Welcome back.

Last time we discussed the opportunity of special situations in our country

and how we can benefit out of those situations. Today our topic would be how can we profit
from high growth industries. A high growth industry is inherently risky, because if the growth
tapers off the valuation of these stocks and crash, and there have been instances in the past
that wherever we have predicted that there have been companies or sectors which are
dominantly growing or which are predicted to grow at a very fast rate there are some bumps
in the road and the valuations just crash if people are not able to scale up versus the
expectation of the market is like if it if there's a topper in the class, he's always expected to
top and the moment he gets a second ride, even though he's still one amongst the topper,
but the expectation or the overall mindset of his parents and teachers is likely has you know,
lost a very important game. So the expectation built up in high growth sectors is very high.
Hence, these are highly risky companies and sectors. Because if there is a miss on the growth
timeline, there will be a lot of damage to your wealth. So one such company or an example
that we will want to take over here is a company which actually belongs to the renewable
energy sector in India. Now we accidentally bumped on this company but we were for many
years wanted to play the renewable energy theme, because world over the data points that
we were tracking what signaling towards decarbonisation, and most of the countries around
the world were actually very much concerned with what was happening with the global
climate situation. And the answer for all these was a clean and green energy with the world
had the capacity to produce, but there were very few countries which had put up capital or
which were committing capital to this industry. Now in the renewable energy space, if you
look at in India, there have been instances of bankruptcy for a lot of companies who try to
venture into it because of lack of government support. Sometimes the leveraging that the
companies themselves did or they went abroad to do some business and they couldn't get
hold of the technology and they just collapsed. So the background of the industry was very,
very fragile. And if someone would have looked at this sector, he would have completely
rejected it based on the fundamentals that had presented in the past. And we were also very
skeptical when we started looking at it. But what excited us was when I visited the setup of
one of my friends, Mr. We need mithril we had a company name now with a solar and he was
growing his business by 35 40% each year. I was very much surprised that this was the
opportunity if local enterpreneurs can capture just imagine it on a large scale. And that is
where I used to visit him almost every year to find out if there is any element in the market
which is growing at a higher rate and any business which was at a large scale.

After doing due diligence for almost two to three years, we could find a lot of products which
go into making of solar modules, but all of them were either imported or were technologies
which India did not have a handle on. But there was one company which was very interesting,
which excited us even two three years ago, but we never ventured into it or looked at it
because its financials were weak, and we're facing very stiff competition from Chinese
products. There's a company called borosil removals. Now, this company makes solar class
and it was the only solar glass manufacturer in India. In that context, I can say that it was a
local monopoly. But if I compare it with the product segment, it was just catering to 15 to 20%
of the market because almost 80% of the market was being served by the Chinese. Now why
was there such a big competition in this industry and what had happened in the glow? And
why the Chinese dominance made that these companies had a very tough time even
surviving, let alone making profits. So if you look at the Chinese actually captured the solar
market a decade ago, where they started to make giants into solar glass or module
manufacturing, and they funded these companies substantially via the state and private
capital. The Chinese wanted to dominate this space because they knew that it is a theme for
the coming many decades. The competition from the Chinese was such that every other solar
glass company in the world actually went down on its knees and die. There were only two
plants which survived in the globe. Out of this route of Chinese competition. And one of them
and a larger plant was the Brazil renewable plant in India. Now when we used to visit these
solar module manufacturers, what they used to say is that they had a priority of Chinese
imports because the quality that they gave and also at a cost that they provided and whatever
products they could not fill because of imports they used to buy from bureaus and
renewables. So Morrison renewables was a second run clear in their eyes and mind and that
is why we did not like the company earlier because we thought that it is not being run very
efficiently or as a product, which is not top notch in the quality. But we were surprised when
we visited the same setup of Mr. Vinod with the last year because he gave a completely
opposite statement that now they are giving a priority to borosil renewables of whatever
material they can get from him and only placing the balance order on imports. What has so
substantially changed in the industry, we started to find out and we were getting some
interesting bags, which were game changing just not for this year or next year. But for many
