IDEA RESEARCH

Bhansali Engineering Polymers – 34th AGM Highlights

th
Bhansali Engineering Polymers held its 34 Annual General Meeting. Given below AGM Highlights
are the key highlights of the company:
Wednesday, October 03, 2018
Expansion plans
Shailee Parekh
 Post the fire, Mr Bhansali was busy getting that plan up and running hence shaileeparekh@plindia.com
Satnoor expansion to 137,000 TPA had been put on hold. However that +91-22-66322302
expansion is now to continue.
Charmi Mehta
 Capacity to be expanded to 137,000 TPA by March 2019 and for FY19 the charmimehta@plindia.com
output likely to be 75,000 TPA and for next year FY20 minimum they will +91-22-66322274
achieve output of 100,000 to 120,000 TPA.
 General and specialty grade to roughly be in equal proportions and there will Rating BUY
be a plant shutdown in between resulting in capacity utilization of around 75% Price Rs 123
for FY19. Target Price Rs 246
 The research center will be operational in a day or two. Its main function is to Implied Upside 99.3%
identify newer applications for specialty grades and thus add new clients. Sensex 36,526
 Port based expansion is critical for sustaining long-term growth and it will be Nifty 11,008
operational by March 2021. Bloomberg Code BEPL IN
Reuters Code BHAN.BO
 Negotiation for land is in final stages with the government. It is located 6.5 km
away from the port. (Prices as on October 1, 2018)

 It is likely to be closed within 3 months time and after that it will take 9
months to get environment clearance for setting up plant. Thus the
commercial production can easily be achieved by end of FY21. Tracking Data
 Entire capex will be funded through internal accruals. Market Cap (Rs bn) 20.4
Shares O/s (m) 165.9
 Estimate to be announced by March 19.
3M Avg. Daily Value (Rs m) 183.5

Key financials (Y/e March) 2017 2018 2019E 2020E

Revenues (Rs m) 6,261 10,317 15,494 19,717
Growth (%) 17.9 64.8 50.2 27.3 Major Shareholders
EBITDA (Rs m) 625 1,544 2,288 3,068 Promoters 55.0%
PAT (Rs m) 346 1,000 1,496 1,999 Domestic Inst. 0.5%
EPS (Rs) 2.1 6.0 9.0 12.0 Public & Others 44.5%
Growth (%) 107.3 205.5 48.3 32.4
CEPS (Rs) 2.1 6.4 9.5 12.5
Net DPS (Rs) 0.2 0.5 0.5 0.5 Stock Performance
Profitability & Valuation 2017 2018 2019E 2020E (%) 1M 6M 12M
EBITDA margin (%) 10.0 15.0 14.8 15.6 Absolute (5.1) (34.7) 48.8
RoE (%) 21.4 47.6 45.7 40.6 Relative 0.7 (42.5) 36.4
RoCE (%) 24.0 47.4 44.4 39.7
EV / sales (x) 3.5 2.0 1.3 1.0
EV / EBITDA (x) 34.6 13.0 8.8 6.3
How we differ from Consensus
PE (x) 59.1 20.4 13.7 10.2
EPS (Rs) PL Cons. % Diff.
P / BV (x) 12.7 7.9 5.2 3.5
2019E 9.0 - NA
Net dividend yield (%) 0.2 0.4 0.4 0.4
Source: Company Data, PL Research 2020E 12.0 - NA

October 3, 2018 1
IDEA RESEARCH Bhansali Engineering Polymers

Fire incident
 Total loss from fire is about Rs 20mn which will be recovered from the insurance
company. Production loss of a quarter however will only be partly recovered through
the course of the year. Some of the HRG shortfall will be met through imports to achieve
production of 75000 TPA.
 But the company still has a target of Rs 18bn sales for FY19.

Entry barrier
 They have around 100 to 150 grades and each grade have approx. 2000 colours hence
customers don't shift easily. Focus is on producing a mix of normal and specialty grade
to maximize profits and market share at the same time.
 Earlier there were 4 players in this business and Mr. Babulal Bhansali took over two
companies in the past worth Rs 5bn for just Rs 110mn. The benefits of this can only be
seen now, as they are virtually free of cost.

Product pricing
 40% of the ABS sales is in the automobile sector and the rest is for consumer durables.
 ABS prices are not linked to crude price, rather only affected by demand and supply.
 Value wise they sell ABS between Rs.150 to Rs.400 per kg ranging from normal grade to
specialty grade.
 50-60% of production sold on formula based pricing where the price fluctuation is
passed on to the customers. Balance 50% is exposed to dollar fluctuation, but such
sharp volatility in a quarter such as q2 is unprecedented and does not warrant regular
hedging cost of 1.5-2% to bank. Any such translation losses are paid from the profits.

Raw material
 There is no edge in raw material procurement n prices hence it's imperative to grow the
specialty grade business to grow profits.
 80% of the raw material is imported. They do not have any hedging policy for raw
material import bills as it is on 90 days period.

Financial Overview & Valuations

 During FY18, revenues grew by 64.8% to Rs 10.3bn on back of volumes of 66 KTPA,
EBITDAM expanded by ~500bps to 15.0%, EBITDA grew by 2.5x to Rs 1.5bn, and profits
nearly tripled to Rs 1.0bn translating in to an EPS of Rs 6.0. EBITDA per kg was Rs 23.4.
 We expect BEPL to grow revenues and profits at a 2-year CAGR of 38.2% and 41.6% to
Rs 19,717mn and Rs 1,999mn in FY20E. We remain positive on the business as well as
management capabilities. The company continues to remain debt free even through
trying times and is likely to remain so going forward. We see strong visibility for 20%
growth and free cash generation. At CMP, the stock is trading at 13.7x FY19E and 10.2x
FY20E EPS estimates of Rs 9.0 and Rs 12.0 respectively. We reiterate investors to BUY
with a price target of Rs 246.

