INSUBCONTINENT EXCLUSIVE:
Prabhudas Lilladher has a buy call on Bhansali Engineering Polymers Ltd
with a target price of Rs 246
The current market price of Bhansali Engineering Polymers Ltd
is Rs 128.95 Time period given by the brokerage is a year when Bhansali Engineering Polymers Ltd
price can reach defined target
Bhansali Engineering Polymers Ltd., incorporated in 1984, is a midcap company with a market cap of Rs 2212.35 crore.
Investment rationale by
Prabhudas LilladherBhansali Engineering (BEPL) reported numbers in line with expectations
Due to the fire at their Satnoor plant, production was halted for a month
This lead to a drop in volumes by ~45% both YoY and sequentially, but revenues fell by only 10% YoY and 33.2% QoQ supported by higher
realisations which improved 68.1% YoY and 18.5% sequentially
EBITDA margins improved YoY by 40 bps but fell sequentially by 90 bps to 13.6%
We were positively surprised by the per kg EBITDA which improved to Rs 30.5 versus Rs 17.6 in Q1FY18 and Rs 27.4 in Q4FY18 and could improve
However, even in a base case scenario assuming no further improvement, we have yet had to revise our full year assumption upwards to Rs 30.5
for FY19E (Rs 28.5 previously)
Interest cost has fallen sharply in the quarter by 73.4% YoY and 84.7% QoQ to Rs 3m as the company had repaid the entire debt on March 31,
This further helped profits to remain flat YoY at Rs 168m.
The management in its press release has stated that it has put the plan of
expanding its capacity from 100,000 KTPA to 137,000 KTPA on hold
For FY20E they are likely to utilise the capacity up to ~98%
Status of the port based capex at that point will enable the management to assess further expansion plans
The lead time to set up the incremental capacity of 37,000 KTPA is ~9 months
Management is confident of sustaining 20% volume growth and will take necessary steps to achieve the same
In our estimates, we have assumed 26% growth (over 75,000 tons) in FY20E to 94,500 tons.
Post results, in spite of lower volume assumptions,
our revenue estimates have improved by 7.9% to Rs 15,494m for FY19E which along with higher EBITDA/kg and lower interest cost has
contributed to profit estimates remaining unchanged at Rs 1,496m
For FY20E our revenue and profit estimates broadly remain unchanged
We remain positive on the business as well as management capabilities
The company continued 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
Our explicit forecast extends till FY30E, our terminal value is based on cost of equity of 11% and terminal growth rate of 5% which gives us
a DCF based target price of Rs 246
Given the recent correction in price, we upgrade our rating to BUY.
