Bhansali Engineering Polymers Limited (“Bhansali Engineering” or the “Company”) is engaged in manufacturing and sale ABS (Acrylonitrile Butadiene Styrene) and Styrene-acrylonitrile (SAN) resins which find application in Automobiles, Home Appliances, Electronics, Healthcare and Kitchenware.

The Company has the second largest market share in India. ABS is a highly-functional plastic known for its strong heat resistance and impact resistance.

Bhansali Engineering had entered into a 50:50 JV with Nippon A&L Inc., Japan (NAL) to provide sales support and technical support.   This JV has enabled the Company in catering the growing demand of ABS resins, ASA resins, AES resins and other specialty polymers.

The manufacturing facilities of the company are located at Abu Road, Rajasthan and Satnoor, Madhya Pradesh. It has manufacturing capacity of 137 KTPA of ABS.

The Company’s client list includes Indian brands such as Bajaj, Exide, Fiat, Fort, Hero Honda, Honda Ciel, Kinetic, Maruti Suzuki, Pricol, LML, Mahindra, Reva Tata, Toyota, TVS and Yamaha. It has operations in Maharashtra, Madhya Pradesh, Rajasthan, New Delhi, Karnataka, Tamil Nadu and west Bengal. The Company also exports its products to international markets.

The Company’s business strategy continues to intensify its efforts to optimize its share of highly remunerative ABS market segment, especially from the automotive industry.

Financial Performance

Particulars	FY17	FY18	FY19	FY20	FY21
Revenue (In Rs. Cr.)	626.15	1,031.69	1,224.78	1,104.33	1,291.95
Growth	–	64.77%	18.72%	-9.83%	16.99%
EBITDA (In Rs. Cr.)	63.52	154.43	79.02	86.34	446.61
EBITDA Margin	10.14%	14.97%	6.45%	7.82%	34.57%
EBIT (In Rs. Cr.)	58.10	148.36	71.68	76.82	436.42
EBIT Margin	9.28%	14.38%	5.85%	6.96%	33.78%
PBT (In Rs. Cr.)	56.74	154.31	77.37	82.61	445.98
PAT (In Rs. Cr.)	35.45	100.03	47.21	67.01	333.90
PAT Margin	5.66%	9.70%	3.85%	6.07%	25.84%
EPS (In Rs.)	2.14	6.03	2.85	4.04	20.13
EPS Growth Rate	–	182.17%	-52.80%	41.94%	398.28%
Historic P/E (Closing Price of 31st March)	16.24	28.30	24.81	7.16	7.60
CURRENT P/E	7.47
CURRENT PE/ROE	0.15
D/E	0.85	0.00	0.00	0.00	0.00
PE/ROE	0.74	0.73	1.57	0.38	0.16
EV/Sales	2.40	2.18	0.78	0.70	2.27
EV/EBITDA	23.70	14.57	12.15	8.95	6.56
Interest Coverage	–	–	–	–	–
ROCE	19.46%	57.67%	24.00%	21.57%	64.05%
ROE	21.96%	38.88%	15.80%	18.81%	49.01%

Quarterly Performance

Quarterly Results	Q1 FY 2021	Q2 FY 2021	Q3 FY 2021	Q4 FY 2021	Q1 FY 2022	TTM	Q-o-Q %	Y-o-Y %
Revenue (In Rs. Cr.)	99.40	307.85	411.27	473.43	231.91	1,424.46	-51.01%	133.31%
EBITDA (In Rs. Cr.)	-3.33	46.33	184.05	219.40	100.84	550.62	-54.04%	–
EBITDA Margin	-3.35%	15.05%	44.75%	46.34%	43.48%
PAT (In Rs. Cr.)	-1.39	35.51	136.29	163.49	77.38	412.67	-52.67%	–
PAT Margin	-1.40%	11.53%	33.14%	34.53%	33.37%
EPS (In Rs.)	-0.08	2.14	8.22	9.85	4.66	24.87	-52.69%	–

• Demand for the company’s products in the domestic market during the quarter ended June 21 was sluggish due to lockdown imposed by various States in view of the second wave of the COVID-19 Pandemic.
• The production during the quarter continued at normal capacity levels, however, the dispatches were to the tune of 50% of the production levels, resulting into building up of additional Inventories.
• The Company anticipates bounce back in products demand on restoration of normalcy due to aggressive vaccination programme along with other initiatives undertaken by the government. The Company will aim to achieve maximum capacity utilisation levels for the year.