October 3, 2018 2
 IDEA RESEARCH Bhansali Engineering Polymers

Income Statement (Rs m) Balance Sheet Abstract (Rs m)

Y/e March 2017 2018 2019E 2020E Y/e March 2017 2018 2019E 2020E
Net Revenue 6,261 10,317 15,494 19,717 Non-Current Assets 946 1,161 1,550 1,995
Raw Material Expenses 4,726 7,441 11,233 14,196 Gross Fixed Assets
Gross Profit 1,535 2,876 4,261 5,521 less: accumulated depreciation
Employee Cost 265 374 542 698 Net fixed assets 930 1,074 1,502 1,925
Other Expenses 646 958 1,430 1,755 Capital Work In Progress - 61 - -
EBITDA 625 1,544 2,288 3,068 Goodwill - - - -
Depr. & Amortization 54 61 72 77 Non-Current Investments 2 6 8 10
Net Interest 98 77 45 45 Other financial assets 13 20 40 60
Other Income 84 137 130 130
Other Non-Current Assets - - - -
Profit before Tax 557 1,543 2,301 3,076
Current Assets 3,252 3,069 4,295 6,192
Total Tax 211 547 805 1,076
Inventories 1,393 800 1,937 2,465
Profit after Tax 346 996 1,496 1,999
Trade receivables 1,367 1,854 1,937 2,465
Ex-Od items / Min. Int. - (4) - -
Cash & Bank Balance 172 324 315 1,134
Adj. PAT 346 1,000 1,496 1,999
Avg. Shares O/S (m) 165.9 165.9 165.9 165.9 Other financial assets 104 22 33 50
EPS (Rs.) 2.1 6.0 9.0 12.0 Other Current Assets 217 68 73 78
Total Assets 4,197 4,230 5,845 8,187
Cash Flow Abstract (Rs m)
Y/e March 2017 2018 2019E 2020E Equity
C/F from Operations 145 396 521 1,410 Equity Share Capital 166 166 166 166
C/F from Investing (191) (369) (540) (602) Other Equity 1,449 2,407 3,803 5,703
C/F from Financing 70 125 10 9 Total Networth 1,615 2,573 3,969 5,869
Inc. / Dec. in Cash 24 152 (9) 818 Non-Current Liabilities 80 151 181 211
Opening Cash 148 172 324 315 Long Term borrowings - - - -
Closing Cash 172 324 315 1,133 Provisions 40 45 75 105
FCFF (46) 27 (19) 809 Deferred tax liabilities 40 106 106 106
Key Financial Metrics Current Liabilities 2,503 1,506 1,695 2,107
Y/e March 2017 2018 2019E 2020E ST Debt / Current of LT Debt 1,371 - - -
Trade payables 987 1,257 1,404 1,775
Growth
Other current liabilities 144 249 291 333
Revenue (%) 17.9 64.8 50.2 27.3
Total Equity & Liabilities 4,197 4,230 5,845 8,187
EBITDA (%) 66.7 147.2 48.2 34.1
PAT (%) 107.3 188.0 50.1 33.6 Quarterly Financials (Rs m)
EPS (%) 107.3 205.5 48.3 32.4 Y/e March Q2FY18 Q3FY18 Q4FY18 Q1FY19
Profitability
Net Revenue 2,479 2,579 3,018 2,017
EBITDA Margin (%) 10.0 15.0 14.8 15.6
EBITDA 378 433 438 275
PAT Margin (%) 5.5 9.7 9.7 10.1
% of revenue 15.3 16.8 14.5 13.6
RoCE (%) 24.0 47.4 44.4 39.7
Depr. & Amortization 15 15 15 17
RoE (%) 21.4 47.6 45.7 40.6
Net Interest 25 22 19 3
Balance Sheet
Other Income 20 56 53 3
Net Debt : Equity 0.7 (0.1) (0.1) (0.2)
83.5 31.8 45.0 45.0 Profit before Tax 358 451 457 258
Net Wrkng Cap. (days)
Valuation Total Tax 107 160 171 90
PER (x) 59.1 20.4 13.7 10.2 Profit after Tax 251 291 286 168
P / B (x) 12.7 7.9 5.2 3.5 Adj. PAT 251 291 286 168
EV / EBITDA (x) 34.6 13.0 8.8 6.3
EV / Sales (x) 3.5 2.0 1.3 1.0 Operating Metric (Rs m)
Earnings Quality Y/e March 2017 2018 2019E 2020E
Eff. Tax Rate 37.9 35.4 35.0 35.0 Capacity (MTPA) 80,000 1,00,000 1,00,000 1,37,000
Other Inc / PBT 0.2 0.1 0.1 0.0 Production (MTPA) 50,000 66,000 75,000 94,500
Eff. Depr. Rate (%) 1.3 1.3 1.5 3.0 Capacity Utilisation (%) 62.5 66.0 75.0 69.0
Source: Company Data, PL Research. EBITDA per kg 12.5 23.4 30.5 32.5
Source: Company Data, PL Research.

October 3, 2018 3
IDEA RESEARCH Bhansali Engineering Polymers

DISCLAIMER/DISCLOSURES
ANALYST CERTIFICATION
We/I, Ms. Shailee Parekh (MMS, B.com) and Ms Charmi Mehta (CA) authors and the names subscribed to this report, hereby certify that all of the views expressed
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October 3, 2018 4