Bhansali Engineering Polymers - An Import Substitution Story!


(Agarwala) #250

Dear Abhi
No offence taken or intended. Please extend your argument that price volume action in BEPL could be similar to Satyam, Opto, or HFCL. It is possible, and there would be hundreds of companies with similar price volume actions. Such action has to be backed by other parameters to make a worthy investment decision. I simply want you to find fault with other parameters such as balance sheet, competitiveness, promoters background etc… If there are other companies with price volume action similar to BEPL, the investment decision will be based on these other parameters.

One more point… I made the decision when the price was only 25. Now it is close to 200. One has to be more cautious now. This makes your view important. From 180 the price may go down to 150 or even lower. That is not my worry, as long as I am able to get out of it with some reasonable profits. I will not advice small investors like me to enter at this level. However, those who are already invested from the lower levels will be helped if some stark weaknesses or wrongdoings are exposed at this stage. I hope that you are following my meaning. A pro like you can really be helpful in such a situation. Please continue your interest in this thread.


(Abhinav Mehrotra) #251

Sir ji, do not take my words as rude, but I am neither a pro nor interested in this company to provide a view on its health. There are 1000s of ways to make money in the markets. This just doesn’t fit my process.

I saw a small sampling flaw and was trying to correct it. The examples I mentioned were just what came to my mind to compare what maybe false negatives with what maybe your false positive.

You have corrected your theory by adding that other parameters should also be looked at. Though I am inclined to say that we may find disconfirming evidence of price volume action implying genuinity in investor interest in quality names as well.


(Agarwala) #252

After I found increase in volume, it took me more than nine months to make the investment decision. Please read my post again. The decision or my theory was not based on price volume action alone. So I have not corrected my theory in the least. As you have admitted that you are not genuinely interested in the company. Please understand Abhinav Ji that this is not an academic forum, where you will talk about sample size and other statistical jargon. We are here to help each other in making decisions. I still hope that you will find some time for this thread.


(nil_71) #253

As an investor, only believe in data and not in someone’s tweet. In this sector, no body is saint including BEPL promoter or that guy who posted it.

With such a good Auto Sales numbers, one can expect a good number of BEPL. Remember these auto sales are numbers, that reflect dispatch from factories. So just believe in data and always keep margin of safety

Disc Significant position in BEPL


(yudiagg) #254

There are plenty of newcomers in the market who do not understand data and therefore tweets are their major guiding force to invest their hard earned money!


(shreys) #255

I agree with what you’ve stated. But, sometimes, even market veterans can’t detect the manipulation of data, let alone beginners. And, numbers do lie sometimes- it’s the context that’s of supreme importance. Only time will tell which side is proven right.
Disclosure : Tracking position


(madhavikkutti) #256

Hi @Agarwala,

Sorry for the late reply. Thanks for providing the above link. As per that site, current ABS spot price seems to be USD 2,600, implying that it has increased by USD 600 since September this year. It also would imply roughly 82% increase in the price since the beginning of year.

However, as BEPL has a comprehensive product portfolio with various grades of ABS, I am not able to assess the exact impact of this on their sales/ profit. Also, I understand that, their revenue-contracts are formula based.

To conclude, overall I feel that, the environment is extremely positive for BEPL since the beginning of this year with constantly increasing ABS prices and the increase in auto sales figures (http://www.businesstoday.in/magazine/sectors/auto/car-sales-november-2017-indian-carmakers-post-double-digit-rise-domestic-sales-exports/story/265153.html).

Management has been reiterating that, their proposed expansion from 80KTPA to 137KTPA (slated to be completed on 31-Dec-18) for Rs. 300 crores will be funded through internal accruals only. I used to have high doubts about the above statement a few months back, but considering their healthy Q-o-Q growth rate and recent ABS price trend, I have now started getting more confidence about what they are saying.

Disc: Invested from Rs. 37 and currently about 15% of my portfolio


(ASPN) #257

Hi @madhavikkutti,

Would like to know your thoughts on stock selection process. How did you zeroed in on this stock when it was at 37 or so?

Rgds,
Advait.