many years to come. And again to our be wilderness the market was completely ignoring. This
is one thing that we have again and again also that market participants or many veterans have
told us and even a lot of interviews when people make they say about the markets efficiency
they see that the efficiency of the market is supreme. They tell us that the market has an
ability to predict everything and anything and it is there in the prices. To this we always have
found that though market can be very specific in pricing things in general but specifically it
makes a lot of errors, while valuing a lot of companies which are coming out of a bad cycle or
which have certain biases that people are investors are thinking in their mind or institutional
investors are not touching some companies because of certain matrices that they are
tracking. And that is where we've seen the largest amount of monies. And borosil renewable
offered as such another very exciting proposition. Because what was happening in the whole
industry was that caused the Chinese onslaught whatever capacities that couldn't have
survived actually died down but those who could have survived already, we're depicting
certain skills that they were deployed to actually survive in the market. And pose the
pandemic very interesting scenarios develop which completely changed the trajectory of
these industries. What were they primarily the thing were concerned the people around the
world was that they just cannot rely on the Chinese for 100% of the production. So all supply
chains started to explore that how we can reduce the dominance of Chinese by at least 5% a
year. And also because getting materials during a pandemic and the container shortage that
was there in the pandemic made the matters worse, where the Chinese equipment or Chinese
glass arrived so late that all the manufacturers of solar modules over here in India started to
face penalties due to delay in their execution of orders. And these were sometimes
government orders or private companies orders which were large orders and if they defaulted
on their commitment they could have lost a good amount of business for a longer term and
also with their their reputation. So what they started to observe in the market, what two or
three long standing problems, wish they had ignored for so many years, but now they had
come on floor. But the problem of quality was something which if borosil couldn't have
addressed, that would have been a business loss, but to our surprise, borosil had already last
year retrofitted one of its furnace and the quality issues had been resolved. And it expanded
its capacity and the new capacity was almost 2.5 times the old capacity. So of plant which was
running at a higher rejection rate suddenly reduced its rejection of glass because of the high
quality of retrofitting that they did, and the new expansion that they did what machines again
have the latest technology and that made glass which was one of the best in the industry. So
the priority came because a guru sell themselves improve their quality and expanded their
lines to supply more products. And we the Chinese themselves faced a crunch of supply
because they couldn't find capacities to dump any product any

more in India. Please understand what used to happen is that the Chinese built this huge glass
facilities and they used to first supply the glass to the local manufacturers. of solar modules,
export the module and whatever were left they were dumping in the Asian markets. Now that
whole trajectory changed when a small chain happened in the Chinese government's policy,
and had meant that there was no glass them for left for dumping. Into the Indian markets or
any Asian market. What was that big, trenching that happened? It was very interesting and it
was having two prolonged impacts. One change was that way back in 2017 The Chinese
government made a mandate that because of glass being a polluting industry, no new glass
manufacturing capacities could be set up till they shut down some old, inoperative or highly
polluting capacity. That meant the overall capacity of Chinese couldn't grow beyond a level
but the demand for solar glass was improving. In the old world because of the big renewable
energy push. Second was if you observe the solar glass, it has glass on the top and it has a
white board in the bottom of the frame. And that was the whole structure that solar glass for
so many years was being provided in the market. But studied has shown that if you make a
glass glass module, what is the glass glass for you? There is a solar glass on the top and there's
a soda glass at the bottom also and the cells are sandwiched in between. If you have a glass
glass top what problem it was solving is the solar rays that was directly being captured
whereas it is being captured earlier, but the reflected rays from the beneath. So, they used to
first get lost because the opaque surface of you know the earlier modules in a glass glass
module because of the transparent glass, the reflected sunlight was also being captured and
that increased the production of solar panels by at least 15 to 20%. Plus it also increased the
life of these panels studied has shown that a normal panel which had a white sheet at the bag
had a life of 25 years versus the glass glass panels that are almost 35 years of life. So you have
a product which is producing more electricity and it will require lesser space because in the
same space it will produce more electricity right at the same time, it will last longer than the
product. And that is where the Chinese government and governments around the world
