Bhansali Engineering Polymers - An Import Substitution Story!

(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.

([email protected]) #270

Hi madhav, assuming a 10% Q-O-Q growth and EPS at 7.71 the P/E for full FY18 would come up to 21 (taking today’s closing price), is that not expensive in your opinion from a valuation point of view.

(madhavikkutti) #271

Hi @pandi.rao, 10÷ growth Q-o-Q is approximately 46% annual growth. BEPL’ s products are used mainly in Automobiles and home appliances like refrigerators. There is cyclicality to a certain extend in its products, but I feel that the positive cycle which it has entered into now will be a prolonged one, lasting many years from now. As I had already mentioned on this forum earlier, BEPL has many positives currently: oligopolistic industry with multiple entry barriers, tie-up with Nippon, well-diversified clientele, passionate promoter etc. I am that kind of an investor who would be comfortable with a P/E of even 40, as I expect an yearly profit growth of at least 46% yearly at least for the next 3 years.

(Agarwala) #272

The latest Moneycontrol report on BEPL wants us to enter the company at a more comfortable or reasonable valuations. If the analysts at Moneycontrol were not comfortable with the valuations, why did they not give a sell call or change their recommendations when there were continuous upper circuits? I feel deeply uncomfortable by the timing of the call. We have no way to know, if it is a deliberate action to bring the prices down further? Here is their current view on BEPL…

In case of Bhansali Engineering Polymers, we remain positive on the business which is well placed for market share gain in the ABS (Acrylonitrile butadiene styrene) plastics aided by fourfold increase in manufacturing capacity (by FY 2022). However, post significant run-up, we suggest to wait for a reasonable price level to consider a re-entry.

(abhi2525) #273

Great then. At the end of the day, its individual’s perception that makes the market. And of course, faith in an analyst is one’s personal choice.

Let’s take 20% Q-Q growth in earnings, which translates to an EPS of Rs.9.73. Just to ensure, a 20% Q-Q growth for 4 quarters is 107.4% yearly growth in earnings. with an increase of 70% overall increase in capacity ( From current 80K tpa tp 137K tpa which includes 7K of low margin SAN products). Which translates to more than 35% increase in prices over next one year and more than 100% increase after that 2-3 years. Not going into how is this sustainable or achievable, but just have a case where it doesn’t happen. What’s the worse case scenario? Why should Ineos not offer competitive price given this much increase and will not other players, even if it’s in form of imports, pop up to take advantage of the same?

And electric vehicles has got nothing to do with ABS. The compound is used in fenders, housing head lamps, seat base, tail cover, side cover cleaners, and air cleaner ducts for 2 wheeler and mostly door panels, and all lights housing for 4W. Yes, there is a rise in ABS price and it is cyclical. Automotive has been a secular growth story in India since last two decades and I see no reason why it’s being suddenly touted as the next big thing. Nothing has changed materially there. Electric or Petrol or Diesel or CNG, demand for ABS is not going to change based on that. Uses in other home appliances such as Refrigerators and Washing Machine is going to grow at a rate it has been growing earlier.

Yes, have gone through the entire thread and various reports on BEL as well as their last 7 year AR. This was a good value buy at 30-40 levels. At this price, I won’t touch it with a barge pole. Not because the company will not do good, but because even if it grows at a rate of 50% for next 3 years, this will be a disappointment given the expectations built in the price. There is no margin of safety here. Forget that margin, the current prices looks to have already factored in next 2-3 years growth, at a high rate. But then again, I might be very wrong and I hope you are right and this gives you enough return, from hereon.

(Agarwala) #274

This may be relevant what the analyst at Moneycontrol wrote just a few days ago on Nov 25, when BEPL had closed the previous day at 162.15. To be fair, it was a different analyst and probably a different perspective.

