Bhansali Engineering Polymers - An Import Substitution Story!


(Agarwala) #312

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


(Chandragupta) #314

From the Q3 Press Release, one can understand as follows:

  1. Capex approval is revised down from Rs.300 crore to Rs.70 crore. The new capex plan is:

a. Capacity expansion to 100 KTPA ABS Compounding capacity at Abu Road by 31-Mar-2018 costing Rs.20 crores

b. Capacity expansion to 137 KTPA ABS Compounding capacity at Abu Road by 31-Dec-2018 costing Rs.30 crores

c. R & D Centre at Abu Road to be completed by 31-Dec-2018 costing Rs.20 crore.
Total Capex is Rs.70 crore. HRG & SAN for the above will be imported and no new capex for the same.

  1. Port based greenfield plant to be completed by 31-Mar-2021. It will include captive manufacturing of HRG & bulk SAN besides the finished product ABS. The entire 137 KTPA ABS capacity and the R & D Centre will be shifted to the greenfield project location later

Capacity & capex for the new project is not mentioned. Earlier this was part of the overall capex of Rs.300 crore for 200 KTPA new capacity. Does this mean it may now change and the company will announce revised capacity later? Does anyone have any views?


(Chandragupta) #315

If consolidation is happening in the ABS industry, it augurs well for the manufacturers. Two recent news reports:


(nil_71) #316

What MC article missed that in 2018-19 Q1, additional capacity of 20 KTPA will kick in


(madhavikkutti) #317

Moneycontrol (same Analyst Anubhav Sahu) had estimated revenues of Rs. 1,089 cr and 1,532 cr for 2018E & 2019E respectively in their research report on 16-Oct-17 (http://www.moneycontrol.com/news/business/moneycontrol-research/bhansali-engineering-gains-from-an-improved-pricing-environment-2414191.html). Not sure, why the same got downward revised to Rs. 970 cr and 1,227 cr in the 16-Jan-18 report. Considering that the ABS demand and prices are trending upwards (as suggested by the latest report) and utilization of the capacity also is trending up, I don’t see any real reason for the downward revision of the projected revenues.

Due to the cyclical nature, BEPL’s Q3 revenues and profits have been historically lesser as compared to Q2, however the recently announced Q3 results has bucked that trend hands-down. I find the above as highly positive.

Now that, additional 20KTPA capacity (80KTPA to 100KTPA) will kick in by 31-Mar-18, that itself should increase BEPL revenue by 25% during the period of Apr-18 to Mar-19. Even if we most conservatively assume that BEPL is just able to repeat its Q3’18 performance (EPS of Rs. 1.75) over each of the 4 Quarters of FY’19, the EPS derived would be Rs. 7 (1.75*4). However, with increased capacity of 25%, the above EPS can be estimated to be as Rs. 8.75 (as against the 7 estimated by Moneycontrol for 2019E in its latest report).


(atul1082) #318

since crude oil is going up and crude derivatives are used as raw material, is it the reason that the share has gone down by almost 105 despite excellent results. can someone throw light on the same/


#319

@atul1082 Are you discussing the BEPL story here? Looks like mistaken identity. The share is hovering around year high levels, didn’t drop much from its highs and had given great Q3 results.
The company came out with restructured capex plan as discussed in the previous posts by @Chandragupta and @madhavikkutti - all in all auguring well for future. The growth story looks intact.
Being a product in demand, the company should be able to pass on any cost increase in RM due to crude oil fluctuations, though not sure of long term contracts restricting this price increase.


(nil_71) #321

BEPL-15-01-2018-PL.pdf (595.3 KB)

Report that gives you some perspective on current capacity utilization.


(atul1082) #322

@nil_71 thanks for the report on BEPL . I have gone through few other reports and notes on moneycontrol etc on BEPL specifically & on other companies in general.All are posting a good pic of the future. I keep going thru many reports of icici sec/HDFC sec/PL/sharekhan/motilal and so many others.I would request if members could share as to how far these reports could be taken on board and which among these have proved to be close to the performance.

Dics:I am invested in BEPL and looking to invest further


(Susindar) #323

What I have personally noticed is these reports tend to pop up a lot during bull market and no one prepares a report during bear markets. Almost all reports come out with a buy call no matter the price with a hefty price target justified. I would say take such reports with a pinch of salt!


(Yogesh Sane) #324

Company has once again revised its capex plans. Instead of backward integrating by building HRG and bulk SAN manufacturing capacity at the Santoor plant for 300 Cr, it will only build a smaller downstream compounding plant for 50 Cr at Aburoad plant thereby going asset light for next 3 years. It will import RM instead of making it until the larger greenfield plant is ready. This will impact EBITDA margins but 300 cr of capex in 2018 was a large and unrealistic plan given the cashflow. EBIDA margins are growing and stronger rupee will help in keeping cost of imported RM low. This will keep the company debt free. Expansion plan also look more realistic now that capex will be spread out over next 4 years instead of front loading it in 2018.

Two plant set up also is costly. Company has cited that as a reason for low productivity and costs. By not investing further at Santoor plant, it may even close that plant in future. Company has also preponed port based plant commissioning date from March 22 to March 21. March 22 was too far out in the future. This gives a better visibility for next 2-3 years.


(Tolaha) #325

From the attached report:

Keeping this in perspective, we would consider
FY 20 earnings of Rs 2 bn in deriving valuations of 14x (or whatever) and advice an
accumulate at these levels with a medium term price target of Rs 266 implying an
earnings multiple of 22x on FY20E earnings.

Valuations of 14x or whatever :rofl:


(Yogesh Sane) #326

Nice catch. Analyst is saying 14x or whatever it takes to justify a buy recommendation.


(atul1082) #327

@ Yogesh Whats your opinion on the report?“Nice catch”? Is it on the stock ?


(Yogesh Sane) #328

No. It was about the valuation logic. May be the analyst forgot to delete that. I generally don’t look at sell side analyst reports. They are generally overly optimistic. I feel these guys start with a price target and work backward to justify it.


(Tolaha) #329

Last 2 steps while making this report - assign a target price and then later put in the appropriate valuation multiple as per the target price. Deadlines to meet… must have slipped! :slight_smile:


(madhavikkutti) #330

One more problem with this report: Report estimates the 2018E EPS as Rs.5.9. That would mean an EPS of Rs. 1.59 for Q4. Hence, estimated Q4 EPS is lesser than the Q3 EPS of Rs. 1.75. What is the justification for the reduced EPS for Q4? Traditionally, Q3 has been the seasonally weakest Quarter for BEPL


(atul1082) #331

my estimate of EPS for the quarter is 7.


(prash.peru) #332

The stock is showing some signs of weakness. Might be time to get cautious if it drops below 170.


(nil_71) #333

As a value investor or similar philosophy, I feet BEPL growth will be muted next 1-2 quarter as it is getting reflected in Q-o-Q revenue growth, forcing management to scramble to reduce CAPEX amount and hasten to 20KTPA by March 2018.

I read through PL report carefully more from how cos is coping in. Found it is operating at 90% capacity. It is an excellent business. Improving management. I have excited it and will come back when mean reversion happens

I may be wrong but I felt to share it