Bhansali Engineering Polymers - An Import Substitution Story!

Stock Opportunities Not-so-Hidden Gems
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Company’s responses to my queries:

  1. The company has put on hold the expansion plan to 137 ktpa. Does the company foresee reduced demand going forward?

Capacity expansion from 80,000 Ton to 1,00,000 Ton was completed by 31-03-2018 at a Capex of Rs. 20 Crore which had to be expanded to 137 KTPA by 31-12-2018 with a capex of Rs. 30 Crore. The Board of Directors in their meeting held on 14-07-2018 deemed it prudent to keep the further expansion in abeyance on account of the companies plan to re-orient it product management strategy so as to position highly remunerative grades of ABS in automotive market segment.

In order to achieve this goal what is required, is strong R&D back up. The companies state of the Art R&D center will be commissioned within the current year and product diversification strategy, as aforesaid, will be achieved. Therefore capacity utilization enhancement to be achieved through increasing sales of low profitable GP-ABS grade was not a chosen path. There is no loss of opportunity cost as efforts are being directed to optimise the profitability through the concept of niche marketing.

My response to that:

Regarding the capacity expansion from 100 kTPA to 137 kTPA, you have mentioned in your email that, “Therefore capacity utilization enhancement to be achieved through increasing sales of low profitable GP-ABS grade was not a chosen path. There is no loss of opportunity cost as efforts are being directed to optimise the profitability through the concept of niche marketing.”

However, the company’s financial results for the quarter ended Dec 31, 2017 had the following mention

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Hence, I’m unable to understand how the expansion which was a “cost effective expansion strategy” until Dec 2017 is no longer a “chosen path” in July 2018. Why this 180 degree turn in strategy? What went wrong in decision making - did the company not gauge the market accurately?

Besides, it is unclear to me what you mean by “optimise the profitability through the concept of niche marketing." Please elaborate on this.

  1. The company aims to achieve 75% capacity utilisation of the 100 ktpa current capacity. Why is the capacity utilisation capped at 75% only? Has the demand for ABS polymer come down? Is this due to cheap imports from China?

Capacity utilization for F.Y 2017-18 was around 66000 TPA out of total available capacity of 80000 TPA during the said period.
100000 TPA is the aggregate ABS & SAN manufacturing capacity at ABU Road as of 31-03-2018. HRG is manufactured at Satnoor, M.P. with the capacity of 15000 TPA exclusively for captive consumption at Abu Road plant for manufacture of ABS only.

My response to that:

This means that capacity utilization was approximately 83% in FY18 (66000/80000 = ~83%). However, the company is targeting only 75% capacity utilization in FY19 according to the company’s Q1 FY19 results below.

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Why is the company aiming for lower capacity utilization in FY19 compared to FY18? Has demand for the product come down? Or has competition intensified?

Let’s see what they come back with.
Somehow, the fact that the mgmt. acquired large number of shares in this year’s correction, gives me comfort about them having lot of skin in the game.

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I am sceptical about that. If we see the shareholding pattern, they have increased by 0.31% during last qtr of FY18. But during first qtr, there is a token purchase by KMP which has not reflected in the SHP as it is insignificant qty. IMHO, management has more to reveal which they are withholding from the investors vis-a-vis ‘Hold’ on expansion plans.

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Well, we can be as skeptical as we like to be.
Jayesh Bhansali purchased 2,40,000 shares in Dec 2017. This was followed by a purchase of another 4,10,000 shares in Jan-Feb 2018. So a total of 6,50,000 shares all in his individual capacity.
This gave investors a lot of confidence when everything was going right with the company. And now all of a sudden, people do not want to believe even these real purchase numbers.

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Expansion Programme from 100 KTPA to 137 KTPA back and to be completed on Mar 2019

6cfa76bb-4279-402d-b216-3a5cf6180f75.pdf (282.3 KB)

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In addition be month their assessment of “expansion not required” changed to “Required”. See notes from July 14 board meeting.

This kind of back and forth decisions without strong rationale reduces confidence on management… hope they don’t change their mind again!

