The Hindu Business Line : Bhansali Engineering Polymers: Buy

Investors can consider taking exposure in the Bhansali Engineering stock, which appears undervalued vis-a-vis its growth potential. At Rs 33, it trades at about 36 times its trailing 12-month earnings.

The company has lined up expansion plans, which can more than treble its revenues over a two-year period. Rising disposable incomes in the hands of consumers will generate volumes for the automotive and the white goods industry; this, in turn, is expected to trickle down to the acrylonitrile-butadiene-styrene (ABS) industry.

Product porfolio

Bhansali Engineering manufactures ABS resins and in a less significant way styrene-acrylonitrile (SAN) resins.

It is among the larger manufacturers of ABS resins in the country. Bhansali Engineering's clientele includes automobile majors such as Maruti, Hero Honda and Bajaj Auto.

The company plans to expand its ABS resins capacity from 48,000 tonnes to 2 lakh tonnes and its SAN capacity to 7,000 tonnes by 2007.

It also plans to set up a facility for manufacturing SBR (styrene-butadiene-rubber) latex with a 40,000-tonne capacity within the next year.

SAN resins are used mainly in the white goods industry and the automotive battery industry. SBR is used in the manufacture of tyres, hoses and conveyor belts.

Prospects

Though the ABS industry faces an excess supply situation and under-utilised capacities, the capacity expansion in the passenger vehicles industry is likely to lead to higher offtake of the polymer in the long term. Bhansali Engineering plans to use the additional capacity for the export market, mainly the US and Europe.

A significant surge in volumes in the recent quarters suggests that the company has already tapped the export market by in a big way.

Revenues have grown at about 95 per cent over the past 12 months.

The picture appears bright for the ABS and SAN industries in the domestic market, as the polymers would serve as replacement to metals in the white goods sector.

Growth opportunities also exist in the SBR product line, which serve as replacements for natural rubber, whose prices are at all-time highs.

Bhansali Engineering has recovered from under-utilisation and a surge in raw material costs that took a toll on its earnings during the financial year 2004.

Though raw material prices continue to remain at higher levels, its operating margin has in the recent quarters has stabilised at 12 per cent on the back of better realisations.

Earnings growth is, however, tempered by rising interest expenditure with the company expanding its facilities by way of debt funding.

Investors with a two-to-three-year perspective can consider taking exposures, as earnings from the additional capacities are set to flow in only after March 2007.

More Stories on : Stocks | Recommendation | Automobile Components

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page