IDEA RESEARCH

Bhansali Engineering Polymers New shade of growth

Management Meeting Update Shailee Parekh Charmi Mehta

Friday, June 09, 2017 shaileeparekh@plindia.com charmimehta@plindia.com
+91-22-66322302 +91-22-66322274

Rating Not Rated Tracking Data Stock Performance

Price 50.7 Market Cap (Rs bn) 8.5 (%) 1M 6M 12M

Target Price - Shares O/s (m) 165.9 Absolute 37.7 121.1 149.4
Implied Upside - 3M Avg. Daily Value (Rs m) 330.6 Relative 34.2 104.4 131.8

Sensex 31,213

Nifty 9,647 Major Shareholders (%) How we differ from Consensus

Bloomberg Code BEPL IN Promoters 55.7 EPS (Rs) PL Cons. % Diff.

Reuters Code BHAN.BO Domestic Inst. 0.8 2018E 3.6 1.9 70.0

(Prices as on June 9, 2017) Public & Others 43.5 2019E 4.6 -- NA

We met with Mr Jayesh Bhansali Executive Director of We expect the company to grow revenues to ~Rs 10bn and
Bhansali Engineering Polymers Limited (BEPL). Following are profits to ~Rs 650m in FY18E versus Rs 6.3bn and Rs 348m in
the key takeaways of the meeting: FY17. Thereafter we feel that it can achieve 20% CAGR on
topline and bottom line given that both auto and electrical
BEPL is a vertically integrated petrochemical company that appliances industry is growing at a strong pace and there are
manufactures ABS (Acrylonitrile Butadiene Styrene) which only 2 players in the industry.
acts as a raw material for companies dealing in automobiles,
home appliances, telecommunications, luggage, bus body and Currently the company is debt free. Going forward the
various other industries. management has maintained that it will not borrow for capex
or for working capital requirements. They have also indicated
The company manufactures over 1200 colours and 200 that they do not plan to dilute equity.
different grades of engineering plastic. It supplies in lots as
small as 500kgs and also up to 5 tons. Margins vary across Although the stock price has moved up recently, keeping in
different orders depending on the size of the order as well as mind the growth prospects of the end user industry as well as
delivery time lines. management confidence in execution, it does appear to be an
attractive bet for the long term. The company has also
BEPL has a plant in Satnoor and Abu Road each. Recently it rewarded shareholders through dividends & their aversion to
completed expansion from 51,000 MTPA to 80,000 MTPA. In unnecessary borrowings provides additional comfort. At the
its next phase of expansion this will increase to 137,000 MTPA CMP it is trading at PER of 14.1X FY18E & 11.8x FY19E rough
by mid FY18E. cut EPS estimates of Rs 3.6 & Rs 4.3 respectively.

Key financials (Y/e March) 2014 2015 2016 2017 Profitability & Valuation 2014 2015 2016 2017E
Revenues (Rs m) 5,069 6,011 5,309 6,261 EBITDA margin (%) 3.1 4.2 7.1 10.0
Growth (%) 21.0 18.6 (11.7) 17.9 RoE (%) 0.8 2.9 10.7 24.0
EBITDA (Rs m) 158 254 375 627 RoCE (%) 3.3 7.1 15.2 27.4
PAT (Rs m) 15 54 167 348 EV / sales (x) 1.6 1.4 1.6 1.3
EPS (Rs) 0.1 0.3 1.0 2.1 EV / EBITDA (x) 52.6 32.7 22.0 13.1
Growth (%) 23.3 264.2 209.6 108.4 PE (x) 567.8 155.9 50.3 24.2
CEPS (Rs) 0.4 0.6 1.3 2.1 P / BV (x) 4.4 4.6 6.6 5.2
Net DPS (Rs) 0.1 0.1 0.1 0.2 Net dividend yield (%) 0.0 0.0 0.0 0.0
Source: Company Data; PL Research Source: Company Data; PL Research