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This looks skeptical.Looks like enough accumulation is done by known parties and now distribution would start … Dont see a reason why they have to go back and forth ? Last they mentioned for this year they will be not be able to use more than 75% of available capacity …of 100KTPA … and now again back to old. There were few tweets from Amit Mantri on BEPL, i had ignored them as a thing of past but looks like OLD habits die hard .
Stay Cautious…

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Plant and Machinery has also been received ! Ordering capital equipment and getting it delivered is a long drawn process, it doesn’t happen in a jiffy. Besides the 14 July release, look at the company responses to @jainnitinp posted just 9 days ago (date of response not known). Clearly, the management seems quite undependable.

Disc: No positions

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Another response from the company to my query

How trustworthy are the recent expansion plans to 137 ktpa (announcement as of 14th Aug 2018)? What is the likelihood that they will not be shelved again like other similar plans were in the past by your company?

We appreciate your keen observation and anxiety whether 137 KTPA capacity will get implemented in the current fiscal. In view of the fact that almost all plant and machinery have been received, we see no reason why it can not be done. Please note that we regularly intimate BSE and NSE all major developments in respect of company’s operation and project planning & execution.

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I did a shareholding pattern analysis on BEPL and found very interesting things. There was a group of real-estate companies kinda names holding a large chunk of BEPL in 2016. Together they held 4.24 Cr shares - i.e half of what the promoter then held. These holdings seem to go back quite a few years which makes me wonder if they were benami promoter holdings.

Over the course of time post demonetisation, these entities don’t have a single share and this 4.24 Cr shares are now held by

a) Promoter - about a 1 Cr shares
b) Retail - about 3 Cr shares

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Promoter - all the buying was done in Dec '16 and Mar '17 when the price was around 25 levels on average - so it is fair to assume the promoter spent 25 Cr to buy these shares.

Retail bought the 3 Cr shares on the signal from the promoter.

Now if these holdings that sold out post demonetisation (might be an unrelated event but lot of interesting things happened during this unforeseen event, so it might be related) were indeed benami holdings then the promoter succeeded in distributing a rather large 3 Cr shares by just reshuffling some holdings to his name.

If these entities were not related to the promoter then I pity their wisdom in holding such a large chunk for almost a decade and then selling out just before a 10x run-up. If they were unrelated, how did they all decide to sell in the exact same quarter? I will let you all be the judge.

Disc: I bought and sold some BEPL last year without much knowledge while riding momentum. This analysis is completely post-hoc.

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@phreakv6
There is some discussion on it in the forum earlier .
There was some despute between promoter and the entities you are referring to .
I am posting link of one of the earlier post. You can browse the post earlier to it to get more understanding

Disclosure : - Not invested in past/present and future

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All of these real estate companies (MKJ Enterprises Ltd, MKJ Developers, Mantu Housing Projects, Sarvesh Housing Projects Pvt Ltd, Right Address Ltd, Twenty First Century Securities Ltd, Madanlal Ltd) are registered in Kolkata. Co-incidence?

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Excerpt from the AR released today

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Interesting excerpt from the FY18 AR (page 33). Four wheeler manufacturers are currently not BEPL’s clients. If they do succeed in getting even a few of the names mentioned below under their clientele, it could be a huge upside.

BEPL’s business strategy continues to intensify its efforts to optimize its share of highly remunerative ABS market segment, especially from the automotive industry. This activity will be fully backed up by state of the art R&D Centre being established by the company, which will be operationalized by September 2018. Though for this very purpose, BEPL has established a JV company with Nippon A&L Inc., Japan (NAL) but its full impact will be visible after the R&D Centre gets established. This is because ABS is a performance polymer and its grades are specially developed for specific application required by the customers. This is precisely the reason that BEPL has adopted the policy of focusing more on specialty grades which requires stupendous efforts in the beginning but once developed such efforts are highly paying, not only in terms of price but perpetual continuance of business with the customers due to the position acquired in the supply chain established by the customer. India is becoming a global manufacturing hub of two wheelers as well as four wheelers. This is why international giants in the automotive field, viz. Suzuki, Hyundai, Honda, Toyota, Volkswagen, General Motors, Ford, Nissan, Renault, Fiat have established their respective manufacturing facility in India, with growing degree of indigenization of its components. For components manufactured out of ABS, BEPL’s presence is well registered with all such international giants but its share of their outsourcing requirement has to grow more since it is still dominated by overseas suppliers of ABS, mainly LG and Lotte. It is reiterated that it will not be difficult for BEPL to tilt preference by such customers in its favour, once the R&D Centre at Abu Road is established.

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Good article on BEPL

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This is an open market purchase (BEPL does not have any ESOPs).

