Prabhudas Lilladher
Bhansali Engg (Buy)
CMP: ₹123.25
Target: ₹246
Bhansali Engineering (BEPL) reported numbers in line with expectations. Due to the fire at their Satnoor plant, production was halted for a month. This lead to a drop in volumes by about 45 per cent both y-o-y and sequentially, but revenues fell by only 10 per cent y-o-y and 33.2 per cent q-o-q supported by higher realisations which improved 68.1 per cent y-o-y and 18.5 per cent sequentially. EBITDA margins improved y-o-y by 40 bps but fell sequentially by 90 bps to 13.6 per cent. We were positively surprised by the per kg EBITDA which improved to ₹30.5 versus ₹17.6 in Q1FY18 and ₹27.4 in Q4FY18 and could improve going forward.
We remain positive on the business as well as management capabilities. The company continued to remain debt free even through trying times and is likely to remain so going forward. We see strong visibility for 20 per cent growth and free cash generation. Our explicit forecast extends till FY30E, our terminal value is based on cost of equity of 11 per cent and terminal growth rate of 5 per cent which gives us a DCF based target price of ₹246.