If you have been following Bhansali engineering polymers, you must be eagerly awaiting the quarterly result of the company(Q1’FY19). Given the big fire at BEPL’s Satnoor plant which claimed one life and the factory had to be shut down for more than a month, the wait must be taking a test of your patience. Finally, the result was out as usual towards the end of the second week following the end of the quarter i.e. 14th July 2018.
I will try to explain my take on the result.
Since in India we follow the calendar from April to March so the first quarter(Q1) 2019(Q1’FY19) would be the months of :
1. April- Fire took place on 29th April’18 at the Satnoor Plant
2. May – Bhansali Engg(BEPL)’s Satnoor plant remained closed for the entire month. (Seemed like something major given the long time taken to restart the factory).
3. June- Restarted production again on 1st June’18.
Substantial time & production lost if you consider a period of 3 months i.e. loss of 33% of the time.
Taking the quantum of the accident in consideration, if you expect the factory to get on its feet & start running you would be mistaken. There would be multiple hiccups post the repair work and it usually takes time things to stabilize.
Even after all these the company’s result has been satisfactory.
Lets first understand how is ABS Made?
ABS is the only product of Bhansali Engg(BEPL).
Let’s look at the constituents of the end product:
The proportion may vary from client to client but the major constituent(75% of total product) will always be Styrene(SAN) manufactured at Abu Road plant.
Coming to the company’s manufacturing plants, there are two of them:
1. Abu Road, Rajasthan: Manufactures SAN as well as the end product which is the combination of the two product i.e. ABS(HRG+SAN=ABS)
2. Satnoor, Madhya Pradesh: It manufactures the other part which is HRG(High Rubber Graft or Polybutadiene)
ABS capacity has been expanded from 80 KTPA to 100 KTPA at the Abu Road plant
SAN capacity is being expanded from 60,000 TPA to 1,00,000 TPA at the Abu Road plant
HRG production capacity also is being expanded from existing 15000 TPA to 35000 TPA at Satnoor plant.
Why to hold on the capacity expansion at Abu Road?
Given the recent shock(fire) and the long distance between Satnoor and Abu Road(950+Km), the company would be incurring a lot on the logistics cost.
Also, there is already a lot of delay in the expected timeline for current capacity expansion. If the company focuses on the current capacity expansion, there would further delays in the 200KT greenfield project.
I think its a very good step by the company. When the tide has turned in the favor of the company, the idea should be to make the most of it.
Why they built plants so far?
Let's Analyze the numbers:
That explains the “Changes in inventories of finished goods, Work in progress & stock in trade” or “Stock Adjustments”
“Moreover, pro-active action taken by the management was to keep Abu Road Plant fully operational during the intervening period, in order to ensure that adequate inventory of SAN co-polymer which is 75% constituent of ABS resins, could be built up. Furthermore, the Company made arrangement to import HRG so as to ensure that shortfall of the production
during 1st quarter of current F.Y. 2018-19 is recompensed. Therefore, Management of the Company is confident that through compounding of available SAN inventory and imported HRG, the overall performance of the company for the current fiscal will most likely be maintained.”
Other point mentioning about the increase in “Purchase of Stock in trade” which implies ” Purchase of Finished goods”.
The company must be having orders in hand which they need to fulfill but given their inability to manufacture the required items, the company imported it which is visible from the increase in imports.
You might ask Why import the end product rather than just import the HRG & manufacture the end product?
There is already a delay in providing the end product and if they import and then manufacture it in India, that simply means more time delays and risks losing out on key clients.
If you look at EBITDA margin, despite company importing products and adding all the logistics cost, Bhansali Engg posted an increase in the EBITDA margin year on year from 13.6% in Q1FY18 to 13.8% in Q1FY19 implying a huge increase in the pricing power of the company.
To my surprise, even the PAT margins have increased from 7.5% to 8.3% despite all adversities.
In my opinion, its a great company faced with a temporary problem. But with the passionate leader at the helm, the company is ought to go places. The company has been forthcoming with all the information.
Given the high inventory of SAN, ready with the company & Satnoor plant running in full flow, the second quarter is expected to be blockbuster.