Bhansali Engineering Polymers - An Import Substitution Story!

(yudiagg) #167

While business opportunity may be good, can we rely upon the management to deliver.

(Yogesh Sane) #168

Net Profits are up sharply but balance sheet has weakened.

Inventories are down marginally even when sales have gone up. Receivables are up sharply and payables are down from a high level. Cashflow must have been poor due to these two factors so company had to borrow. Borrowings have gone up to 148 cr from nil just six months ago. All this borrowing is for working capital as fixed assets and capital work in progress is almost unchanged in six months.

Margins have improved. this could be because of rising realizations or this could also be because company is now making premium ABS grades with the technical help from Nippon. Margins can come down but they might as well stay at these levels or even improve further.

(Hardik) #169

There is another line item “Bank balances other than (iii) above” which is ~16 cr. So total Cash and Bank balance is ~73 cr. There is increase in short term borrowings by ~147 cr. Debtors have increased by ~57 cr to 193 cr. whereas Creditors are down by ~100 cr. to 136 cr.

(Agarwala) #170

Where are the balance sheet figures for the Q ending June 17?
I thank @nil_71 and @Yogesh_s for focusing on the balance sheet issues. I relooked at the previous Q ending June 17 results, but balance sheet is not attached there. Where did you get the figures that you mentioned.
If over 6 months of current year Debtors are increased by ~57 and Creditors down by ~100 (total ~157 crores). The figure is very near ~147 crores that is the increase in the working capital (short term borrowings). It is definitely a cause for concern, when Q-on-Q sales have increased only by ~43 crores, and six months sales increased by 110 crores. The finance costs have also increased for this Q (248 versus 111 lakhs previous Q). I am not an expert in reading the jargon in the balance sheets., but I can imagine the implications of these figures.

(Hardik) #171

Balance sheet comparison is for Mar 17 and Sep 17.

Always had my doubts as to how will they finance this expansion with internal accruals?


(Agarwala) #172

Looking from a distance…
@hardikca Thanks for your analysis. I am trying to think dispassionately over this matter.

  1. The promoters never intended the expansion, as it might be technically impossible. In that case, the objective of the promoters might have been to create hype and rig up the price.

  2. Promoters intended but the project ran into some difficulties, which they are hopeful to solve but not sharing with public. This will be the approach of most promoters for obvious reasons.

  3. The project is going as per schedule, so the management is cool about it. One day the news may come about partial expansion.

Now the problem of financing. With cash and bank balances of 73 crore, they need another 227 crores. Let us say this amount is spread over 5 or 6 quarters. Current earnings 25X6 = 150 crores. They need another 75 to 100 crores for expansion purely through internal accruals. Here the questions that need to be asked would be: will there be further increase in earnings? Will the expansion be completed in incremental steps so that the topline may also rise? Another possibility is that 300 crores is an inflated figure, which seems likely as previous expansion was done on a much lower cost.

No doubt that the management should show more transparency, but the promoters have a stake in expanding the capacities. So why should they not go for it?

Increase in working capital needs because of increased Debtors is a separate issue, and I am more concerned about it. Everybody please share their views.

(Hardik) #173

~73 cr. balance may consists of balance from borrowed ~147 cr. The simple point here is that the math does not fit for expansion purely from internal accruals.

This is what management said in AGM about low cost of expansion from 51 KTPA to 80 KTPA.

Yes, a possibility. Some of the family members have been classified from promoter group to public shareholders.

(nil_71) #174

Anubhav Sahu
Moneycontrol Research

Bhansali Engineering Polymers (BEPL), one of the two main manufacturers of ABS (acrylonitrile butadiene styrene) in India, reported another stellar quarterly results after it gained from elevated capacity utilization, improved product pricing and better operating performance.

Near-term earnings guided by pricing and higher capacity utilisation

In the second quarter of FY18, the company posted net sales of Rs 248 crore, adjusted for both GST recoveries and excise duty, up 11 percent QoQ and 52 percent YoY. Improved turnover reflected higher pricing trend for ABS and the elevated capacity utilization witnessed recently.

EBITDA margins improved sequentially by 207 bps (+563 bps YoY) on account of lower raw material costs (57 percent of net sales vs 68 percent of sales in Q1 FY18) offsetting higher purchase of stocks. In addition, other income helped net profit rise by 49 percent QoQ and 186 percent YoY.

Post GST, COMPS not exactly comparable

Post GST, excise duty and GST paid is clubbed under a single line item in financial statement. This helps to calculate net sales figure but this is not comparable to net sales data earlier which was only adjusted for excise duty. For last quarter as well as last year net sales reported data were not adjusted for other indirect tax data. It means % gain reported on net sales is perhaps understated and YoY change could be higher at about 60 percent.

Styrene/ABS pricing trend

ABS (Acrylonitrile butadiene styrene) prices appreciated last quarter on account of higher oil prices, elevated prices for acrylonitrile and higher end market demand. On year-to-date terms, Asian ABS prices have risen about 40 percent. One of the key factors driving this trend has been the higher Chinese demand for ABS required for automobile interiors.

Further, raw materials – particularly acrylonitrile – needed for the production of ABS have also risen which, in turn, has led ABS resin producers to hike the prices. Higher acrylonitrile prices have been guided by plant shutdowns in China along with Hurricane Harvey disruption in the United States.