June 9, 2017 1
 Bhansali Engineering Polymers

JV with Nippon A&L Inc As of now there are only 2 listed players in ABS Ineos
Styrolutions and BEPL. Both have capacities of 80,000
Back in May 2013, BEPL entered in to a 50:50 technical JV MTPA each. Ineos has also announced plans to expand
with Nippon A&L Inc., Japan (jointly owned by the globally capacity to 140,000 MTPA, but visibility on its execution is
renowned Sumitomo Chemicals Co. Ltd. and Mitsui bleak.
Chemicals, Inc.) which will enable the Company to cater to
Capex Plans
the growing demand of ABS resins, ASA resins, AES resins
and other Specialty polymers in the field of Automobile,
Telecommunication, Electrical and Electronic goods. BEPL has a plant in Satnoor and Abu Road each. Recently it
completed expansion from 51,000 MTPA to 80,000 MTPA.
Revenue Profile In its next phase of expansion this will increase to 137,000
MTPA by mid FY18E.
With the help of Nippon, the company has been able to
Capex for FY 18E is ~Rs 1bn. Maintenance cost is not
foray in to the automotive industry in both 2 wheelers as
anticipated much since most of the machinery in the
well as 4 wheelers. The company is an approved supplier of
compounding section will be new & covered under the
ABS to Yamaha, Suzu, HMSI and Maruti Suzuki. All
warranty of the suppliers for the next one year.
manufacturing is carried out by BEPL while NAL receives a
royalty. BEPL is planning further port based expansion of 200,000
tons by FY21 at a cost of ~Rs 10-12bn with revenue
Within the appliances industry the company is an approved
generating capacity of upwards of Rs 30bn. This will be a
vendor for Sansung, LG, Videocon, Cello, Montex.
port based expansion. The major benefit from this will be
As of now automotive and appliances account for ~50% of savings in transportation cost of `~Rs3- 4/kg on raw
revenues each. materials (HRG), which is presently being transported from
the plan in Madhya Pradesh to the Abu Road Plant. As of
Both industries are expected to grow by at least 10% in now the plan is to shift all of its current facilities at this port
FY18E. based location.

While order booking remains a continuous process & Future growth prospects
typically the order book is covered for the next 20 days.
However with the fixed supply agreements with HMSI, The management has guided 10-15% industry growth in
Samsung, LG , TGKirloskar & various other MNC the order both automotive and electrical appliances put together. It
book is full throughout the year . is confident of being able to outpace this growth as it is in
the process of adding new clients to their basket. On an
Raw Material Requirement
overall basis they have guided 25-30% growth in volumes in
FY18E.
The company currently imports both styrene and butadiene
and maintains an inventory of about 1-1.5 months. Financial Overview & Valuations
Sometimes if prices are expected to go up or supply is
expected to go down, they also maintain inventories up to The current capacity utilisation is around 64%. Due to
6 months. The call is taken based on prevalent market Environment Clearance getting delayed the capacity was
conditions. not fully exploited last year. However the Environment
Clearance was received recently & during the current year
Industry Overview only
it is expected reach capacity utilisation of 80% (of 80,000
MTPA).
Currently as per the management, the overall demand for
ABS is ~300,000 tons whereas the domestic supply is only At present, 98% of revenues are from ABS and only 2%
~160,000, balance being filled through imports. However, from SAN. The margins are quite different on both. SAN
imports are largely of natural grade ABS. Over the last 7 resins are mixed with HRG powder to manufacture ABS.
years, demand has grown by 2.5x. Going forward it is Thus due to value additions ABS margins are higher & SAN
expected to grow by 10-15% driven by demand from auto margins are lower. SAN is sold in the market only to those
and electrical appliances. A lot of refrigerator companies customers wherein the realisation is high. Balance SAN is
are also moving from HIPS to ABS. captively consumed for manufacturing ABS.

IDEA RESEARCH June 9, 2017 2

 Bhansali Engineering Polymers

The margins variation is around Rs 15 per kg in color v/s

natural. Colour material sold last year was 60%. Margins
will continue to expand as volumes increase.

Currently the company is debt free. Going forward the

management has maintained that it will not borrow for the
capex or for working capital requirements. They have also
indicated that they do not plan to dilute equity. The
company is in talks with the Gujarat government for
allocation of land for its new plant. However, the company
will need money for it only during FY19E.

We expect the company to grow revenues to ~Rs 10bn and

profits to ~Rs 650m in FY18E versus Rs 6.3bn and Rs 348m
in FY17. Thereafter also we feel that consistent growth of
~15-20% is achievable given that both auto and electrical
appliances industry is growing at a strong pace and there
are only but 2 players in the industry.

