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.