Strategic Insights into Bhansali Engineering Polymers Ltd
Bhansali Engineering Polymers Ltd (BEPL) is a well-established ABS manufacturer in a competitive oligopoly market, known for its low-cost specialty variants. With steady revenue growth, strategic expansions, and high margins, BEPL exhibits promising potential for investors. The company's greenfield expansion plans and increasing capacity position it for further success, raising questions about its stock valuation and market positioning compared to competitors like INEOS.
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Bhansali Engineering Polymers Ltd Well-placed in a cosy oligopoly Mahesh Krishnamurthy Jan 2018
Business Brief 24 year old ABS Manufacturer Founder promoter still active, next generation is in the management Revenue 800 cr, Profit 60 cr 3 Year CAGR - Revenue: 7%; PAT: 86% Claim to be one of the lowest cost manufacturer globally Strategic acquisitions & JVs Acquired two local facilities in the 90s Technological Tie-up with Nippon through a JV Zero Debt Promoter stake increased from 51% to 54% in the last 12 months
The ABS Story ABS mainly finds application in appliances and automobiles Annual ABS Demand in India is 275kTpa, growing at 11% per year Two Manufacturers BEPL and INEOS Stryolutions share 50% market Balance is imported (the base polymer is usually imported; BEPL is a specialist in the higher margin specialty variants) Why is ABS an oligopoly? Small portion of the plastics pie 1-2% Multiple small batch requirements various shades, for eg. Mean grades have to be qualified by customers High Fixed Costs, Long lead time to set up plant
Runway & Valuation Runway Capacity Expansion Increased capacity from 37kT to 80kT (brownfield) in 2017 Plan to increase to 137kT in 2018 200kT Greenfield expansion through a Gujarat port-based facility by 2022 BEPL in 2021, at full capacity utilization will have 137kT output, which is ~22% CAGR over FY2018 Valuation Commanding hefty multiples currently, 50x Reverse DCF shows a 23% CAGR priced in With margin expansions, EBITDA growth can be higher than revenue growth, as evidenced in the last few years (EBITDA margin up from 3% to 10% in 3 years)
Open Questions Why is INEOS not doing as well? Mismanaged? Larger than BEPL, but revenues growing slower and EBITDA margins lower than BEPL Can BEPL manage the greenfield port-based expansion on internal accruals? Is BEPL a case of a good business but a bad stock? (at current valuations) Margin of Safety?
