Bhansali Engineering Polymers - An Import Substitution Story!

(Agarwala) #293

Promoter buying continues even now…
Jayesh Bhansali bought 240000 shares worth more than 4 crores on Thursday and Friday.

(yudiagg) #294

It is very interesting - but what could be his source of funds to make such
large purchases. Further what could be his motivation for continued large
purchases ?

(nil_71) #295

In case, you see AGM notes, plan is to increase stake to 75%.

Now I already sent a mail to investor cell, requesting for quarterly call. Please send similar mails before your next posting.

(nil_71) #296

This year- till date promoter bought 30 crs worth share and avg price for him is Rs 40 till date

(Agarwala) #297

Is BEPL too much heated up?
Let us look at the PG ratio…
Projected capacity increase by management from FY 18 to FY 22—from 80 to 337 KTPA
Thus rate of capacity increase ~ 43% per annum
Current EPS 3.62
Current Price 174.3
Current PG ratio = 174.3/43*3.62 = 1.2
By March 18 EPS could be 6 or more so (if the price remains the same) the PG ratio would fall to a value much below 1, while 2 is considered acceptable.
Of course there can be other ways to evaluate the price of this scrip, and these methods may show that BEPL is overvalued. I request the members to come up with their calculations, so that everybody will be benefited by a contra view.

(Susindar) #298

Has the management guided 337KTPA by FY22 and how confident are they? That’s more than 4 times capacity expansion in 4 years

(Agarwala) #299

In case you do not agree with these figures, do your own calculations and post here. That is what I want.

(kartiks) #300

In this calculation it is assumed that EPS expansion rate for next 4 years is same that of the capacity expansion rate.

(Agarwala) #301

I agree that assumption has been made.

(Susindar) #302

I just asked whether management guided regarding capacity expansion as I do not own this stock and therefore I am not tracking. This seems to be a cyclical business that is being run for a number of years. Without a massive capital investment, I think the capacity expanding by four times seems impossible. Also going by the OPM, the company seems to be already in the peak of its cycle. As a result, price has already run up 10 times over the past year. So this stock is at peak valuation in peak cycle. On this basis, even if the capacity expands by 4 times there is still a huge downside risk than an upside risk especially at this valuation. This is just what I see.

(Susindar) #303

Another negative that I am seeing in screener is promoters pledging 55% of their shares. Such things are generally big negatives that I watch out for.

(Agarwala) #304

I will add to your logic. The book value of the stock is near 10. So price to book value ratio is very high. Let us continue to look at other parameters.
PS: @nil_71 and @madhavikkutti Susindar has raised a valid point about promoter’s holding remaining pledged. May we have your observations on this issue.

(Susindar) #305

I cannot see any signs of capacity expansion. If any, incremental profits are going towards repayment of loans (Reducing every year from FY09 to nil now). The fixed assets keep reducing year after year for the last 10 years with not even a small sign of incremental investment in the business. Other assets keep increasing but I do not know what that is. If any, the assets are getting older and less effective. Nothing impressive about ROE, sales growth and profit growth over the last ten years of less than 15%. What i see is just a cyclical average stock in the peak of its cycle and overheated by the current bull run. Of course, I reserve my right to be wrong.

(nil_71) #306

I think BEPL is not a play for investors who wants to see results tomorrow. It will take time provided Promoters’ walk the talk.

I will be more happy to get information on financials of 80 to 137 KPA expansion and then the execution part. 200KPA is a long way off.

(madhavikkutti) #307

Dear @Agarwala,

Although there is a general perception that the promoter pledging of the stocks is negative, I feel that, there can be cases when it would be considered to be as positive also. If the promoter is pledging stock to raise capital to purchase additional stake in his/ her profit making business, it can be considered as hugely positive.

In case of BEPL, I think, there are strong reasons to believe that the stocks pledged many years back have not been released as yet for positive reasons. Let me explain my thought process below. As I am not the most experienced person in the stock market, I could be wrong in the following logic, hence request anyone to correct me, if you find a flaw.