started to make these mandates of ordering glass glass modules with this versus the
traditional modules. Now this meant that this was a game changer for glass manufacturing
companies because now literally that demand per module had gone up to x without changing
the growth rate of the industry. So just imagine a the renewable energy space itself in the
world we're growing at a rate of 15 to 20% and in domestic markets or smaller markets like
India, it was doing it 35 30% coupled with that the module itself which was applying just one
glass now has to glass, so that demand had to go exponentially higher. And that was what our
thesis was that traditionally people had seen burrows in renewables as a slow go grower or a
second run player, and it was converging into a high growth solar glass manufacturer who had
a large market to serve. And what data points are we talking about? Why did we believe that
there was a large market also, because please understand, the Indian solar module market
was in a state where 70% of the modules were directly imported by the Chinese into India. So
that means Indian module manufacturers were just making 30% or 40% of the local module
requirements. And this distortion had to be corrected by the government at some point of
time. And that is where the government started to bring the duties instruct in place and
started to discourage the Chinese inputs. And that meant that in the future we will have large
solar module manufacturing in India and if the module is made in India, then there's a higher
chance that the class would also be of an Indian manufacturer. But if the module is made in
China itself, chances are that the glass is fitted and

second thing out of the modules that we're getting manufactured in India. So out of 100
modules just imagine only 30 modules were made in India, all those 30 modules against 70%.
People were just importing the glass and applying it on their modules. They were not buying
from Brazil. So Brazil was just addressing 30% of the 30% that is only 9% of the market in India.
That was the problem. And after its expansion after its competitive Ness that it showed by
improving his efficiencies, and the problem that the Chinese glass factories had that they
couldn't expand very sharply and the demand for the global industry went through the roof
because of glass glass modules. And also renewable energy push meant that the Chinese did
not have material to come to India. And that is where the addressable market for puracell
literally became almost 40 to 50% of India that is almost 5x than it was having earlier without
the Indian market is growing right. So if the Indian market itself grew, for example, every year
the installations of solar in India, if they're growing at 20 by 30%, which they are, it presents
10x Kind of an opportunity if you can understand right 5x Because of this change in the old
industry structure and to x more because of the growth of the industry itself. So five to two
means if annex nine have an opportunity, and we were just looking at this industry and this
tenant opportunity and looking at what the valuation that's company was trading at, it was
trading at a ridiculous just four to 500 crores market kind of evaluation, which was not even
the replacement cost of the plants that it had set up till now. Just imagine an intrapreneur
started a business way back in 2010. And after a decade, the overall value of the business is
not even the amount of capital that he had put in in the business till date. That was the kind
of valuation this company was available and anyone could have looked at it anyone could
have analyzed his past performance and would have easily rejected it based on that this
company and hardly made any profits combined the 10 years because in certain years it made
profits and the other years it made losses and net net the value of profits was net. So it could
have been playing on the minds of a lot of institutions and also smart investors. In fact, we
presented this idea to a lot of good investors and most of them rejected it saying you attach
your ego. It is a business of yours and that's a commodity which anyone can make. It was such
easy a commodity to me. Why there was only one player who survived Chinese competition
why you overall demand when it is shifting the gears no new capacities were being we were
very much sure that even though class business looks simple. Handling breakages was an issue
which borosil itself was grappling for so many years and it took so many years for it to come
out of that situation. Also, the glass size was becoming thinner and thinner. To make a
tempered glass and a thin glass and a tough glass to stand, you know, 25 years in maybe you
know toughest of toughest weather conditions is something which is not easily replicated. It
was not a normal solar glass needed capabilities, which we thought was not air in a lot of
Indian manufacturers. And that is why most of the people had exited. You don't expect people
who exited the market just to come back to the market. Because they see some opportunity
which is you know, five years down the line. They took them 10 years of losses and then
exiting of business. Again, coming back to that business is something that we thought was not
easily doable to it was probable, but the probability was next and that is where we bet our
chances. Please understand there is nothing like 100% Probability of anything happening. You
have to bet in an uncertain situation if probability is favoring. So things might be uncertain in
the shorter run. But if the probability is favoring you, eventually that investment makes sense.
