BEW Engineering- A proxy play on pharma and chemical sector

Bew engineering – founded in 2011 and is involved in design and manufacturing of pharmaceutical plant equipment. The company manufacters – filtering, drying and mixing equipment. Some of the products are as follows:

  • ANFD Agitated Nutsche Filter Dryer
  • Rotocone Vacuum Filter Dryer
  • Rotocone Vacuum Dryer
  • Cantilever Rotocone Vacuum Dryer

Market cap- 305 cr, P/E- 41.1
ROE- 26% , ROCE- 40%

above is a snapshot of last 6 years of P&L of company
we can see the sales have scaled up from 52 cr to 106cr, while the OPM margins have increased from 7% to 14%.


above is a snapshot of the balance sheet of the company over the last 6 years.
Company has recently done preferential allotment of shares – 3,31,000. At Rs.820. Approx 27 cr will be used for increasing its capacity
Company has an order book of 95 cr- to be executed in 7 months. FY23 whole year turnover was of 106 cr. Company seems on track to achieve 40-50% turnover growth this year. They have carried out debottlenecking and can achieve a turnover of 150 cr with the existing plant.
Exports were 2 cr in FY22. They have jumped to 23 cr in FY23.
Company has exported its equipment to countries like Turkey, Nigeria, Indonesia, Thailand, Saudi Arabia, Nepal, Bangladesh,etc.
Company has a strong client base- the marquee companies of the pharma and chemical sector.
Some of the clients of the company are – Aarti Industries, SRF, Intas Pharma, Lupin, Shilpa Medicare, Heranba Industries,Cipla, NGL finechem,Biocon, IPCA,etc. Most of these customers are coming up with huge capex plans. This provides a good opportunity for the company to grow.
Demand for companies products is directly related to the capex happening in the pharma and chemical sector.
Margins
Although the gross margins of the company are low, its OPM margins have risen from 7-9 % in the past to 13-14%. Seems like company is enjoying operating leverage with scale.
Competition
HLE glasscoat is one of the key competitors of the company- HLE has 23% of its revenues from ANFD- which is around 140 cr. HLE is also present in glass lined reactors where BEW has no presence as of now. Valuations of HLE are all together in a different range of 70-80 PE. Does not make sense to compare the valuations directly.

New equipments
Company has developed 2 new equipments in FY23- they are the sole suppliers of this equipment and will earn higher margins in them. Will be interesting to see which are these equipments and how fast they can scale up in this segment.

Working capital
The company has very less trade receviables- It was 12.68 cr as on 31st March 2023. 8.5 cr out of this were backed by LC- export orders. The amount has been received by the company as on 5th May 2023.
The company has maximum investments in inventory, as it is a capital intensive business. The average time taken to complete an equipment is 6-7 months.
Company has 88 cr of inventory as on 31st March 23 as against 67 cr FY22. This rise in inventory is to execute order for FY24 and is a leading indicator of growth in revenues.

Key risks

  1. Slowdown in capex cycle of pharma and chemical sectors can pose a threat to the growth of the company
  2. Rise in RM costs of raw materials- stainless steel, alloy steel, Hastelloy, titanium, rubber lining, etc are some of the raw materials used by the company. Company may or may not have the ability to pass on the increase in RM prices to the customer
  3. Company faces competition from big players like HLE Glasscoat, and GMM Pfaudler. They operate at a bigger scale than them and cometing against them will not be easy. Company’s gross margin is around 23% , much lower than that of the other two players.

Overall the company looks to be on a strong growth trajectory. The industries to which the company caters to are undergoing major capacity expansion. Management also seems bullish about the growth prospects. The latest fund raise of 27 cr is also signifying growth plans by the company. However valuations also seem to be rich at over 40 PE( trailing earnings). It has to be seen whether the company can improve its gross margins with scale( as it might have greater bargaining power over suppliers).
Disc- Not invested

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Can you please share the source of this information? It would be very helpful

Why is the share of this company traded in lot of 250 shares? Any ideas on this?