Bhansali Engineering Polymers: Buy | Target Rs. 179 | Stop loss Rs 150 | Return 10%
Bhansali Engineering continued with a strong uptrend momentum forming a series of rising peaks on its long-term chart coupled with marginal consolidation at a higher level which turned the scrip healthy. It also witnessed a similar growth in volume along with its upward movement.
The scrip formed a strong bullish candlestick-pattern on its weekly price chart and continued to trade laterally on 60-degree trend line touching an upper band which indicates a positive signal.
The secondary momentum indicator further suggested a strong support for an uptrend regime with incremental in its RSI level from the previous zone along a with MACD still continuing above Signal Line.
The stock is currently facing an immediate resistance at Rs 179 and support level at Rs 145. We have a buy recommendation for Bhansali Engineering which is currently trading at Rs 162.15

(abhi2525) #275

Very different, technical perspective. Need to learn more about this to comment on this. Thanks for the post.

(jayesh265) #276

Just looked @ traded Volume of BEPL








And the crucial part is that the Stock remained @ LC thr’out the day

Well done…


Disc: Tracking quantity

(Rajasekhar_81) #277

Just a small observation today, despite having huge run in last few days, I expected good fall from 180-190 levels. But after hitting LC from last 3 days, the stock is showing some good resistance at 160 levels…

(nil_71) #278

Coming back to valuation, it is not in our control. Let’s not debate on this. Rather, we should focus on finding news of Promoter, Scuttlebutt, Competitors,

There are many stocks that are going up without any fundamental reason.

Let’s not waste time and also try to predict growth. Just remember , there is a significant gap between demand and Supply. Also there is a supply restriction in the domestic market. All seasoned investors focus on Supply rather than on Demand

(Agarwala) #279

Mutual fund action in BEPL
October '17 data I could find. Bank of India AXA AMC has doubled the exposure to BEPL in four of its funds.

Please look at the source here…
I think November '17 data might be more interesting, if somebody can find out.
PS: Many fund houses contacted BEPL during last days of October '17.

(mukeshbhatt77) #280

I agree… else, it will become money control message board. .thx

(abhi2525) #281

Of course it’s in our control. In fact, it’s the only variable in our country where we can decide our own buy price. Everything else is an opinion.

Anyway, i give up on this thread. Lot of confirmation bias here. Hope everyone who has entered at later stages make money. :slight_smile:

@mukeshbhatt77 For money control board, well, I am sorry if a chain of reasoning looks like MM message.

(madhavikkutti) #282

Dear @abhi2525,

I again appreciate your thoughts and beliefs, though tend to disagree. I tend to believe that, we both are entirely different kinds of investors. @Nolan has put it very beautifully in his below posting about the two kinds of investors:

(abhi2525) #283

Yep. No worries at all. Whatever works, as long as it works. Cheers.

(Agarwala) #284

A hungry animal will divide the world into edible and inedible, while a prey being chased will divide the same world into safe and unsafe places. We are bound to have different perspectives. I personally will like different perspectives to flourish on this thread. The problem arises when we try to impose our opinion on others.

(nil_71) #285

I am wondering about those Retail Investors who bought at 190+ and sold at 170 in panic based on a tweet and retweet.

Good luck to them. This is another thing to learn for all.

I was checking Styrene monomer price, it has come down a little bit

(Agarwala) #287

A news item dated 5th Dec, 17…
Bullish run persists in Asia’s ABS markets, Europe follows suit

(Agarwala) #290

I cannot resist myself in making two seemingly unrelated but somewhat connected points here.

  1. Promoter of BEPL Babulal Bhansali is a non-matriculate. He has risen despite this handicap, and I suspect that he continues to face this handicap. If he is successful in creating big wealth (that only future will tell), I will be compelled to compare him with Dheerubhai Ambani. In my eyes, he would be in the same league and nothing less.

  2. Read this news item… Exclusive: Prescient messages about Indian companies circulate in WhatsApp groups. In July this year, messages regarding first Q loss were circulating in a Whatsapp group. The company in question was Dr Reddy’s Laboratory, and the timing was just days before the result date. The loss figure mentioned proved to be surprisingly accurate. The drug major is certainly no small cap. How many of the analysts raised their voices on Twitter or elsewhere or downgraded the company? I am not aware if SEBI is investigating the matter. It might be.

Please feel free to make your own observations and derive your own conclusions.

(nil_71) #291

For BEPL investors, I think, we should drop mails to investors’s cell and request Promoter to have quaterly calls.

Instead of fighting among ourselves, if we 100 of us drop a mail to them , I am sure management may be interested