(madhavikkutti) #258

Hi @Advait_6270,

I selected this stock during early May this year. It got into my watch list during April due to the excellent Q4 numbers. In spite of the good results, the stock price had corrected from Rs. 41 levels to Rs. 37, making my entry easier. I had researched on the company and the key attractions were the oligopolistic industry with multiple entry barriers, their ambitious expansion plans, ABS demand increase (https://economictimes.indiatimes.com/markets/stocks/news/some-cheer-for-underperforming-abs-makers/articleshow/58059058.cms), tie-up with Nippon, well-diversified clientele, and an extremely passionate promoter.

Please note that, during my research, I also had read about the alleged relationship of BEPL with Shradda Stock Broking 14 years ago (http://archive.indianexpress.com/news/sat-lowers-penalty-against-shraddha-stock-broking-to-rs-3-lakh/1040395/), the news which Amit Mantri is trying to revive through Twitter now, but based on my best best judgement, I still decided to invest. I could be right or wrong, which time will prove.


(Bheeshma Sanghani, PhD) #259

A key reversal day on BEPL charts - usually followed by a sharp down movement and fellow boarders should keep an eye out for signs of a possible reversal of the trend. Also from what i can see - this is the first key reversal day since its octane powered upmove started. Just some technical observations from my side from a neutral standpoint.

Some areas that caught my eye while looking at the balance sheet on screener

  1. Reducing net block which means increased FA turnover which means increase ROA.
  2. Material cost forms 75% of sales in 2017 which is down from forming 85% of sales in 2014 which is also the time period of its OPM expansion from 3% to 10%. Possibly favourable raw material prices aided that which may not be sustainable going ahead.

This combination of reducing net block combined with favourable RM prices has definitely aided its return ratios which should revert back to its normalized levels over time.

  1. While they have deleveraged the balance sheet - the dividend payout ratios have also reduced in line with the deleverage. The DE ratio from 0.53 has come down to 0 while the Dividend payout has come down from 112% to under 10% over the same period indicating that dividends have been funded out of debt.

I think key operating metrics will normalize and so will the prices.

Best
Bheeshma


(nil_71) #260

In terms of RM Price as long as Styrene price remains low, Margin should remain stable. If one reads the competitor Q2 concall, it is under control

You can also check

http://www.sunsirs.com/uk/prodetail-168.html


(Agarwala) #261

I agree that we should keep a vigil regarding RM and ABS prices. Also spreading negativity is a well known trick in stock markets. Some recent actions about BEPL should also be examined in this light.


(madhavikkutti) #262

While a lot of discussions are happening on other ValuePickr threads (Electric Cars/Bus :: Call it a Disruption?) on the increased usage of Copper, Aluminium, Graphite, Cobalt, Lithium etc., for Electric Vehicles (EV), I have not seen any discussions regarding the usage of plastics on Electric Vehicles.

I feel that, there will be significant increase in usage of plastics (including ABS) in the Electric Vehicles. Following article suggests that, the global plastic in electric vehicles market is estimated to grow with a CAGR of 37.3% and will reach $943.01m by 2021:

https://forums.tesla.com/forum/forums/plastics-electric-vehicles-soaring

Here is another article, which projects a slightly less CAGR number of 28% though:

Following whitepaper from TATA Strategic Management Group suggests that the usage of polymers in vehicles (kg per vehicle) is constantly on the rise (primarily led by replacement of metals with polymers) globally and the same has grown from 120 kg (per vehicle) in 2013 to 150 kg in 2015.

http://gcpa.themachinist.in/digital_assets/553/Whitepaper.pdf

Key drivers for Auto OEMs adopting plastics have been its lower weight, cost economies and versatility offered in the design. In case of overall plastic consumption, the consumption of plastics per vehicle in India lags developed countries (India’s usage is half of the global average) considerably, hence here exists significant headroom for strong growth of polymers/plastics in India in coming decades.

Even on non-electric vehicles, plastic play a key role in improving fuel efficiency and lower emission by reducing the weight of vehicle. 1 Kg of plastic can typically replace 2-3 Kg of traditional materials in a vehicle. And typically, 100Kg reduction in weight can save 0.3-0.4 Litre of fuel on a distance of 100 Km, as per the Europe commission report on light-weighting.

Reva e20, Mahindra Reva’s electric vehicle, uses 80 kg of plastics for instrument panel, fenders, front & rear bumper and the plastic body.

