Bhansali Engineering Polymers - An Import Substitution Story!

Here is the report: https://www.hdfcsec.com/uat.hsl.research.pdf/BEPLPickoftheWeek-07081720170807090007.pdf.

There seems to be one discrepancy. At one place, the report talks about 137KTPA expansion by Dec-18, whereas it also says that the second phase will expand to 120KTPA by Dec-18. I think, 120KTPA has been mentioned incorrectly and 137KTPA is the correct figure.

Also, I have one curiosity. The capex required for expansion from 51KTPA to 80KTPA was Rs. 38 crores only, which translates to a per KTPA cost of 1.27 crore. If so, why is 80KTPA to 137KTPA expansion so expensive (300 crores, which translates to 5.26 crores per KTPA)?

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Thanks for sharing the report. The interesting part is that, irrespective of the cost, they want to finance it from internal accruals and not debt. If true, it could boost profits exponentially.

The 80 to 137 capex is brownfield, at their existing facility. The larger one is greenfield. Maybe that’s the reason for coat differential

Here is the explanation for the same in AGM.

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Ineos’s results are out. Margin has dropped significantly. One need to be caution with the figures of BEPL as 2 companies of the 2 players industry rarely show contradictory results.

One point could be that Ineos was having too much stock which was purchased when the crude was at its high.

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Promoters bought 600000+ shares last week

@lohiyaakshay08 Can you share the link on the same ? It is mandatory to share promoters’ buying from market. Please share your source

Thanks for sharing. The promoters have, often, in the past, being buying
from open market.

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Thanks for this news. If you recollect, promoter buying in Jun-17 had acted as a catalyst for the rally of this stock during Jun-July this year, when it had more than doubled its price. With clear capacity expansion plans ahead, hope to see somewhat similar rally ahead of Q2 results.

yes @madhavikkutti, I can recall. But at that time one more factor was the release of Annual report. they both contributed the rise from 55 to 70.

How you all are finding the corporate governance at BEPL? For me it is not upto the mark. They havent replied to my email & also the call. Request you all to try too.

I have large investment in this stock. I have entered recently and quite
optimistic due to its current NIL debt and future long runway of demand.

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Promoters are continuously buying from open market…
I think something good is cooking inside the company…company has acquired 3 4 highly paid(Package in crores) persons from nippon for new product development. If they get success BEPL will be in new orbit.
Does the promotors buying signifies something like that?

May I ask, from where have you got the information that they have hired 3-4 top paid professionals?

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2 companies of the 2 players industry rarely show contradictory results.

Ineos’s ABS is basic and is a low margin product as was discussed earlier in this thread. BEPL customises their product by specification for its clients which is higher margin. They seem to have over a hundred grades and over a thousand colours which lead to its higher margins due to the value addition.

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Another triangle breakout on the cards… Look at classical cup and handle pattern.

FACT (like the infy board letter :-)):
a. In 2015-17 the capacity was expanded from 51 KTPA to 80 KTPA in 2 phases. The gross block increased by 38 crores in 2016 and 17 crores in 2017. The cost of the expansion (38+17)/(80-51) = 1.9 crores per KTPA. I will assume 2 crore per KTPA for future expansion considering inflation.

b. 2017 sales was 704 crores, PAT 35 crores, giving an EPS of 2.10. PAT Margin is 5%. Gross Margin is 22% (Material Costs - 550 crores).

c. Depreciation was at 5.4 crores (3% on gross block) and working capital is 10% on sales (70 crores on sales of 704 crores).

d. Capacity utilisation in 2016-17 was 64.31% or 51 KTPA. Revenue per KT is (704 / 51) = 13.80 crores.

Management Expectation:
a. To ramp up ABS capacity from 80 KTPA to 137 KTPA by Dec 2018 entirely out of internal accruals.

b. Demand expected to go up at 15% CAGR for a decade. 2016-17 demand is 275 KTPA, Ineos and Bhansali cater to 160 KTPA. This means on a 5 year period average additional demand will be 54 KTPA, not to mention the current demand met by imports of 115 KTPA.

c. To achieve 90% capacity utilisation beginning 17-18 to generate adequate surplus to internally fund future expansion projecs without need for additional funding. It hopes to achieve 72 KTPA utilisation by Mar 2018.

d. To establish a port based greenfield project of 200 KTPA capacity by 2022. This will be through a JV with Nippon A&L Japan.

My Analysis
a. The capacity addition from 80 to 137 KTPA requires 114 crores of fixed capital 2 * (137 - 80) and 80 crores of working capital. Working for 80 crores is [ { (72 - 51) + (137 - 80) * 64.31% } * 13.80 ] * 10%. I am assuming the 80 KTPA works at 90% capacity and the remaining 57 KTPA works at 64.31% capacity.
The incremental profits after tax that will get generated in FY 18 is ( [72 - 51] * 13.80 * 22% * 70%) = 44 crores. In FY 19, it will be 44 + (137 - 80) * 64.31% * 5% = 70 crores.

Against the capital requirement of 114 + 80 = 194 crores, the company will be able to generate (40+44) + (40+70) = 194 crores. Phew! The management will have just about enough funds to fund the growth using accruals. This is assuming their expectation fructifies. They do have to make sure that they keep a close watch on their working capital.

b. Now the 200 KTPA capacity addition will need much more than 700 crores (Fixed + Working Capital) in my opinion. With a run rate of 110 crores cash generation post FY 19, the company will need atleast 400-500 crores to be able to build this additional capacity. Will Nippon Japan fund this?

c. In the short term, there are quite positive indications that the EPS can grow to 6 (105/16.7) odd by end of the FY 2019. The long term story is just playing itself out and we have to wait and watch.

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What is the 22%?

Gross margin is 78%?

Corrected. Gross Margin is 22%. Material Cost is 78%.

Hi Shivram, I was going through the latest updates in BSE for Bhansali and they have mentioned the capacity addition from 80 KTPA to 137 KTPA requires 300 crores.

Calculations will significantly change

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