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Does anyone know who is R Pattabiraman? Is he a big ticket investor? He has purchased significant number of shares last year. Google searches by that name are not giving a clear result.

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D.N. Mishra the company secy who has been buying BEPL stock from the open market has tendered his resignation. Last day 6th Oct 2018.

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BEPL 34th Annual General Meeting with Yearly Guidance and Strong growth story
Entire Details of 34th AGM in the link below
http://totalinvestments.blogspot.com

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@sunny.20.jain
Blog shows incorrect numbers in terms of ebitda and profit by one decimal.
Instead of 154 crores it shows 15.4 crores as pbt and instead of 99 crores…it shows 9.9 crores as PAT
Can you get it corrected…its misleading

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Strong growth projection by mngmnt.

Bepl AGM takeaways

  • 137000 tpa will be achieved by march 2019 and for FY19 the output will be 75000 tpa and for next year FY20 minimum they will achieve output of 100000 tpa and max around 120000 tpa
    General grades and speciality grade should be in balance and for achieveing 137 ktpa by march they have to shutdown plant in between that is why capacity utilization is around 75% for Fy19
    Value wise they sell abs between rs.150 to rs.400 per kg ranging from normal grade to speciality grade. They have around 100 to 150 grades and each grade have approx 2000 colors so once a customer is tied up, customer dont go to other player for purchasing his qty. so the idea is to produce a balance between normal and speciality grade to gain maximised profits and market share at the same time.
    Out of the total capacity to be added by march 2022 i.e 337000 tpa around 200000 will be speciality grade.
    The research centre will be operational in a day or two and they have good researchers from the industry there to identify new application with speciality grade and tap customer for those grades. As rightly mentioned by Mr. Babulal bhansali that for us cost will be same for raw material imported, but will try to maximise profits from speciality grade. Also he shared the fact that earlier there were 4 players in this business and Mr. Babulal bhansali took over two companies in the past whose results can be seen now with their plants used for increasing the current capacity from 80ktpa to 137ktpa. These companies worth 200 crores were purchased for just 11 crores and the EVA that the plant is adding now is like cost free to the company.
    Also he mentioned that ABS have no link to rising crude price the only impact is from the price prevaling in the mkt due to demand and supply gap and 80% of the raw material is imported.
    Also they dont not have any hedging policy for raw material import bills as they claim that it is on 90 days period and we have pricing formula based on 90 days period in which 50-60% of the contract is covered where the price fluctuation is passed on the customers and rest 50% is expose to dollar fluctuation, and for hedging we need to pay 1.5-2% cost to bank so why should be bear the cost in advance when the question is just for 90 days and such fluctuation in currency from 67rs to 72 is not regular and once in a time. And if any fluctuation loss is incurred it is incurred from the profits generated and our main focus is to maximise profits through product development and marketing and adding clients.
    He also said that for sustaining in the long term, port based expansion is a must and they will any how complete that by march 2022 and will make operational till that date. For that matter land which is 6.5 km away from port is finalised and negotiation with govt. will happen and will be closed within 3 months time and after that it will take 9 months to get environment clearance for setting up plant. Thus the commercial production can easily be achieved by 2021 and entire capacity expansion will be done from internal accrual and for that total capex estimate will be out by year end i.e march 19.
    Wrt to fire incident he said the fire took place in the plant which was not operational and shut and due to reasons not known but have taken due deligence and audited the entire plant by its technological partner so that such incident dont take place again. He was busy with settling things at the satnoor plant and getting it back to 100% capacity utilization and returned just few days back, this was the reason for postponening the annual meet and keeping the 137ktpa expansion on hault till anything clear emerges. Once the activity was normalised and the plant came back to 100% capacity he then announced the expansion will continue with delayed period of 3 months. He also mentioned that the loss was to the extend of 2 crore and will be recieved from insurance company but the loss of business for 1.5 month is the real loss but still we have a target of 1800 cr sales for FY19 and current quater revenue will be 400cr+
    The new research centre at abu road will contribute a lot for maximising profits and that in turn will build products for various industry application and that will add new customers.
    From the total sales of ABS, 40% goes to automobile sector which is a speciality grade and rest in other application ranging from consumer durables.
    Mr. M.C. Gupta is also director to another company who is a major player in EV and will identify opportunity for bepl in that segment.
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