Bhansali Engg(BEPL): Q4’2018 Result Analysis

April 22, 20186:34 pm

Hi there,

I might be a little late on analyzing the Q4 result of Bhansali Engg but its better late than never.
The company came up with its much anticipated Quarterly earnings on 13th of April for the quarter ending 31st March 2018.

While many were of the opinion of that its an average to negative, but I would say it was excellent.

There have been some changes the way Excise duty was treated between last year and the current one, so we would directly go to Net sales to have a relevant comparison.

I would be comparing the YoY(Year on Year) result(best way to measure, given the seasonality effect on businesses) as well as QoQ(Quarter on Quarter).

Net Sales of the company grew by a whopping 56.5% YoY and that is tremendous growth. If I compare it to the QoQ result, the growth of 17% is good but not something great but it is YoY what matters most.

Moving on to line item 4,5 6:

YoY, the Ram Material (RM) cost has gone down, while QoQ the RM cost is stagnant. Immediately one question should come to your mind, With Sales increasing, the RM cost is ought to rise but it’s not happening here?

The answer lies in line item 5 & 6,

Stock Adjustment- It implies the cost of products manufactured earlier but sold in the current quarter. A positive number would mean that the company is able to sell the product this quarter and a negative number would mean the company has manufactured more than it could sell.

So, the unsold inventory of the past quarter was sold in Q4 2018.

The most important part of this blog’s analysis is the ‘Purchase of finished goods’- Quite visible that this item was Zero in Q4 2017 and for QoQ analysis, it increased by 34.3%.

In the Q3 2018 result announcement, the management has mentioned that they are running at almost full capacity and in case they are they are not being able to fulfill the orders through their current, their will import and sell. The larger expansion plan(new plant of 200KT will take some time but they will increase the current capacity only to a certain extent). 

So, most part of Purchase in trade is of imported finished goods. Quite obviously, the margins would shrink when you sell traded products rather than manufactured one.

The line item that impacted the bottom line the most was the ‘Other expenses’ which rose 91% YoY and 63% QoQ.
In the comment to the results the management has explained the reason as:
a) Forex loss(co. imports RM)– ₹6.82cr
Given the rupee depreciation during this period, this was going to occur.
b) Debtors write off – ₹8.56cr
The company has to deal with all kind of clients and some clients do not pay off the entire amount after receiving the goods even after several warnings that we can
relate to in our day to day life dealing with friends who take credit from us.

You might be urged to ask, is it something to worry about? My simple answer would be:
1. If you read other company’s Annual report, you would get to know that it happens with almost every company
2. Till now the management has not given any reason to doubt its credibility.

One also needs to analyze the margins. If you have gone through my earlier blog, as I had mentioned there, Net profit though shows growth of 82% YoY but it should be analyzed in terms of percentage of sales. It dropped QoQ on account of the expenses above.

So, my thoughts on the result would be:

1. With the capacity expansion from 80KTPA to 100KTPA already coming into play, Q1 2019 is going to be amazing.

2. The way the company is squeezing all its resources to meet the orders(Imported finished goods, selling off any remaining finished goods), the good time is here to stay.

3. The one time debtor write off is done.

4. During this quarter, the company cleared all its loan of ₹216cr and freed its pledged shared from Allahabad bank.

5. The easy credit to buy cars, appliances etc from NBFC and lending startups have just started pushing up the demand from the end consumers.

Please comment if you have any questions and would like to share your input.

By, 

Shekhar Yadav

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

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