Sales team / Field force of 900 is a large team.

In Indian Pharma Industry, Average Yield per month is around ₹5Lakh => 60 Lakh per Year => potential of annual sales of 540cr.

Mr. Manish Gupta has ability to improve the capabilities of his team, but since last 2-3 quarters, company is facing challenges in top 2 brands for which they increased the capacity (field force).

Therefore average capacity utilisation (of sales team) can generate more than 2xTTM sales. PAT would be much higher in that case.

New launches (as planned in Q4FY24) may improve the yield of sales team.

They have announced their results date for the year ended a month earlier than all the time they have done before. 26 Apr 24 it is. Last year it was on 29th May 23, and before that 27th May 22.

No fireworks, profit slightly below expectations. Don’t think markets will be distributing sweets unless the management has a palatable explanation for the floating provision it has made.

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BHEL – Investment case

1. Company Overview – BHEL

• BHEL – PSU is India’s dominant producer of power & industrial machinery since 1964
• 200 GW+ installed capacity (70% power generation in India from BHEL Installed capacity in India)
• Key beneficiary – Aim to achieve 50% market share from non power segment (30% presently)
• Attractively placed for capacity addition of high growth sectors – Decarbonization, Green Hydrogen, Transportation, Aerospace & Defense with impetus on “Make in India” & “Atmanirbhar Bharat”
• Market Cap – INR 88k Crs, Revenue INR 24K Crs, P/B – 3.4x
• Order book – 1.2 lac Crs
• 503 patents filed in FY23 – Total IP – 5,443

2. Selling shovels during a gold rush

• Minimal Thermal capex investment for during 2017-24 period (<5 GW pa)
• Leading to deficit in 2024-27 period
• Focus on capacity addition – Thermal, Solar, Wind

3. At the bottom cycle from financials, upward cycle has begun

4. Investment case

Good

• Uptick in thermal capacity addition due to strong electricity demand, uptick in spot market prices and no major capacity addition in next 3 years
• No major presence of Chinese / International BTG supplier – major beneficiary last time
• Strong order inflow from Central, State & Private sector utilities
• Improvement in order terms – commodity cost pass-through – learning from last upcycle
• Reduction in manpower – 50k to 30k
• 30% order book in non power sector & management focus on developing non power sector order book – Target 50%
• Decrease in competitive intensity will lead to better margins

Better

• Decarbonization opportunities – FGD, Green Hydrogen, Renewable generation
• Defense & Aerospace opportunities – Cryogenic component, Batteries and other components for Chandrayan -3, indigenization of imported parts
• Transport opportunities – Railways & Urban Transportation – 80 Vande Bharat trains Kavach etc.

Best

• Efficient capital management from shareholder perspective
• Improvement in efficiency at part with best global OEMs
• Improvement in execution capabilities
• Recovery and resolution of sticky receivables through mutual agreement, arbitration & other mechanisms
• Ability to make significant break-through in decarbonization and green hydrogen sectors

5. Technical analysis

Price uptrend continuation with all time high volumes

6. Risk

• Being an PSU, majority shareholder may influence business decision, capital allocation strategy
• Historically faced with sub par execution skills and delay in delivery, may not scale up due to such issues
• Profitability may be impacted, or receivables may not come through due to any reasons, as seen in last cycle

Disclaimer: Education purpose only, Not an Investment advice or recommendation.

So just trying summarize the the current developments.

IG happens to the largest player in the industry (275l Mt pa) close to 50% of total domestic capacity. One of their key customers has actually backward integrated into PAN production for DEP. Meanwhile imports have sharply fallen by more than 50%. It is simply not possible to compete with cost of production of IG and all (economies of scale and cheapest producer). A substantial quantum of PAN is consumed by the paints sector which should sustain, but there is nothing which can change exponentially either on demand/supply side (as far as I understand) however, Indian players are benefitted by imposition of ADDs, some of which shall expire by CY26 I think, unless this factor opens up something.

Asset Turns are around 1-1.2x overall, erratic PAT/OPM keep the RoE/RoCE readings very volatile as well as PAN-Ox spread is the key to track which is directly related to crude and global demand function. So factors which are within control of IG happens to be lesser.
Maybe why in FY18 when RoCE was 35%+ P/BV was 3.5, but currently oscillating between 1-1.25x. Uncertainty maybe is the reason.

Probably why they’re now diversifying into downstream plasticizers (PVC led consumption) which is more stable margins and much higher Asset turns of 5x (mgmt guidance). Full scale productions to happen by FY26 end and should be interesting.

LT Borrowings have gone up, interest cost jumped up as well, which shall add another volatile reading to track: Int coverage ratio.

All said, may not be very comfortable for many right now, but key to watch how the industry dynamics change post the ADDs expire, and if the plasticizers make the business more stable. Both factors shall play out around the same time between CY26-27.