Borosil Limited

I can’t comment on the whether there is further price decline in store for BL or not, but happy to share the way I have done a quick back of the envelope assessment on what this means as an investment (I am assuming the split has been done in a rational manner and am not commenting on why the split is as is)

• First the split in equity shares is reflective of the book value of the equity shares (and not the market value). I assume we should see this split when we see shareholder’s equity in the independent balance sheet of the two companies. Current book value is Rs 68.57.Based on this, the Price-Book ratio for these two companies are likely to be quite different given the different nature of businesses. Consumer durable companies seem to have a wide range on Price-Book – somewhere between 6-14 (Havells, TTK, Blue Star, La Opala). Based on the closing market price and the share of book value as per the split, this would result in a 9.6 price to book for BL (Consumerware business). For the Scientific business it is more difficult to find comparables – but seems to be somewhere between 2.5-4 (AGI Greenpac, Tarsons) which would imply somewhere around Rs 95 (this is the value of a share before the swap ratio – so not the expected listing price which needs to be adjusted upwards for the 3 shares of Scientific for every 4 shares of BL. So prima facie there does not seem to be crazy differences with the way the market has priced it

• For my investment decision, though I would need to build a more detailed P&L / cash flow for each business – which will only be possible once they separate out the accounts – from which I could do a DCF / get a forward PE ratio. However, the company does share PBT numbers (as well as segment wise assets to do a rough forward PBT/PBT assessment) enabling a basic back of the envelope calculation. At a very rough FY24 PBT margin of 12% for Consumerware (assumes a significant improvement in 2H. Unfortunately 2H FY23 was a struggle due to lack of capacity on Larah so difficult to know long term PBT margin), the FY24 PE would be ~50. You can then form a view on whether this is high or low – given the comparables, stage of business they are in, etc. Similarly, assuming a 9% PBT margin for Scientifc for FY24 (which is much lower than long term margins as per management – investments in Technologies, Klasspack demand challenges) – it works out to a FY24 PE of ~40 for Scientific at Rs 95 (pre swap ratio) – which definitely feels high – but could be argued is expecting a turnaround as investments start benefiting the business

I am less concerned about fall in price of BL (there is a price at which it would start making sense to buy more) – but face a similar quandary to you in terms of what to do with Scientific. What seems to be transpiring is that Shreevar Kheruka will probably remain as the CEO of the Consumer Business as they have announced Vinayak Patankar as CEO of Scientific. However this is a whole other discussion if that is of interest.

Hope this helps. Happy to be corrected on methodology if I have got it wrong or other more appropriate approaches exist

Disc. Invested for a long time and likely to be biased. Not a registered advisor – the above is just my approach and not meant as advice