question comes from the line of Amit Agarwal from Amit Agarwal from Burman Capital Management. Please go ahead.

Amit Agarwal — Burman Capital Management — Analyst

Hi, thank you for the opportunity. Shreevar, on the Opalware, would we have some inventory to address our Q2 demand, which is seasonally high?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Sadly, no. We are very low on inventory. So, as Rahul asked earlier in the call, we are looking to may be buy some inventory and sell it. Buy some white products and sell it, becasue that is the best we can do.

Amit Agarwal — Burman Capital Management — Analyst

And would that be import dependent? Or is there any domestic manufacturing for Opalware?

Shreevar Kheruka — Managing Director and Chief Executive Officer

That is confidential. So, I am sorry, I can’t answer that question.

Amit Agarwal — Burman Capital Management — Analyst

Next is on the margins of glassware. So even from [Technical Issues] the scientific glassware margin seems to decline, any specific reasons other than the cost inflation to highlight?

Shreevar Kheruka — Managing Director and Chief Executive Officer

No, The cost inflation is one aspect of it. We have started spending more money on research and development. We’ve hired a lot of people. We are gearing up for growth. So for growth we need new products. For new products, we need people to design and develop those products. So in Borosil Technologies, for example, we have invested a fair bit of money in recruitment of talent, and this is one of the main reasons our cost have increased. The second, of course, we discussed was the power and fuel prices which are more inflated. And the third reason is it takes a little bit of time with these exceptional costs increase which happened last year, it takes a little bit of time to pass it on. So by Q2, Q3 those price increases would have been fully passed on to the end customer. So these are the reasons. But I would just like to highlight that my goal has never been short-term margins. It’s been long-term growth and I be happy to sacrifice short-term margins to get that long-term growth. And at the moment that sacrifice is coming by way of a higher people costs and higher development costs in the scientific business.

Amit Agarwal — Burman Capital Management — Analyst

Got it. And in the scientific, what is our long-term margin outlook? what kind of margins we can potentially make?

Shreevar Kheruka — Managing Director and Chief Executive Officer

See, potentially EBITDA margins north of 20% — 25%, I think we should be achievable, north of 25% in the long term.

Amit Agarwal — Burman Capital Management — Analyst

Got it. And one final question in terms of our power and fuel, what would be the gas-related costs.

Shreevar Kheruka — Managing Director and Chief Executive Officer

I’ll have to come back to you on that.

Amit Agarwal — Burman Capital Management — Analyst

Sure. And I just last, is there any capex related cost which are reflected in our P&L. So because of additional employee because of the higher namufacturing?

Shreevar Kheruka — Managing Director and Chief Executive Officer

So for example in Larah, we have started hiring people already for the new furnace, and obviously the project people are — they are capitalized, but many of the operational people already reflected there, and same — I mean, across like — like I gave you the example of scientific, we have all the research and development team. They are already a part of the — I would say the cost structure, but we are not able to get any or as much revenue as possibly we showed from them yet. So those are there. What percentage actually — this is a good question and probably I should have done some more work on this, but I don’t have an answer for you right now.

Amit Agarwal — Burman Capital Management — Analyst

No worries. Thank you so much.

Operator

Thank you. Next question comes from the line Keval Ashar from DSP Investment Manager. Please go ahead.

Keval Ashar — DSP Investment Manager — Analyst

Yeah, hi, thanks for the opportunity. Shreevar, you mentioned that you guys are entering into filter paper market, which is a INR100 crore annual market. So just wanted to understand at what rate is this market growing?

Shreevar Kheruka — Managing Director and Chief Executive Officer

6% to 8%. Got it. And what is — so do we have an export opportunity in this market as well? No, no. Right now it is domestic. Right now, we are not manufacturing this filter paper. We are importing it, in fact. But our agreement involves ability to get into manufacturing should sales pick up in a faster way. And then once we have that, then we could export it. But right now we are not looking Exports, mostly for the domestic market

Keval Ashar — DSP Investment Manager — Analyst

Understood. And the last thing is you mentioned there is only a single player dominating this market. So what would be organized versus unorganized share in this filter paper market?

Shreevar Kheruka — Managing Director and Chief Executive Officer

The unorganized maybe 25%, 30% only.

Keval Ashar — DSP Investment Manager — Analyst

Okay, got it. Thanks a lot and all the best for the future.

Operator

Thank you. Next question comes from the line Amrish Thakkar an individual investor. Please go ahead.

