Management Meet Notes by a friend.
Out of total demand of 350000 ton, more than 60% of demand is met by Ineos (capacity ~140 KTPA) & Bhansali (capacity 80 KTPA-FY17, 137 KTPA FY18) imports are largely concentrated on basic ABS polymer (white grade) which are low margin and basic grade where BEPL is not focusing on. Colour grade cum resistance are higher margin and involves R&D, customer approval etc where BEPL is active. Infact LG Chem which is one of largest producer of ABS globally is locally sourcing from BEPL as local characteristic, approval, quality cannot be met by imports from parents.
Overall ABS market to grow at 15% over next decade but colour and specially variant will grow at higher rate as innovation to replace metal with ABS in various application like Automotive, White Good etc is on rise
Imports are basic ABS grade and low margin where BEPL is not focused. INEOS as competitor has high cost structure, frequent management changes, lack of local ownership and decision making and not aggression is helping BEPLto expand faster that overall market growth.There is not much scope for more competition due to
1) Since it is very hazardous chemical process getting license is very difficult.
2) Most of market would be capture by both local players with coming capacity (BEPL FY18-137KTPA + FY22 200 KTPA).
3) It is very sticky business where product approval might take months to years and BEPL operates on cost + model which is win win for both.
4) It is complicated process and make various combinations of color variant combined with different level of resistance and technology is concentrated with few players world wide.
Bhansali + Nippon JV is are bringing new variety/class of product in Indian market to meet changing customer preference. Infact Bhansali has employed 3 Nippon employee with high pay (around 8 to 10 lac/Month) for innovation and quality . 90% of business is by ABS in which 60% + are speciality variant and intends to grow in this area. They do supply basic ABS polymer to existing customer on request.
80 KTPA to 137 KTPA work as begin and machinery has been ordered. It is Brownfield expansion and capex would be 30 to 35 Cr and to be funded internally. This capacity will come by end of FY18.
For 200 KTPA, Greenfield expansion near Kandla will help to save 8 to 10% freight cost and make them more competitive. BEPL is talking to various interested party as equity participation to fund this capacity.
Promoters had pledge its shares to Allahabad bank decade back and its under arbitration. Management is actively working with bank to release its pledge.
MKG group an overhang for past few years has now completely exited.
Management would look to up stake from open market (2 lac bought on 20 June 2017, 1.5 lac share on 22 June 2017) and would like up till highest permissible limit (75% permissible) over period time
Promoters are pure focus on ABS from past few decade and intends to be formidable players and no 1 in Indian market. BEPL is very debt averse and would continue to do so ahead.
Main promoters at 62 age is an hands on/at shop floor shows passion for its company.
OPM margin from current about 11+% will further enhance due Brownfield expansion(fixed OPEX) and focus on high margin and speciality grades.
Duopoly play in high growth market linked to direct consumption theme (Automotive 50% and white good segment and others rest)
Its has long term contract with all major client like Maruti, Hero Honda, Samsung, LG etc where raw material volatility up or down is factored in the contract which is win win for both BEPL still not able to meet latent demand and has to let go some customers. BEPL intends to ramp and achieve 100% utilisation from FY18
Disc: Invested from 39 levels.