BHANSALI
ENGINEERING POLYMERS LIMITED
33RD
ANNUAL REPORT FOR 2016-17
EXCERPTS
RECENT PRICE FALL- SOME INSIGHTS
I have already reviewed the latest Q4 results of
Bhansali Engineering in another Blog Post. The results were good – but there
were some Q4 specific additional exceptional expenses which reduced Q4 Profits
to some extent.
Here are the brief particulars of Q4.
Total income increased by 38% YoY and 17% QoQ.
Net profit increased by 87% YoY and -0.97%QoQ.
The share’s Market price has increased during the last
one year from 38 Rs to 168, which is very impressive. It had gone up to Rs.210
also.
EPS FOR 4TH QTR IS 1.72 AND ON THIS THE PE
RATIO IS AROUND 24.
Bhansali has completed the ABS expansion to 100 KTPA at
Abu Road Unit by 31.03.18. It is a Zero Debt company now.
But, the real bad News is – the Fire Accident at
Satnoor Unit, which put it out of use for one full month. Production and sales
would have been affected and probably some raw material loss also might be
there. Part of all this may be recovered from Insurance.
Now, to understand BEPL prior to Q4 further, let us
look at the ANNUAL REPORT for 2016-17 and analyse the same. Here are the
excerpts from the Annual Rweport-2016-17.
EXCERPTS :
OPERATIONS AND FUTURE PLAN:
(I)
OPERATIONS
F.Y. 2016-17 reflects a magnificent performance and
depicts manifestation of the true potential of your esteemed company.
Company has adopted a strategic approach to re-position
its products in highly profitable consuming segments.
Despite stiff competition from imports with relatively
weak custom tariff protection, company could increase its gross margin by
27.80% and turnover by 18.48%.
Increase in sales has shown growth of 15.24% and
correspondingly the production by 16.10%.
Upon completion of the expansion cum revamping project
in the year 2015-16, the total ABS capacity stands at 80 KTPA whereas the
exploitation thereof in 2016-17 has been 64.31% only. Ipso facto, improving
upon the results achieved in 2016-17, is likely to be far more impressive in
the F.Y. 2017-18 and definitely thereafter in the subsequent years owing to the
following facts:
1. Growth in GDP post implementation of the GST will
push the consumption of lifestyle goods especially in the two wheeler
automotive segment, domestic appliances segment and other consumer durables.
These first two market segments are the major consumption area of your company’s
products.
2. Overall demand of ABS has substantially outstripped
the present supply of 160 KTPA against the current consumption level of 275
KTPA in F.Y. 2016-17, this is likely to continue to grow at the rate of 15%
CAGR for at least a decade ahead.
3. Overall ABS Global capacity utilization is around 70% and which makes the big capacity players
to supply in the deficit zone mainly India and China.
4. Despite availability of market in India, global
players find it difficult to meet demand of Indian market as quantity wise it
is not attractive due to some reasons. Several giant global manufacturers of
ABS sell their products in India to improve their respective capacity
utilization. China imports huge quantity of general purpose ABS from Taiwan. India
is a domestic market demand driven economy whereas China’s economy is driven by
exports. This is principally the reason that has not attracted any third player
in the Indian ABS market so far.
There is need for existing two ABS manufacturers to
improve their respective capacity utilization and also expand their individual
production capacity as quickly as possible to reduce import dependence.
5. Your company’s endeavor to attain optimum capacity
utilization of 80 KTPA is deemed most expedient and the company is confident
that by end of the current fiscal 2018, it will produce and sell 72 KTPA-optimal
capacity utilization. Thereafter, it will ramp up its production and sales by
exploiting the additional capacity being created at Abu Road for compounding to
achieve an aggregate ABS manufacturing capacity of 137 KTPA by 31st December,
2018.
The consistent growth in ABS domestic demand unfolds an
exciting opportunity to set up a global size port based ABS manufacturing unit
for your company. Presently due to unique market situation company is able to
not only sustain but earn handsome profit despite split location of
manufacturing facilities at Satnoor, MP whereas bulk SAN and compounding
production units are located at ABU Road, Rajasthan
(ii) Future
Expansion:
Your company has decided to set up a port based
green-field plant with a minimum capacity of 200 KTPA in the state of Gujarat, based
on state of the art technology from Japan. The Japanese company is Nippon
A&L. Infrastructure development work is progressing rapidly. The
implementation programme has been firmed up to commence manufacturing of ABS here
by 31st March, 2022. By then, the company will be able to exploit
its capacity of the plant optimally. If required, your company will be in a position to export specialty
grades of the ABS, ASA and AES resins as well.