Amrish Thakkar — Individual Investor — Analyst

Thank you for the opportunity and congratulations on a good quarter. So my first question is relating to the — the context is on the evolution of the physical distribution, offline distribution network. So we’ve done a lot of work on the e-commerce side, especially with the product innovation. I think we’re constantly tweaking stuff online. We can now see trending products, we can see new products, etca. So you can see the work there. On the physical side, I’m just trying to understand a little better. You’ve explained a little in the annual report on the DMS investment and so on. But if you could just provide some sort of update, on say, current glassware, non-glassware distribution, any planned targets and anything qualitative on whether our product range is now so large that we might think of own stores or anything you could share on this?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Look, offline distribution is — our business has supply channels, okay? And each channel has its own strengths and its own team that looks — that look after the channel. So it’s not that we are like favoring or spending more of our resources on one channel versus the other. We’re doing what’s right for that channel. So specifically to answer your question, in offline we have about 17,000 retail outlets. And our goal is — we are weaker in South and in West. So our goal is to add about 1,000 retail outlets — 1,000 to 1,500 retail outlets, specifically in those two geographies in on a yearly basis.

Second thing is, while we believe the universe maybe somewhere in the 25,000 30,000 outlets kind of range, it’s not that by adding another 13,000 outlets we’ll have proportionately increase in sale because we already cover, let’s say the A class, or a large portion of the A class outlets and maybe the smaller ones that we are not covering. But the goal is definitely to sell most of our ranges through all our outlets so that scenario of upselling and cross-selling, which we are kind of focusing on and that’s only possible with the use of technology. So you mentioned BMS. We have a technology called Field Assist, or rather software called Field Assist, which allows us to understand the daily sales of our products from our distributors to retailers product wise — product category-wise. So we know which retailer is selling what product on a day-to-day basis and we can compare it with what’s happening in that territory for other retailers, so we can give inputs to retailers on what products specifically they should be carrying, what categories are doing well.

And if I look by our consultation, the retailer is able to make more throughput from per square foot off his shop shop, then they will be automatically become more loyal to us, and that data is something that we’re looking to develop and drive. And already in the first quarter we had some reasonable successes here, where we were able to clearly show to some retailers that this is helping and those guys. So we were monitoring how much more cross-selling and up-selling from the existing retailers.

So this is also I think very big step for us to be more data oriented as an organization and use that data for better decision making and better advice to our channel partners, and I think that will stand us in very good stead. We are not planning at the moment to open any stores. We believe myborosil.com is the best store in the world and everyone has access to it. It is not at one physical location; it is online, and we have our entire product category over there. So, we would encourage anyone who wants to see the whole range, just go to myborosil.com and shop on that and see the experience threreit. We believe it is a pretty good experience.

Amrish Thakkar — Individual Investor — Analyst

Thank you. I can watch for that. Thanks. Just as a follow-on. We’ve talked about, for example, my Borosil or the e-commerce channel being a very good way for us to get to Tier 2, Tier 3, and I was just trying to understand whether the physical — so you talked about geographic expansion into the south, but whether the smaller towns also become more relevant for our target segments as time goes by and so only raising this question because a lot of other larger appliance players are now talking about even Tier 4 and Tier 5 towns. Is there any thought on this at this point?

Shreevar Kheruka — Managing Director and Chief Executive Officer

No, we are far away from that. Tier–2 and 3 would be good for us and we are not a large company yet. Our consumer revenues are less than INR600 crores last year, so we have a long way to go. So we will do a step by step. There is no rush to do something and then falling. So rather do things sustainably. So first let us get into Tier–2 and 3 and then we can take the next step after that, but I think we are putting the right building blocks in place.

Amrish Thakkar — Individual Investor — Analyst

Thank you. The second question is just on the capex and the planned debt, if you have any further visibility. I know you have mentioned you might need to take some debt for a short period, is there any visibility you have now to complete this capex by March ’24?

Shreevar Kheruka — Managing Director and Chief Executive Officer

I think the total debt we may need at peak about INR200 crores, if I’m not mistake, in that ballpark. So, far we have not needed it because whatever capex so far we have done is within our — the cash we had at the beginning plus the operational cash flows which we are getting on a monthly basis, but I think going forward up to INR200 crores of debt is probably what we will require for the short run, which I think our operating cash flow should take care of that within a year or year and a half. So, that is all I have for you at the moment.

Amrish Thakkar — Individual Investor — Analyst

Now, that’s good. Thank you. All the best for the coming quarters. Thanks for the opportunity.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Next question comes from the line Mohit Jangir from IH Consultancy. Please go ahead.

Mohit Jangir — IH Consultancy — Analyst

Yeah, hi. I hope I am audible.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah.