I feel that BEPL has already started benefiting from the EV market and going forward, it will see even more increased benefits, considering that, India has set itself an ambitious target of having only electric cars by 2030 (https://economictimes.indiatimes.com/industry/auto/news/industry/indias-all-electric-cars-target-bumps-on-the-way-of-nitin-gadkaris-bulldozer/articleshow/60424970.cms).

I would request all your valuable opinions on this.


Electric Cars/Bus :: Call it a Disruption?
(harry4u9) #263

Moneycontrol has removed BEPL from their Diwali picks citing valuation concerns however they are positive on the business.


(hamed) #264

i think back to back lower circuits has made them change opinion than the valuation.:grinning: Considering the growth, valuation doesn’t seem stretched.


(abhi2525) #265

The valuation seems stretched even if it grows at 75% man. For the CURRENT valuations to even appear sensible, the FUTURE needs to be more than perfect. And probabilities of a cumulative number of things is always going to be low. This is not worth the price its trading today for sure.


(nil_71) #266

This is good. Will remove the spotlight on this stock, will correct a bit and then as results improve, things will become better


(Agarwala) #267

It may be a folly, but I believe that BEPL story is yet to unfold in its full glory. One just has to read the Ambit report …


(abhi2525) #268

Have read the whole report and it does paint a rosy picture, but also says that returns from here will be solely from EPS expansion and valuations are already at a premium, The problem with these investments is not that the company will not perform, but whether the stock will perform or not. And this is a major handicap with investors - We fail to differentiate between the two. More often than not, even if the EPS growth comes in, in cases like these, valuation normalization takes away any potential upside. One needs to understand the expectations already built up in the price and upsides left.

With more than 8x return for the year, markets have already factored in years of growth, if not decades. And if sell side reports were that good, they would have stopped selling those reports long way back.

PS; Used to be a sell side analyst with a leading MNC house.


(madhavikkutti) #269

Dear @abhi2525, I appreciate your concern related to 8x return for the year, but won’t there be a good chance of the fundamentals of the company superseding the above concern? I am hoping that, it will, as I have been witnessing it happening at every level for Bhansali since Rs. 37 (even since I invested in this stock). During its journey from Rs. 37 to the recent Rs. 199, stock had corrected to the tune of more than 10%, at least 3 times which I believe was due to valuation concerns, but every time it retracted with increased vigor. I must say that, its last 3 quarter excellent results have been very supportive for the upward journey in its stock price.

Please refer to some of the earlier discussions between myself and @Agarwala on this thread regarding the price improvements of ABS since the beginning of the year. The global price of ABS has increased 40% to USD 2,000 per ton since the beginning of the year till end of September and subsequently increased to USD 2,600 per ton till now, making it an overall increase of 82% since the beginning of the year. Let me disclose that, we have made the best guess of the above figures, based on the details presented in certain news articles and websites.

Please also refer to my earlier posting on the very likely positive impact of Electric Vehicles on BEPL. I believe that, this will be a really big disruption which we will not be able to afford to ignore for the next many years and I believe that, BEPL has already started benefiting from this.

Also, if you really think objectively, how many companies in India currently can claim to have such strong MOAT as BEPL? I feel that, it is a very strong growth-oriented business. I think, what Ambit has come up with is a really excellent report and considering that, Ambit and its very talented CEO Saurabh Mukherjea more often come up with doomsday predictions and conservative/ negative views about the market/ stocks rather than positive, I feel that this report from them must be taken to be as highly positive for BEPL.

Coming to current valuation of BEPL: Current TTM P/E is 45.6 and the EPS for the corresponding period is Rs. 3.62. Between Q1 & Q2 this year, the profit has grown by 49%. I am not assuming that the profit would grow at the same rate over the next 4 quarters, in spite of the positive environment for the company. Let me assume a 20% profit growth Q-o-Q for the next 4 quarters. This translates to an EPS of Rs. 9.73, which is around 2.67 times the current TTM EPS of Rs. 3.62. Even if we assume a very modest 10% Q-o-Q growth rate, the EPS would work out to be Rs. 7.71. For a growth rate of 49% (which it achieved in Q2), the EPS as of Oct-18 would work out to be Rs. 11.09.

The optimism of at least 10% Q-o-Q profit growth over the next 4 quarters is keeping me invested in BEPL, in spite of the stock multiplying 8 times during the last year.