Implementation of the project takes into account, in
terms of technology selection and logistic planning that it remains globally
competitive. The project is based on ultra modern process technology.
(b) Industry
Structure & Development:
All the end user
products push the
demand for ABS
and other polymers in a big way. Therefore, in the last 5 years, year on
year, import of ABS has been increasing as
Bhansali Engineering Polymers
Ltd (BEPL) and
Styrolution are unable
to cope up
with the market demand. BEPL has been striving hard to penetrate into
two wheelers and refrigerator liner market segments in
the manner that
it does not
have to produce
the large quantity
of general purpose
grades in natural
shade where competition is with cheap imports. This is precisely the
reason that enabled BEPL to improve upon its price realization per unit sales
volume and consequent thereupon, the gross margin.
PBT is at Rs. 55.88 Crore against Rs. 23.39 Crore last
year, with a quantum jump of 138.91%.The current financial year holds a
brighter promise as BEPL will be in a position to increase the sales quantity
in tandem with the present production capacity, focusing on high margin business
and refraining from competing
against cheap imports.
company has also
drawn up a
plan to establish
a green-field port based
plant with minimum capacity of 200 KTPA
to be implemented and commissioned by 31st March 2022 in the light of the fact that
quality of the company’s products has gained acceptance by the reputed
customers like HMSI, Maruti, Whirlpool,
Samsung, LG, Toyota, Mahindra, Bajaj, Godrej and many more.
The Company is modernizing the
production facility at Abu Road
for compounding which
will result in
establishment of overall
ABS production capacity
at 137 KTPA
by December, 2018
and from the current year onwards, Company is
putting-in humongous effort to attain 90% plus capacity utilisation year after
year.
Company’s consuming segment industries are in the high
growth trajectory. Through the JV company viz. Bhansali Nippon A&L Pvt Ltd,
the sales of ABS, AES and ASA specialty grades bearing high profit margin is
being pushed hard successfully as customers are not interested to source these
products from overseas.
(c) Opportunities & Threats:
The consumption of ABS in India is voluminously larger than
the capacity of the domestic
manufacturers viz. BEPL
and Styrolution; Hence these two companies have not been so far able
to match the domestic demand. Hence this high demand and low supply can be
exploited by BEPL through its ongoing expansion etc.
Moreover both
the ABS manufacturers
in India have
to import their
basic raw materials
of more than
85% viz. Styrene
and Acrylonitrile monomers along
with several Additives & Pigments.
This may be construed as a principal threat due to
fluctuation of prices and availability in the International market. The prices
of monomers is volatile on account of availability and price behavioral pattern
of the petroleum and petrochemical building- block materials viz. crude oil,
ethylene, naphtha, benzene, Propylene-oxide, etc.
Risk and Concerns:
ABS business in India is exposed to the risk of Foreign
exchange fluctuations as the key raw materials i.e. Styrene and Acrylonitrile
monomers are import dependent, since there is no indigenous producer for
these Monomers. The
only raw material
which is indigenously
available is Butadiene
monomer which constitutes weight wise only 15% out of the
total raw material composition.
Segment/
Product-Wise Performance:
During 2016-17, total sales amounted to Rs.704.09 Crore as
against Rs.594.25 Crore during last fiscal registering a growth of 18.48%, however
the Profit After Tax (PAT) amounted to Rs.34.77 Crore in the F.Y. 2016-17 as
against Rs.16.69 Crore in last fiscal
witnessing an impressive growth of around 108.33% Profit after tax.
My assumptions and
conclusions :
Most of the expansions are happening at Abu Road Unit
and very little, if any, at Satnoor,MP. Abu Road seems to be primary and Satnoor
Unit is secondary. The fire accident at Satnoor has taken 1 full month to
repair and recommission that Unit. Considerable expenses would have been
incurred in recommissioning that Unit. One month of loss of production, sales and
some raw material loss also might be there. Much of this may be covered by
Insurance, usually. All said, its impact will be limited to Q1 results only and
may neutralize the effect of increased production at Abu Road to some extent.
From Q2 onwards, this incident will become immaterial and inconsequential in
judging the performance of Bhansali Engineering. So, the RECENT market price
fall, to my mind, appears to be a purely TEMPORARY PHENOMENON. BEPL price may
regain normalcy after declaration of results and some Management commentary on
the fire accident and its effects.
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