Mohit Jangir — IH Consultancy — Analyst

Yeah, thanks for the opportunity, Shreevar, sir. I have three questions. First question is on the SIP business. So what are the normalized EBITDA

Margins which we are expecting in the SIP business post demerger? And once the tubing plant is also operational, then what kind of expansion can we see in the EBITDA margins of SIP business?

Shreevar Kheruka — Managing Director and Chief Executive Officer

See, SIP business I think, 25%, as I said earlier in this call. 25% EBITDA margins we should be able to achieve in general in the SIP business as opposed to the demerger. As far as the tubing operations are concerned, look, the main reason to do tubing is for surety of supply. The EBITDA expansion may happen as a result of it, but that’s not the main reason to do it. The main reason is that we are today dependent on imports of tubing from China and we believe there is a good substitute here. But I don’t necessarily think it may expand the margin beyond the 25% that we are talking of. Of course, we will be able to sustain that margin, maybe grow it by a couple of percentage points, but I don’t see the margin as a result of — as a result of the tubing plant. Yes, revenues will go up because we can sell tubing for other applications. So revenues will definitely go up, but margin — percentage margin not expand.

Mohit Jangir — IH Consultancy — Analyst

Okay, got it. So the second question is on the consumer business side. So what was the percentage cost of advertising and sales promotion in our Q1 results?

Shreevar Kheruka — Managing Director and Chief Executive Officer

That’s a good question. I think it should be about 7% to 8%, but Rajesh, can you confirm this?

Rajesh Chaudhary — Whole-Time Director

It is 5% to 6%.

Mohit Jangir — IH Consultancy — Analyst

Is it 5% to 6% of consumer product business or overall sales.

Rajesh Chaudhary — Whole-Time Director

For the consumer only consumer product.

Mohit Jangir — IH Consultancy — Analyst

Only consumer product, okay. Yeah.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Because we don’t need to do that for our scientific.

Mohit Jangir — IH Consultancy — Analyst

Okay. No, it is on overall sales or only consumer product sales, the number?

Rajesh Chaudhary — Whole-Time Director

It is consumer product sales,

Mohit Jangir — IH Consultancy — Analyst

Okay. So, my last question is on the Borosilicate glass plant which we are setting up in Jaipur. So while we have our consumer glassware units in Bharuch or Ankleshwar I think, we will be manufacturing the Borosilicate glass in Jaipur and supplying it to Bharuch. So is my understanding correct?

Shreevar Kheruka — Managing Director and Chief Executive Officer

No, no. Whatever is made in Jaipur will be shipped directly from Jaipur to our customer.

Mohit Jangir — IH Consultancy — Analyst

Okay. And will it be an electric furnace or…

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yes, all electric 100% electric

Mohit Jangir — IH Consultancy — Analyst

So, are we looking to sign any private PPAs to mitigate that higher electricity cost?.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah, there is a very new interesting law come out which allows us to buy power across state grids, across states lines without too much billing charges. So, we just started to understand this new law. And if this means if this law, we can use, then we can probably setup solar wind hybrid project and by all our power from that, and that will dramatically reduce the cost of power and have a very good payback for us.

Mohit Jangir — IH Consultancy — Analyst

Okay, got it. Thank you. This is from my side. All the best.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. Thank you. Next question is from the line Vipul Anopchand Shah from Sumangal Investment. Please go ahead.

Vipul Anopchand Shah — Sumangal Investment — Analyst

Hi, Sir. Thanks for the opportunity. My question is regarding pharma packaging business. It is — it has shown a decline year-over-year. So can you attribute any reason for that?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah, last year we had a very large increase in demand for vials, specifically for remdesivir, which was a COVID drug. And obviously, this year there is zero demand for that. So a large chunk of our sale was — like let’s say a one-time sale last year. But actually in spite of that decline — If you compare FY’22, sorry now FY’23 versus FY’21 quarter, Q1, you’ll find that there was last year — we had a 70% growth over the same quarter of the previous year, that’s two years ago.

So now that we have — we grew 70% and now we’re down 5%. So we still have a very healthy CAGR, lets call it. So other businesses, we have been able to add, but we lost this one, didi not then lose it, but that business just went away. So actually it was not a bad performance at all for the pharma packaging business. And last year the overall growth of that business was more than 60%. So I think even if you grow 10%, 15%, 20% this year, it will still be a very good level because that would be kind of a consolidation of the non-COVID business going away and some new customers being added. So net-net, if you can sustain that big jump and grow a little bit more on top of that, I think it would be a good outcome.

