Bhansali Engineering Polymers - An Import Substitution Story!

Even i had the same query…i thought this must b more related to LC cost and other bank charges…but this is my assumption. Only 1 thing tht concerns me is high levels of Trade payavles. Almost 50% of raw material cost is payable, something that i believe needs to be clarified

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Found this floating on social media

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One doubt - AGM minutes mention an investment of Rs 300 crores for the capacity expansion from 80 KTPA to 137 KTPA. However, the following Moneycontrol news mentions it to be as Rs. 35 crores: http://www.moneycontrol.com/news/business/bet-on-bhansali-engineering-on-capacity-expansion-plans-strong-fundamentals-2321953.html. Which one is correct?

Please read Q1 Update to BSE. It is mentioned there 300crs internal accrual only.

You are correct. The high Payable days actually has made the cash conversion cycle negative in FY17. It needs to be clarified. Also I see that net fixed assets was reduced by 154 Cr in FY16. Any idea what happened there in FY16?

Finance cost includes interest as well as bank charges. Interest costs were incurred for the full year 2016-17 and 2015-16 also, though debt on Balance Sheet is almost Nil. Loans can be taken in-between the two Balance Sheet dates and paid off before the end of the period. In that case, interest costs will be incurred but loans will not appear in the Balance Sheet.

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Cash Flow from Operations for the last two years have been a little above Rs.50 crores each. Current cash in hand is almost nil (Rs.17 crores of which Rs.15 crores held with banks as margin money). ABS capacity utilization in 2016-17 has been 64%. Even assuming 100% capacity utilization for the year 2017-18, and a big jump in margins, it seems a tall order to finance a Rs.300 crore capex through internal accruals before 31-December-2018. What am I missing here?

(Disclosure: Hold a small tracking position in the company)

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You are absolutely true. It seems promoter mentioned that he is going to manage 60-70crs in next 2 -3 qtrs. Rest is needed to see. This Q was raised in AGM. People who attended it, can throw more light on it

Notes from AGM:
(Reproducing what Mr. B M Bhansali discussed in the AGM. Facts to be verified.)

  1. Number of shareholders increased from 11000 to 33000 in last 6 months.

  2. Incurred approx. Rs.50 crores CAPEX for 51 to 80 KTPA expansion. This was done in the same plant by making changes in the reactor and therefore the cost was so low.

  3. For, 80 to 137 KTPA - CAPEX of Rs.300 crores
    Expanding HRG production at Santoor plant from 15 to 35 KTPA and
    Expanding SAN production at Abu Road from 60 to 100 KTPA.
    Simultaneously expanding extrusion capacity at Abu Road from 80 to 137 to manufacture ABS.
    Company already has 145 cr. reserves + Q1FY18 profits
    Need additional 100 -125 crs. which needs to be earned by Dec 2018.

  4. Management is debt averse as they have had bad experience in the past. They do not plan to take any debt either for 80 to 137 or port based 200 KTPA expansion. Therefore, dividend is only 20% and will remain low in future as funds are required for expansion.

  5. On increasing borrowing limits to 1000 crores:
    This is just a formality with Allahabad bank with whom already working capital facility is going on.

  6. 85% capacity utilisation in Q1FY18. Targeting to achieve 95% in coming quarter(s). This quarter may be slow due to GST implementation / administrative issues.

  7. Will cross 1000 crs in FY18. This is partly because excise duty has increased from 12% to GST 18%. It is important to note that BEPL reports revenue on Gross basis while INEOS reports on Net basis.

  8. 200 KTPA expansion - Port based
    Port based will lead to savings of Rs.5-7 per kg.
    It will take atleast 5 years or more to set up, definitely not less.
    Talking to Government of India for land and also working on Technology.
    It takes 18 months for Environmental clearance and Land is still not finalised.
    Hoping to get Land on long term lease (99 years) from GOI.
    Spending 20 Cr. for R&D.

  9. INEOS management has changed 7 times in the past and therefore they are not focused on expansion. Market share is now 50% each in Q1FY18. Eventually, they too will expand.

  10. If MNC player comes with say 500 KTPA then both existing players may face difficulties. But it will take atleast 8-10 years for new player to setup facilities.

