Bhansali Engineering Polymers - An Import Substitution Story!


(S_Banerjee) #445

“Fire at Satnoor plant may be related to efforts at maximizing production of HRG at Satnoor.”

Do you have any concrete evidence on your comment? If not please refrain from speculation. Not up to the mark of this forum.


(Agarwala) #446

@S_Banerjee
My comment fits with the overall view that I have given. Do you disagree with the overall view also. Please comment.


(Raj A A) #447

In the absence of any explanation from the management for dropping the expansion plans, these kind of possible reasons will emerge.We need not be harsh on the members who try to debate possible reasons


(Yogesh Sane) #448

Company has a history of going back and forth on its expansion plans.

  • They initially planned expansion in 2010


Source Annual report 2009-10

  • It remained a plan in 2011

image
Source Annual report 2010-11

  • And then they shelved it in 2012.

image
Source Annual report 2011-12

  • More reasons in 2013 why expansions could not be done.


Source Annual report 2012-13

  • Expansion chatter came back in 2014


Source Annual report 2013-14

  • Big expansion plans came back in 2015


Source Annual report 2014-15

  • Finally some real expansion in 2016 !

image
Source Annual report 2015-16

  • again planing for major expansion even though last one took years

image
Source Annual report 2015-16

  • In 2017, focusing on short term goals
    image
    Source Annual report 2016-17

  • while dreaming big…


    Source Annual report 2016-17

  • And now in 2018, putting even the short term plans on hold.

There was a inventory drawdown in each of the last 3 quarters of FY 18. If the sales is rising, I would expect inventory to rise as they would ramp up production. In Q1 of FY 19, there is a huge build up of inventory probably because the fire at the plant must have stopped production while RM deliveries started piling up. Since company maintains only a small finished goods inventory, they were not able to fulfill the orders, hence drop in sales.

It will be important to watch next quarter sales to see if they make up lost sales or this is turning out be a slowing demand scenario.


(jainnitinp) #449

Good compilation. However, you have missed out on two important recent updates

  1. After the expansion from 51 to 80 KTPA in 2016, it did another one from 80 to 100 KTPA in FY18.


Source: Exchange filing dated 13 Apr 2018

  1. Also, the port based based facility is likely to be advanced from Mar 2022 to Mar 2021


Source: Q3 FY18 Results


(jainnitinp) #450

Also, there hasn’t been a consistent inventory draw down in the last 3 quarters as you have pointed out. The change in inventory (ending period inventory - beginning period inventory) has been fluctuating:
Q1 FY19: -75.4cr (inventory draw down)
Q4 FY18: 18.7cr (inventory build up)
Q3 FY18: -0.1cr (inventory flat)
Q2 FY18: 22.1cr (inventory build up)


(Bharat) #451

Company replied to my following mail after 2 months !

Reply : The net fixed assets of the company have never reduced in any year since 2008 due to the expansion and continuous improvement policy being followed by the company.
The decline in Gross Block was only during the year 2016-17 wherein also the revaluation reserve of Rs 7270.75 lacs were reversed. Pl go through note no 35 of the Notes to Account of the Balance Sheet for F.Y. 2016-17

The answer to query No. 1 should resolve your query herein.

Whenever there is MAT (Minimum Alternate Tax ), % is low. Further whenever there is huge expansion in any one year the tax percent goes low due to benefit of additional depreciation.

The company has entered into a Joint Venture in 2015 with Nippon A & L of Japan, to develop products which are used in the Automobile sector and where the margins are high. The product development and approval process takes around 1 year on an average in the industry. Due to development of high remunerative grades for the Automobile sector with the help of JV partner; the margins improved during the last 3 years. The margins are expected to continue at the same levels. Due to a strong demand of the company’s product in the market; the pricing power of the company is strong.

There is no sales made by the JV company . It is only entitled for Royalty & commission on the products developed by them. Their role is well explained in reply to your query no 5.

The answers are hard to accept and does not fit well. As they said that Lower Tax percent is due to some additional Depreciation on new capacity but in the last 10 years , there is a negative Capex of 62 Cr.
Also Net Fixed assets have declined while intangibles assets have increased.
Investment will Bhansali Nippon and such high commission does not look well which will be continued


(Raj A A) #452

Probing questions that elicited evasive reply from the company. Hope we are not taken by rude surprise in near future.


(Satya Prakash) #453

Thanks for sharing all these.

I could not understand Net Fixed Asset part in their reply.
Reply to Tax part looks ok.

From the post about expansion, I concluded that management takes benefits from bull market to push stock using expansion story. One post says that mgmt talk about big expansion plan and talk about that for years but later dump it.

Disc: invested in small qty recently.


(utsav_garg) #454

Hi, I could not understand your cumulative capex part. I went through all the AR’s since 2008 and looked for the cash flow statement, I found capex to be positive only every year. Could you please let me know how you arrived at negative figure, I might be doing something wrong to arrive at that figure, hence asking. Thanks


(Bharat) #455

@utsav_garg Used Screener. Verified with AR too regarding Fixed Assets and it is almost what screener is showing.
You can see Net Fixed Assets were 197 Cr in March 08 and reduced to 93 Cr in 2017. As a effect , the net fixed assets turnover has increased from 1.18 in March 08 to 7.1 in March 17.

The Capex for any year is Calculated as [ {Net Block (t)year + CWIP (t) year} - {Net Block (t-1) year + CWIP (t-1) Year} + Depreciation]
If you will look at all the capex for all the years , it is almost Negative. No meaningful Capex in all these years !
May be i too could be wrong but i have been doing it this way only and very less companies come like this. Mostly all have Positive Capex from that Calculation !


(Tarak) #456

Hi Bharat19

First of all thanks for sharing your communication with BEPL investor cell.

I understand, the explanation on margin expansion makes sense. The JV has been made as a channel to pay royalty to NIPPON.The work of JV is only to develop some high margin polymers, which can be made with some slight tweaking in polymerization process. Rather than developing on it’s own, the company took help of NIPPON.
NIPPON in turn is getting royalty by sharing the process and that too in a market where it’s not present and doesn’t wish to come in near future.

Disc: Invested


(Bharat) #457

The issue is that the company’s Net Profit in 2017 was 34 Cr while it paid 4.26 Cr as Royalty which comes out as 12.5% ! Promoter’s take salary at 11% (Ceiling).
Quite uncomfortable with these numbers.
Kept it in watch list. Will look for upcoming 1-2 quarter results to see whether margins can sustain or not !


(jainnitinp) #458

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

image

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.

image

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.


(Raj A A) #459

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.


(jainnitinp) #460

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.


(skhanbir) #461

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)


(Raj) #462

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!


(sunilgct) #463

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…


(Chandragupta) #464

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