Bhansali Engineering Polymers - An Import Substitution Story!

(rajenr75) #335

The stock is indeed overpriced. With constant increase in the raw material price, looks like there is some negative signals on the chart.A small correction may be in the offing. Watch out.

(Mahesh) #336

TTM EPS is ~ ₹5. So at ₹200 price, PE is 40.where did you get 87 PE from?

(madhavikkutti) #337

Dear @skhanbir,

Welcome to the forum!

BEPL’s TTM EPS is Rs. 5.19. Hence, its P/E as of current market price is just 35 (and not 87 as you mentioned). I think, Marketsmojo site is incorrectly showing the P/E as 87, whereas the Moneycontrol site shows it correctly as 35.

Now, I feel, it is reasonable to expect higher EPS for the Q4 quarter (say, Rs. 2), as compared to Q3 which had an EPS of Rs. 1.75. Following are the key reasons for my above optimism:

  • As per the various news/reports/opinions, ABS price is constantly on an upswing, especially driven by auto and appliances industry
  • BEPL has not yet reached 100% capacity utilization out of their 80KTPA capacity
  • No new competitors (industry has an oligopoly with INEOS) in the near-term visibility (industry has multiple entry barriers) and only 48% of the domestic demand of ABS is met by the domestic producers; the remaining 52% is still met with imports
  • Margins are all time high of 16.8%
  • Q3 has been seasonally a weak Quarter for the company and in spite of that, it has improved on its Q2 results this year
  • Going forward, BEPL’s growth is very likely to be driven by more specialty grade offerings (i.e. higher-margin products) than general grade offerings

Now, let us assume that, BEPL will be nearing its 100% capacity utilization (I think, currently it is around 90%) by Mar-18 and achieve an EPS of Rs. 2 in Q4. Its capacity increases by 20KTPA starting from 1-Apr-18, which is an increase of 25% from its current capacity. With the increased capacity, let us assume that, it will be able to generate about 25% more profit (as compared to Q4’18) over Q1, Q2 and Q3 of FY19. This translates to a cumulative EPS of Rs. 7.5 for those 3 Quarters.

Now, the additonal capacity of 37KTPA will be commissioned by Dec’18, which will be 37% more than the capacity as on Apr-19. Let us assume that, 20% of the above additional capacity will be utilized during Q1’FY19. Hence, the Q1’19 EPS can be estimated to be as Rs. 3.

Hence, from the above rough estimations, we can see that, there is a good chance of BEPL generating an EPS of at least Rs. 10.5 for FY19, assuming that, all the positive factors mentioned by me above prevail throughout FY19 also.

Assuming that, it utilizes about 27% of the above additional utilization over the 4 Quarters of FY20, the overall EPS of FY20 can be roughly approximated to Rs. 12.7.

Please note that, in all the above calculations, I have considered only the impact due to capacity expansion and not taken into effect any positive effect of margin expansions due to better fixed cost absorption or richer product mix. If the company is able to sell higher-margin products more in the future (I think, they will be able to do so), the margins also will improve accordingly. I have also not considered any increase/ decrease in the costs of their products or raw materials.

As per my understanding, BEPL typically follow a formula-based pricing (which changes on a monthly basis, with prices derived using average prices over the previous four weeks) to price their raw material contracts as well as revenue contracts with key end-user OEMs and the above method provides considerable stability to their margins.

Also, BEPL has now pre-poned the port based plant commissioning date from March 22 to March 21. This future expansion plan will keep us interested in this stock beyond FY20. However, at this point of time, I am not able to extrapolate the EPS figures beyond FY20, as the finer details of the above expansion are not yet available.

(skhanbir) #338

Thankyou Madhavikutti and Mahesh for correcting me in calculating EPS.
I do apologize for incorrect PE calculation.

I just went by marketsmojo and PL report in calculating PE. That is incorrect.
EPS for last 4 Qtrs is (1.75 +1.51+1.05+0.91) ~ 5.2 and with the current price of 180 it’s PE ~ 34.

Thank you, Madhavi for taking time and writing details on the outlook of BEPL. This is very helpful.

This form is really helpful and corrected me. :+1:

(ranjeetpatil9997) #339

see even promoters are entered at 170/- 180/- and i think no one knows company batter than promoters.
and for PE , every sector has its PE and we cant judge on standard PE like 15
stock liiike avenue supermart are reasonable at higher PE and but few stocks of PE 10 looks comparatively costly

(murugu selvan) #340

Only ABS capacity will be increased, not input SAN and HRG capacity. So, bepl will import SAN and HRG at a higher price and all things being equal, profit margin to come down from Q1, 2020., when they start using additional capacity of 80-100-137. However, if high margin ABS mix increases, one may see profit margin expanding. Fingers crossed.

(Shivram) #341

PE really prices in Long term growth expectations of the market. While I agree PE should not be set at a number, merely looking at sector pe and treating it as correct is insufficient. The PE should be looked at with reference to our expectations for that industry (revenue pool, profit pool, Competitive landscape) and the company (management, intangible, competitive advantage) in question.

(rajenr75) #342

Great Analysis Madhavi. TTM EPS is a historical data and does not indicate future prospects.It only tells about how the management/company fared in the past and throw an indication about the quality of the company and its ability to respond to changing market conditions in future.Estimated EPS for FY18,19 and 20 should be good enough basis for taking a call on any company as of now.Again we cannot rely on reports that goes beyond FY20 as its too much of an astrology than probability.


(skhanbir) #344

Feb 1, hit UC limit
Feb 2, hit LC limit

Jan 30/31 Jayesh Bansali bought 2,60,000 shares @ ~ 170

Thought will share the info.

(atul1082) #345

Can we see this info on exchange website? If yes,the route pl?

(yudiagg) #346

Thanks for sharing this very useful information.

(khushi) #347

In few days govt will have to reduce stt to improve market sentiments.

(skhanbir) #348

Its in the BSE Disclosures

LC limit LC limit Search for Bhansali. The ticker stopped at 168.15

The same happened yesterday for UC.
Not sure how to get yesterdays UC limit data.

(Vasan) #349

Here it is…under the disclosure section of each company

you can also see the daily insider trading details in BSE

(madhavikkutti) #350

Promoter bought yesterday & today also - 2.5L shares.

(Mahendra243) #351

Madhavi, Sometime promoter buying gives confidence…but why you think they are not releasing their pledged shares? i think that will give much more confidence right…which in turn will reduce the interest costs as well

(madhavikkutti) #352

Hi @Mahendra243, I have provided my thoughts on this in the following discussion thread:

(atul1082) #353

could be promotor be buying his shares to maintain the share price as a major part of his holding is pledged and in case the market price comes down below a certain limit, he may either gets a margin calls or the pledger may sell the shares in the market bringing a crisis for the promotor? just a thought being shared for views from seasoned boarders and get benefitted with their experienced views

(Amit Mehta) #354

Plus the number of shares bought is quite small which wouldn’t move the needle for them. I would consider this more as a way to create positive sentiment in the stock when the share price is under stress.

Disclosure - hold tracking position. Booked profits at close to the current share price