  11. China consumes 5000 KTPA whereas we consume about 275 KTPA.

  12. Nippon JV:
    Co. pays 2.5% commission (0.5% royalty to Japan and 2% commission to JV company).
    Improvement in performance is due to JV with Nippon. All special grades are introduced through JV which has resulted in higher sales and profits.

  13. Decides price annually with customers (for 50% turnover with companies like Samsung, LG, Whirlpool. Godrej, Yamaha, Maruti) which is formula based on RM prices. Therefore, margins are stable. Can breakeven at 25% capacity utilisation. Balance 50% is sold in open market.

  14. Co. has 100 grades, 1200 colors and caters to niche and customised market. It’s a very complicated process to produce ABS.

  15. Interest cost:
    This is pertaining to LC opening charges, Buyer’s credit etc. The bank (Allahabad) has earned a lot from company in difficult times and now the company is taking services from bank at concessional rates. Trying to further reduce cost on such transactions.

  16. There is no issue pertaining to power in MP / Rajasthan. There is no plan to have captive power plant at these 2 facilities. There will be power plant, desalination plant, automatic packing facilities at port based plant.

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Thank you @hardikca for this report.

“Company already has 145 cr. reserves + Q1FY18 profits. Need additional 100 -125 crs. which needs to be earned by Dec 2018” – since the “Reserves & Surplus” figure in the March ‘17 Balance Sheet is Rs.140-odd crores, is he saying only the “remaining” needs to be “earned” to reach Rs.300 crore for the proposed capex? Is he serious?

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:joy::joy::joy: this is a little illusionary effects. The company have reserves of 140 odd crores and hence need only balance by Dec 2018 to incur 300 cr capex…do they 140 cr cash or liquid investments against such reserves…let’s not get swayed by management words…apply ur own wisdom…

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When asked about this, Mr. B. M. Bhansali categorically denied. He said that he and his son (Mr. Jayesh Bhansali) are both very dynamic in nature and they can not do partnerships. They will fund this on their own and without taking any debt. Not sure how will they generate so much funds.

That’s why I mentioned Facts to be verified in my above post. I am not sure what did he mean by that. There was one on one (rather one to many) discussions where someone had asked about the funds they have in liquid assets. Can someone who was present in the AGM please throw some light on this? @nikhilmoryani I think your friend had asked this to Jayesh B.? Any details would be helpful.

Mr. Bhansali did come across as passionate and dynamic entrepreneur but somewhere numbers are not adding up or I am missing something.

I came to know about topline guidance in AGM but what about the bottom line one any guidance ???

Hi @hardikca

As per my friend, approx. 50 cr is lying in liquid funds as on date of the AGM. Rest, cash is being used to buy at cash discount from suppliers and hence lower creditors and higher inventory, plan is to free up cash from this source as and when needed for eapansion. Also, cash will be generated by giving some cash discount to buyers and lower receivables. Both the above put together will be used for expansion as and when needed. Around 80-100 free odd cr of free cash is expected to be generated in current fy. Any shortfall to the tune of 50-60 cr will be pumped in by the promoter himself. The promoter is very clear about not taking any debt or raising equity from outside. Won’t do rights issue too.

Please validate from your end, no onus.

IMO, WC mix will change for the good and hit margins by a bit. Also, we need to keep in mind whether 300 cr is just capital investment or also includes WC for expanded capacities.

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Is pledging of promoter’s shareholding in full a issue here? Zero debt with highest pledging - can anyonr help?

I think not many of us here have taken this post seriously Bhansali Engineering Polymers Ltd.- An Import Substitution Story!

Without a doubt that there is some amount of operator activity involved. I am feeling very queasy about this stock ,the growth projections and the capex involved as the math is not adding up.

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He also mentioned in the AGM that he has spoken to Allahabad bank to remove all pledges they have (not sure how to verify this but almost looked like haan done deal type of a comment)

Which way will be the price movement?
BEPL is moving in a narrow triangle. Will the trendline of more than two months be violated? Then the price will move towards 60 or lower. If trendline is maintained, the price movement will be towards 100. Next few days will decide the price action in BEPL.

As per fundamentals - stock should move up. Recently , as per a news item, HDFC has recommended this as pick of the week. I tried but could not get the report on the net. May be some boarder can help.

Disc: invested.