INVESTMENT RATIONALE

50: 50 Joint Venture Agreement with Nippon A&L Inc., Japan

Bhansali Engineering had entered into a 50: 50 Joint Venture Agreement with Nippon A&L Inc., Japan (NAL) and incorporated a Joint Venture Company namely Bhansali Nippon A&L Private Limited which provides sales support and technical support to the Company. This JV has enabled the company in catering the growing demand of ABS resins, ASA resins, AES resins and other specialty polymers. With the help of the technical support, the Company has developed several new ABS grades and going ahead also the company believes that they will continue adding new SKUs to its product portfolio.

Duopoly market Position in ABS

In India, ABS is manufactured by Ineos and Bhansali Engineering. Both of them together account for about 75% market share. Rest is met by imports, which also suggests the potential for these firms to expand revenue share. Due to the chemical complexity in producing ABS, it is capital intensive and hence, entry barrier for new firms is high. Need for high grade technology is another strong entry barrier. Both these domestic companies have technical collaboration with foreign partners and have long standing relationships with end user industry.

Strong Fundamentals

The Company has delivered strong 16% CAGR growth in revenue and 59% in operating profit over past five years. The average of last four years’ ROE stood at 31%. It has been constantly paying dividend to its shareholders since last 11 years.  The Operating Profit Margin for FY21 stood at 34.6% as compared to 7.8% for FY20 and Net Profit Margin for FY21 stood at 25.8% as compared to 6.1% for FY20. The major reason for the drastic margin improvement was lesser supply from the foreign players to India and inventory gains in a rising price environment.

The key raw materials used for making ABS are Acrylonitrile, Butadiene and Styrene. In addition to these several additives and pigments are used. The key chemicals are largely imported as there are no domestic producers in India. Furthermore, because they are crude derivatives, the prices remain volatile. Bhansali Engineering sells some imported raw materials in the domestic market depending on the minimum import quantity, demand in the local markets and the price trends.

Zero Debt

The Company continues to enjoy the status of a “ZERO DEBT COMPANY”. The management has indicated that the Company would be able to sustain its business operations through internal accruals. In the past history, the management has remained averse to borrowing and tried to fund larger part of capex via internal accruals.

End User Industry Trend and Opportunities

India is becoming a global manufacturing hub of two wheelers as well as four wheelers. As a result of which, international giants in the automotive field, viz. Suzuki, Hyundai, Honda, Toyota, Volkswagen, General Motors, Ford, Nissan, Renault, Fiat have established their respective manufacturing facilities in India, with growing degree of indigenization of its components. For components manufactured out of ABS, BEPL’s presence is well registered with all such international giants.

Indian appliance and consumer electronics (ACE) market is expected to double, to reach Rs. 1.48 lakh Cr. (US$ 21.18 billion) by 2025. (Indian Consumer Durable Report).  There is immense scope for growth of these products in India as the penetration level is immensely low as compared to global average. Demand for consumer electronic goods is likely to witness an increase in the coming years, especially in the rural areas as the Government plans to invest significantly in rural electrification, supplemented by rising influence of social mass media and the popularity of online sales.

INVESTMENT CONCERNS

Volatility of Raw Material Prices and Currency Fluctuation

The key risks for the company are volatility in the prices of crude-linked raw materials and foreign exchange fluctuations. Acrylonitrile, Butadiene and Styrene are the three major raw materials used in the manufacturing of ABS and SAN. These are crude derivatives and the prices are linked with global markets, which make their price volatile.  Most of these chemicals are imported, which raises the risk of foreign exchange rate fluctuation risk.

Slowdown in End User Industry

Auto and consumer durables manufactures are the customers of the company. Any slowdown in the demand for the product of these sectors will impact the sales of company. Economic slowdown due to COVID-19 had impacted the sales of Vehicles and consumer durables significantly in FY21 and the same pressure had to be faced by the Company because of lesser demand from manufacturers.

The Company operates with strong fundamentals. It is debt free and has been constantly paying dividend to its shareholders since last 11 years.  The Company’s business strategy continues to intensify its efforts to optimize its share of highly remunerative ABS market segment, especially from the automotive industry.  Pent-up demand, improving housing activities, and resumption of Capex will sustain strong revenue traction in the coming quarters too.

ABS is a performance polymer and its grades are specially developed for specific application required by the customers. This is precisely the reason that the Company has adopted the policy of focusing more on speciality grades which requires stupendous efforts in the beginning, but once developed, such efforts are highly rewarding not only in terms of price but also perpetual continuance of business with the customers due to the position acquired in the supply chain established by the customer.  For components manufactured out of ABS, The Company’s presence is well registered with international giants.

About Author