They had first mentioned the proposed capex in 2017-2018. Back then it was supposed to be a Greenfield expansion. 6 years later that has not only turned into a Brownfield capex but it isn’t even complete. The company does not conduct conference calls or give adequate quarterly updates. It’s a father-son run company with the Bhansali family closely holding ~55% of equity. Dividends too are a fraction of retained earnings. Even during the AGM, which is the only opportunity to ask questions they only take questions from relatives who thank them profusely for Re. 1/- dividend. This company has previously been taken to court for abuse of minority shareholders. Governance score 0/5.
Now let’s come to the actual business. This is a single product cyclical commodity business. They import Acrylonitrile and HRG which they convert to SAN and then ABS. Since most of their raw materials are imported you would think management would hedge their forex risks, right? Wrong, management to this day is happy to take the hit of forex losses rather than hedging. Majority of their business is still commodity ABS even though they have been trying (unsuccessfully) to secure speciality ABS contracts for 8 years. So the company basically has no negotiating leverage with its customers or suppliers. The reason the company says capex is “need of the hour” is because it truly is for BEPL. Operating Leverage is the only way this company can grow and those plans have been delayed for years with no end in sight. During that time competitors have rebranded and restructured their operations and taken market share away from them. The only thing the company can control is its own cost structure which they do very strictly, often to the detriment of the business. Refusal to take on any debt to fund capex is a glaring example. Business score 1/5.
In my opinion this company does not warrant long term investment. I use it to track the wider commodity chemicals cycle.
Disc: Was invested in the 2017-18 & 2020-21 commodity chemicals cycles. Please don’t construe my opinion as investment advice.
| Subscribe To Our Free Newsletter |