If you win if your win rate is even 60 70% and that is where we thought that we should take
the fund and we should take the call. Because there were visible mods that this company had
developed. It was gaining scale, and it had an opportunity to tie up with the best module
manufacturers and giants of India and become a very important supplier to them.

Who are surprise the government came handy wearing it announced a lot of policies like the
PLA where the overall opportunity size increased multifold because it started focusing that
why India cannot be a hub of solar manufacturing, why it cannot export solar modules out of
India. So to make India they offered benefit of close to 40,000 crores and those benefits
meant that bigger corporates like Reliance's of the world have also now announced huge
capacities that they will be putting off solar modules in India along with solar cell, but they
have not announced any class. Because class as a business is a very small component business
of the old pie. It is not a business of large corporates like rely for them putting up a 500 or 700
Crore plan is not that their management would be choked up with the bandwidth right they
will want to look at 5000 10,000 crores kind of opportunities and that is where their mindset
is hence we thought that this is a business which can tie up with these big giant supply the
material and silently keep on going at 25% annually and keep on adding more lines. And we
have seen similar trajectory in China, in China. to large companies, which are the leaders of
solar glass have almost 55 to 60% of the world's market supply. And there the valuation of
those businesses had gone to as high as 60 70,000 crores. And here we had the company from
India because just having over 500 rows of market cap. I cannot imagine that an Indian
company can go to those levels. But even if an Indian company can become 1/10 of the
company in China, it could still have become a seven 8000 Crore company. That was what our
mindset was. That was what we looked at a longer term picture profile, wherein if a company
keeps on expanding its profit pool can follow the same fashion with the Chinese companies
also follow and when we saw that the management bought money from credible marquee
private equity firms. That is the time we realized that the promoters of pollution, pollution
renewables are also on the same page to grow their business at a higher pace. It was like a
sleeping giant who did not do anything for a decade. But when it got its act together, they
were announcing plant after plant. And we were also surprised how steadfast and how AGI is
the management had become a company which had only 180 megawatts of capacity now had
plans of making almost 2000 megawatts which was almost 10x of their capacity in the coming
four to five years. These plans excited us and we auto venturing and staying with the company
a little longer than we would have imagined. Because that is the thing that started unfolding,
month after month, quarter after quarter and now after a year we think that the new capex
doing it will again double its capacity and one year hence it has also announced some more
capex which can again double its capacity in a matter of four years. Hence, we can see this
company being almost 1/5 or 110 of a lot of giants of China. So the dream that we had that
India also there should be a company or a solar Glass Company, which should have a very high
market share and should grow at a while very high COVID

In a way seems to be reasonably placed. And that is where we think the intrapreneurship of
the Cayucos have also come into play. They could have easily remained where they were.