The stock has recently moved up significantly, but keeping

in mind the growth prospects of the end user industry as
well as management confidence in execution, it does
appear as an attractive bet for the long term. The company
has also rewarded shareholders through dividends & their
aversion to unnecessary borrowings provides additional
comfort. At the CMP it is trading at PER of 14.1X FY18E &
11.8x FY19E rough cut EPS estimates of Rs 3.6 & Rs 4.3
respectively.

IDEA RESEARCH June 9, 2017 3

 Bhansali Engineering Polymers

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

Y/e March 2014 2015 2016 2017 Y/e March 2014 2015 2016 2017E
Net Revenue 5,069 6,011 5,309 6,261 Shareholder's Funds 1,892 1,844 1,277 1,627
Raw Material Expenses 4,298 5,053 4,111 4,726 Total Debt 44 53 6 -
Gross Profit 771 958 1,197 1,535 Other Liabilities 27 28 34 40
Employee Cost 172 210 228 261 Total Liabilities 1,964 1,924 1,317 1,667
Other Expenses 441 494 595 647 Net Fixed Assets 1,328 1,222 819 930
EBITDA 158 254 375 627 Goodwill 0 0 0 0
Depr. & Amortization 44 50 55 54 Investments - 10 15 15
Net Interest 98 136 111 98 Net Current Assets 604 665 470 705
Other Income 12 19 25 84 Cash & Equivalents 135 144 148 172
Profit before Tax 28 87 234 559 Other Current Assets 2,278 2,548 2,507 3,082
Total Tax 13 33 67 211 Current Liabilities 1,809 2,027 2,185 2,549
Profit after Tax 15 54 167 348 Other Assets 32 27 13 18
Ex-Od items / Min. Int. - - - - Total Assets 1,964 1,924 1,316 1,667
Adj. PAT 15 54 167 348
Quarterly Financials (Rs m)
Avg. Shares O/S (m) 165.9 165.9 165.9 165.9
Y/e March Q1FY17 Q2FY17 Q3FY17 Q4FY17
EPS (Rs.) 0.1 0.3 1.0 2.1 1,471 1,633 1,229 2,165
Net Revenue
EBITDA 161 155 91 219
Cash Flow Abstract (Rs m)
% of revenue 11.0 9.5 7.4 10.1
Y/e March 2014 2015 2016 2017E
Depr. & Amortization 13 14 14 14
C/F from Operations (109) 357 565 191
Net Interest 23 26 23 26
C/F from Investing (47) (58) (352) (203)
Other Income 3 13 4 64
C/F from Financing 169 (325) (229) 37
Profit before Tax 128 129 59 244
Inc. / Dec. in Cash 14 (27) (16) 25
Total Tax 48 42 28 93
Opening Cash 31 45 18 2
Profit after Tax 80 86 30 151
Closing Cash 45 18 2 27
Adj. PAT 80 86 30 151
Key Financial Metrics
Source: Company Data, PL Research.
Y/e March 2014 2015 2016 2017E
Growth
Revenue (%) 21.0 18.6 (11.7) 17.9
EBITDA (%) 5.9 60.5 47.6 67.2
PAT (%) 23.3 264.2 209.6 108.4
EPS (%) 23.3 264.2 209.6 108.4
Profitability
EBITDA Margin (%) 3.1 4.2 7.1 10.0
PAT Margin (%) 0.3 0.9 3.1 5.6
RoCE (%) 3.3 7.1 15.2 27.4
RoE (%) 0.8 2.9 10.7 24.0
Balance Sheet
Net Debt : Equity 0.0 0.0 0.0 -
Net Wrkng Cap. (days) 39.7 18.0 (10.1) (21.0)
Valuation
PER (x) 567.8 155.9 50.3 24.2
P / B (x) 4.4 4.6 6.6 5.2
EV / EBITDA (x) 52.6 32.7 22.0 13.1
EV / Sales (x) 1.6 1.4 1.6 1.3
Earnings Quality
Eff. Tax Rate 46.8 37.8 28.6 37.8
Other Inc / PBT 0.4 0.2 0.1 0.2
Eff. Depr. Rate (%) 1.3 1.5 3.0 2.7
Source: Company Data, PL Research.

IDEA RESEARCH June 9, 2017 4

 Bhansali Engineering Polymers

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IDEA RESEARCH June 9, 2017 5