Vipul Anopchand Shah — Sumangal Investment — Analyst

Okay. And, Sir, within the scientific business, pharma packaging will have higher EBITDA as compared to the laboratory glassware and instrumentation?

Shreevar Kheruka — Managing Director and Chief Executive Officer

No, it’s lower, it’s much lower.

Vipul Anopchand Shah — Sumangal Investment — Analyst

Much lower, okay. And sir, lastly regarding this proposed duty on Opalware, what will be the implication for the company?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Well, I don’t think it’s proposed. I think it’s action down. So there is no proposed anymore. It’s, it’s done. There’s no real implication except that whatever duty was currently there continues for the next five years. So there’s no change in status quo, frankly.

Vipul Anopchand Shah — Sumangal Investment — Analyst

Okay, it was already existing?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah, yeah, it was existing for last five years.

Vipul Anopchand Shah — Sumangal Investment — Analyst

Okay, sir. Thank you, and all the best.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next person to ask question is Mr. Praveen. Go ahead.

Praveen Sahay — Edelweiss Broking — Analyst

Yeah, thank you. So, I have two questions Shreevar. One related to the pharma packaging as you are doing some capex as well. So what is the revenue opportunity out of that capex and what is your annual target for the pharma packaging division?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Look, I think internally we believe that we can double the business in the next four years in pharma packaging. And if it last year we did roughly INR100 crores, can we do INR200 crores by ’26? Yes, I think it’s very possible to achieve, and that’s something we will be driving towards. As far as the capex for that doubling, we would probably be about INR65 crores, which is already mentioned. There are also other opportunities beyond this in pharma packaging which are quite attractive. We are evaluating that as we speak. And if something comes about there that we will have to spend more capex to make that happen, but that’s still on the drawing board. So we will come to it, we know when the time is right.

Praveen Sahay — Edelweiss Broking — Analyst

Great. Now, the next question is related to the non-class consumer division where we had seen a very good strong growth for the quarter. So, and that’s almost a 40% contribution to your consumer division right now. So can you elaborate on that, which product is getting more traction and do you believe this contribution numbers to continue in the similar run rate in the rest of the year?

Shreevar Kheruka — Managing Director and Chief Executive Officer

Yeah, look, I think we’ve done a fantastic job. Our team has done a fantastic job in stretching the brand beyond the glass, okay. So, Borosil was a transparent glassware brand, then we added Larah, and now we added steel and other appliances, Hydra appliances and stainless–steel cookware. So, the traction has been very phenominal beyond our own expectations, and I think this traction is very much likely to continue. In fact, the demand for those products is increasing a lot especially, for example, Hydra bottles because people don’t want to drink in plastic bottles anymore. So these steel bottles are incredibly cost effective, value for money and also they keep your water hot or cold as you like for 24 hours. So it is a really high value product and there is a lot of utility for customers. And therefore we think these bottles are here to stay and with bottles you have designs, you have so many things you can play with. We are the sponsors of the Indian Olympic Association. So the whole sporty — it goes into the gyms, it goes into the schools for kids, obviously for work for both men and women who are going to work, carrying their own water. So all of this — It is a very large market opportunity and we have captured it reasonably well, I would say. So, that has done very well for us and appliances across the board have done very well for us. So both those are the major contributors to the non-glassware.

Praveen Sahay — Edelweiss Broking — Analyst

And these have a similar margin to your consumer division or…

Shreevar Kheruka — Managing Director and Chief Executive Officer

The margin is a bit lower, but frankly monitoring margin is one thing on this front, voluntary return on capital is much more interesting because we have to look at the times — because there is no capex here. it’s only — it’s already working capital that’s deployed here. So, if I am able to rotate my inventory and my receivables 4 times and generate 24% ROCE on my business, I am very happy here.

Praveen Sahay — Edelweiss Broking — Analyst

Great. Great, thank you, Shreevar. That’s it from my side.

Operator

Thank you. As there are no further questions, we have reached the end of the question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Shreevar Kheruka — Managing Director and Chief Executive Officer

Okay. So thanks, everyone, for your questions. I hope I was able to answer them to your satisfaction. It was — it was a very good quarter and I think the best is definitely yet to come. We are very bullish on the future and with our new production capaciteis coming in later this year for Opel and next year for the press items plus growth, new categories and scientific products kicking in, I think we’re really well placed for the long run. So that’s our vision, not to look at every quarter, but look at how we can achieve market leadership in three years, five years, 10 years, and that’s what we will be gunning for. So, thank you for your support and see you in a few months.

Operator

[Operator Closing Remarks]