They could have easily announced smaller capex is but when they saw opportunity come to
them. They tied up with one of the best capital providers or P funds and mutual funds. They
gathered capital for growth and started to expand if it meant diluting the road shapes. This is
a mindset which most of the Indian enterpreneurs don't have that why should I sell my stake
to someone? The borosil renewable family could also have gone and taken loans but that
would have made that if the Chinese onslaught came again, the whole company could
collapse because that has happened with a lot of companies in the past. So the route that this
company took by raising equity capital and debt in a reasonable ratio, and not over leveraging
was also a very important point that we focus that discipline in the capital would save the
company, even if the Chinese onslaught came again, whenever we are investing, capital
preservation is one of the most important metrics that one has to focus on and these things
can only happen if you get your leverage and payments credibility, their ethics and the
business tailwinds correct. If you are on the credibility of the management, then everything
is lost. Business dynamics can change but a good management can again went back the
business the tailwinds in the sector can change but if the promoters are good, they can
perform better again with the tables are in their favor. But if the ethics and the credibility of
the management is it can never recover your capital. That is why we were very comfortable,
because Mr. Pradeep Heruka was one of the pioneers in Indian glassware industry, where the
microwavable glass you all might have been using in your own homes. Bordeaux still has a
higher market share and still remains a leader. And they leverage those capabilities to go into
solar glass. And that glass in fact, the innovations that they've done offline over the past two
three years, even the Chinese giants with such heavy balance sheets have not been able to
and that is where a company which was hardly making any profits started to deliver every
quarter what the market expectation was, but frankly we could almost Judge 70 80% of the
profitability because we could go to the module manufacturers. We could ask them at what
prices they were buying the class. And to our surprise, the first square meter price of solar
glass imported in India from China had already gone to 2.5x in India, and still the glass
company in India was not even having a market cap of it was just hovering around seven to
800. I mean, if someone would have looked at the profitability what borosil renewables could
make because of the rise in glass prices, one could have easily estimated that the profits were
going to go up four to 5x. Because doubling of solar glass prices doesn't mean just doubling
of profits. Because if you imagine that if the sales price is 100 and the cost is 70 in the profit
desert when the sales price go to 200 and the cost remains the same. The profit goes to 130.
Right? It is almost 4x That is the kind of profitability growth you have. If your raw material
prices don't change, and your sales price just doubled. And here we were looking at sales
price going up by 2.5. To clear and we were just startled that the company had in its earlier
call also stated that they are facing high demand situation. That means that capacity was fully
utilized and prices if someone could have gone to the market and just did a small scuttlebutt
of asking some solar manufacturers that what is the price they are buying solar glass, or they
could have just gone and did a bit more hard work in mailing few of the solar component or
glass

manufacturers from China and their quotations. They could have also gone that the prices
have gone up. This is one thing we follow religiously. We make our analyst businessmen who
have business cards, what whatever business they are doing, even if they're not doing their
business, right. So they become solar module manufacturers and they try to get into dialogue
with a lot of solar glass manufacturers around China and ask for the quotations as if they were
genuine buyers. Sometimes it's not as difficult as people make these excuses. That how can
we get that information? How could you get that information? We find it a lot more easier
once you have the mindset to. And that made us believe that this trend is here to stay because
the prices were so firm, and they were the most firm in almost 20 years. And solar which was
the only component in the module that had not been disrupted for almost two decades. Every
other component why there being sell or junction boxes or other things had gone through a
period of disruption. And this was the only component which didn't had any disruption for so
many years. Hence, we were not even concerned about the disruption of the industry. Hence
we concluded that in a very disruptive industry, but because it was going at the highest it had
to identify a non disruptive component. And to our luck, we found solar glass who are left we
had a very important connection in a solar module manufacturing for those who were so kind
to let us know at what prices they were buying the product every month. That gave us the
first mover advantage in the industry to know what the prices were and our analysts were so
hard working that they went and worked it all the Chinese annual reports into English
understood each word of the industry, what is happening in China, what new plants they are
coming up with what new technologies they are working on, what is their size of the
opportunity, how they can disrupt the Indian market or whether they can disrupt the Indian
market or not and got in touch with the solar glass era enterpreneurs in China or their
distributors and started gathering data on the prices and every port that they could get of the
imports that were happening from China and made sure that every risk for investors were
avoided and every opportunity to get out of the situation was captured. This is the hard work
that our people put in and I'm thankful to them to put together all these things which I am
speaking today is the hard work of at least seven to eight people who are day in and day out
researching and bringing all these things in the table. I'm just speaking here are the real
heroes. Thank you so much for listening to us. And that was how we captured another very
interesting story.