Currently, there are 5,00,00,000 stocks which are pledged by BEPL promoters. These stocks were pledged many years back (I do not know the exact date). BSE Shareholding pattern has started including the Promoter Pledging information starting from the Mar-2009 Quarter, hence let us take that Quarter as a reference point and make our judgement based on that.

As of Mar-2009, promoter and promoter groups owned 44.82% of the stocks of the company and 67.24% of the above stocks (5,00,00,000) were pledged. 2009 was the year when the company had made a loss of Rs. 11.42 crores. BEPL’s share price during the Mar-09 Quarter was around Rs. 9, hence let us assume that the market capitalization was around Rs. 149 crores. Out of the above, the value of pledged stocks would come to be around Rs. 45 crores. Let us make an estimate that, the above pledge helped the promoters to obtain a long-term loan value of around 36 crores (80% of the total pledged stock value).

Subsequent to Mar-2009, company had never made any losses and made a cumulative profit of Rs. 146.54 crores till the Sep-17 Quarter. Hence, it could have easily fully paid back the above loan of around Rs 36 crores, considering that, the only major expense the company had since Mar-09 (as per my best guess) was the Rs. 40 crores used for capacity expansion at Abu Road from 51 KTPA to 80 KTPA.

However, the above loan did not get settled till date. Why? Because the promoter wanted to buy additional stocks of the profit-making company and for doing the above, they needed money. Instead of settling the loan, they used the surplus money for purchasing the stock of the company. As a result, the promoter holding now increased to 54.25%, as against the 44.82% in Mar-09. In fact, the current promoter holding could have been even more than 56%, had some of the promoters were not reclassified as public shareholders during the Sep-17 Quarter.

Now, assume that, you were the promoter of the company. Would you have done anything different? Let me tell you, what I am doing. I have a housing loan which I could have settled fully very easily. However, instead of settling the above, I invested the surplus money in stocks like BEPL. Reason is that, I am expecting much higher return from BEPL investment, as compared to the around 9% yearly interest that I am paying on my housing loan currently.

BEPL promoter is not the only one who is doing this. Please read the following article for another example. KPIT stock price appreciated around 40% since the promoter had purchased additional stocks this way since Mar-17:

(Chandragupta) #308

It was mentioned in this same thread many months ago that the management is trying to revoke the pledged shares but the shares are under arbitration. So there seems to be some technical issue in this, nothing more. But it is not clear what exactly is the issue.

(Agarwala) #309

Thanks everybody for providing inputs, particularly Madhavikkutti, who did a very detailed and logical analysis. My feeling is also that promoters have done the pledging (or they are continuing with it) to have finances for themselves rather than for the company. This is because there are no long term loans on the books of the company. If promoters are keeping the shares pledged in lieu of borrowed money for themselves, it is plausible that they have done that to buy company’s stock. That is perfectly admissible, but in the interest of the common investors the promoters should come clean on this.

(Millennial_Investor) #310

Please pardon my noob question: How come there is interest paid in amount of 2.5 cr on Q2 whereas the borrowing is zero? If it is for short term borrowing, isn’t that too high anyways? And go for short term loans if one is looking for capacity expansion. Won’t long term be a good idea?

Also, “other liabilities” on the balance sheet has not reduced for last 10 years and are quite high at 250cr+.

Can someone help understand this?

As far as shareholding goes, there has been a slight change in promotor’s holding. It was 55.xx% by March2017 and now it is 54.xx% and the number of shares pledges remains same.

Disclosure: invested and sold part of investment last month.

(hamed) #311

In last quarter promoter have bought 13.9 lac shares less than 1 % increase. This calculation excludes approximately 3 % which was reclassified as public from promoter. Though this is positive, but not sure whether all the price increase is because of promoter buying only; looks like it is getting attention from other parties too. The results are due on 14th Jan, like last quarter it is quiet early and expect to be bumper one.

Discl: i am invested

(Agarwala) #312

Third quarter results.
Lots of details about expansion.
Members please critically analyze and respond.