The share trades in SME category. SME trade in lots only and they are reviewed every 6 months. Likewise when BEW eng listed, one lot was of 2000 shares. Now it is of 250 shares. And it might trade in 125 ahares from November

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Ashish kacholia sold deltacorp yesterday and bought big 15K shares in BEW engineering.

https://twitter.com/LearningEleven/status/1706355116687634604?t=RO4UOnQDNDe1ymVXj-tJVA&s=19

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Market Cap of this company is ~ 436 Cr. as on 29th Sept 2023. Liquidity is very low in this stock as the average volume of last 1 year is ~ 4300. My question here is why is the liquidity so low in this stock as other recently listed SME IPO’s in last 1 year have way higher volume as compared to BEW. For example, MOS utility, Drone destination and many other similar companies with the same market cap. Any insights on this from experienced people on this forum will be helpful. @hitesh2710 @ayushmit @Worldlywiseinvestors

Pursuant to Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”) we hereby apprise you that Company BEW Engineering Limited has made an application regarding In-principal approval for issue of 331500 Equity shares of Rs.10/- each to be allotted under Preferential Basis in terms of Regulation 28(1) of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015.



The above table mentions many know investors like Ayushi Mittal Ji (Founder of Screener.in) and Arvind Kothari Ji from Niveshaay. The preferential allotment was done on 12th June 2023

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Good informative video with management scuttlebutt and plant visit

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Interesting insights. While researching deeper about the company I couldn’t find transcript of concalls and investor presentation (except for October 22). Are there any other sources from where we can get any idea about the management’s current view and outlook of the business?

Management commentary at Arihant Conference:

  • Doing 55 cr fundraise at 1540 now. Will be 150cr net worth after 55 cr find raise.

  • 15 to 17cr capex will double production capacity. Out of this 11 cr for land

  • HLE is 3 times bigger than us. Years to come the gap will narrow down.

  • Penetration of process equipment is very very less. Only top 100 companies are using and the bottom 900 are not using. As government regulations come, usage will increase.

  • We are into niche where customers come to us with problems and we provide solutions.

  • We are saying no to few companies to improve margin.20% EBITDA margin target for new sales

  • World is going through capex cycle after 20 years and this will act as tailwind.

  • Spherical dryer not picked up to expectations.

  • Aramco subsidiary audited and approved us.

  • Capacity doubled from Jan 2024 onwards

I was not able to write down everything and may have missed a few points, if someone else attended please add on.

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Post Conference Note Bharat Connect Conference Rising Stars 2024

BEW Engineering Ltd

CMP: INR 1,503 | Market Cap: INR 4,627 Mn| View: Not Rated

Key highlights
● The company targets to have only 15 days receivables and thus only onboards orders which can be
completed in a short span. Order book timeline was 10-12 months before which has now come down
to 4 months due to this strategy.
● The capital coming in from fund raising will provide expansion opportunities leading to significant
growth.
● New infrastructure set up recently has started production in February with full-fledged production to
start in June.
● Capacity has doubled compared to September last year.
● Received big order from Aditya Birla (Thailand) and Bangladesh in FY24. First tranche of the Bangladesh order has been executed.
● Witnessing continuous in flow of repeat orders.
● Spherical dryer did not see the anticipated demand, but the company is optimistic of the product once
the industry uses it and realises its usage and potential.

Fund Raising
● The company raise INR 270mn through equity in September. Post September, INR 150mn warrants were issued; 25% of it has been received as FD. This week, INR 550mn worth of shares have been issued at INR 1540/share.
● The net worth will increase to INR 1300mn from INR 270mn.

Guidance
● Current order book at INR 700mn for next year.
● 20% revenue growth is expected in FY24 with much further improvements expected in revenue and margins going forward.
● Target to achieve INR 1500mn revenue in FY25. The company’s foray into larger customer base and new geographies will help in achieving these targets.
● Targeting much higher profitability with 25% EBITDA margins.
● Capacity expansion are in plans with Capex of INR 700mn with 10x revenue potential.
● The funds raised will help in becoming creditor debt free.
● Target to reach 100% capacity utilisation in the next 3 years.
● With planned capacity expansion and huge vendor base, the company is optimistic of achieving INR 2500mn revenue.

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