Having said going forward, acrylonitrile prices are expected to ease as the two major facilities in Texas, Ascend Performance Materials and Ineos Nitriles, start supplying the acrylonitrile to the market.

Prices for Styrene, another raw material for ABS, have already dropped recently to the levels seen in mid-July. This eventually would help ABS resin manufacturers to improve margins further in near term.

Financial projections & valuations

It is noteworthy that the company is building a fourfold increase in manufacturing capacity (by FY22) in two stages, which should help in capturing the import-dependent domestic market (industry domestic capacity 60 percent of demand).

In the near-term, the company aims to increase capacity to 137,000 MT (from 80, 000 MT) funded through internal accruals. Further, the company is also underway with a mega plan for 2 lakh TPA capacity which is likely to be commissioned by FY22.

As far as quarterly results are concerned, we are encouraged by the performance, as the earnings growth traction is close to our estimates. And, therefore, we continue to expect Bhansali to post earnings growth at a CAGR of 81 percent (FY17-19E) in the same period.

The stock has recently surged on the back of better operating performance. However, given better earnings visibility, we find valuations reasonable at PE multiple of 15.9x (FY19E earnings).

(Agarwala) #175

Bhansali Engineering gains from an improved pricing environment

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(nil_71) #176

Bhansali Analyst Meet.pdf (181.8 KB)

Bhansali is meeting some analysts today. In case someone has access to these analysts house, it will be great to share some insights

(manmohit) #177

Another round of Analyst meet today. Mostly big guns today.17d523c9-e78c-40e6-9888-8fcaf07d340c.pdf (613.7 KB)

(Agarwala) #178

Why during next 6-9 months BEPL may be good for 250 or even 300 levels?
I am telling only a one sided story. Borders are welcome and encouraged to tell the other side. I am likely to be biased because of my exposure to the company.

  1. Sixteen crore equity base and sales projected at 1600 crore for FY 19. Projected sales for 2019

  2. EPS for FY 19 could be about 10. This is my own estimate based on booming profit margins of ABS producers. Only third quarter results will confirm or negate my hypothesis. But in Q2 results look at Q on Q.basis rise of post-tax margin as a % of gross sales from 6.72 to 8.57. While sales rose only 17% net profit rose 49%. This trend may continue in future. With annual sales of 1600 crore, net profit margin can cross 10%, and this is the basis of my speculation.

  3. The usual stuff like old established player, import substitution, entry barriers, further increase in capacity, and booming demand.

  4. Technically a solid upward movement seems to be in the offing. All short term indicators are above their long term counterparts. At the moment an upward breakout from a several month old rising channel seems imminent.

(nil_71) #179

Guys BEPL Management met all the top broking houses last week. Also any update on expansion Progress as more interested to know, how it is raising money without debt as management promised

Anybody has some Genuine insights, kindly share

(Mahesh) #180

10%up, the analysts must have liked what they heard

(Agarwala) #181

It seems that a vertical rise, the so called re-rating, has begun in the stock!
@nil_71 and @maheshkmurthy I beg to differ. In my view what company shared with analysts or broking houses has little significance. The story of BEPL has become very well known now. Then why should tens of analysts or broking houses all of a sudden flock to the company’s management in one go? There is something amiss.

In my opinion, weaker shareholders have already been shaken out and company is now in strong hands. These strong hands now want to jack up prices, the so called re-rating of the stock. As everybody is now sitting on profits, nobody is worried for preservation of capital. On Monday only 4 lack shares were traded at 132.65 that was the upper circuit level at NSE. This shows people are not willing to exit their positions.The situation is ripe for a quick rise in the prices.

Another aspect of this is that strong hands, who want price action, want this at minimum cost to them. This is only possible if price action is swift and decisive so that fewer people exit their positions at every rise. Hence logic dictates that we will see the level of 160 or more in the coming month or in the coming few weeks.

The company is in an interesting zone. And company’s disclosures regarding analysts must be seen in this light.

(Raj A A) #182

It is better that we discuss about any change in their fundamentals that warrant rerating instead of speculating on price front.

(nil_71) #183

I am more interested knowing how management proposed expansion going. I am honestly not bothered on Price/Margin etc. I feel , given a duopolistic market and 50% still imported, in case management walks the talk, significant runaway ahead

In fact LG Chem, the largest ABS player, also imports RM from them. It has a couple of plants in China but it is a multi-chem player. I read their AR also. Their next expansion is coming Q4 2017

I am sure they have disclosed to Analysts, how the proposed expansion going. Any insight will be really helpful

(Agarwala) #184

We all fill the gaps to have the complete picture
@nil_71 I read your posts with great interest and I have found them insightful. However in this matter, I feel that the management is likely to be as ignorant, as we are. They also have to speculate about the future profits, and if we want them to walk their talk, the less they talk the better. On the basis of current trends I am hopeful that the profits will be enough to complete the expansion with internal accruals.
My perspective is also guided by the fact that I had invested more than a year ago, and I am now impatiently thinking of getting the maximum out of this investment. I do not know about your position in the stock.
From your perspective, Is it possible for us to request the management to share with public what they said to the analysts? It should be in public domain.
Happy investing!

(nil_71) #185

Not sure. All we can do is to send a request of the same to Investor Cell. They met 27+ investors. Most of them are marquee ones

(manmohit) #186

Anyone got their hands on Investor Presentation yet?
Isn’t it supposed to be shared publicly?