Why Bhansali Engineering Share Price is Rising

Dark clouds loomed over the petrochemical sector recently.

This decline was driven by a combination of factors, including fluctuating crude oil prices, supply chain disruptions, and notably, margin pressures that squeezed profitability.

However, a shift in the winds seems to be bringing a wave of optimism back to the industry.

Companies like Supreme Petrochem, Manali Petro, and Kothari Petrochemicals are witnessing a surge in their stock prices, reflecting renewed investor confidence.

Leading the charge in this impressive rally is Bhansali Engineering, a major player in the petrochemical space. Its share price has skyrocketed 27.8% in the past five days and a staggering 37.5% in just the last month.

What's driving this remarkable turnaround for the company?

Let's investigate and uncover the factors propelling its share price to new heights.

#1 Falling Crude Oil Prices

Rising crude oil prices had created significant pressure on petrochemical companies.

However, earlier this month, crude oil prices declined following OPEC+'s announcement to gradually remove voluntary production cuts amounting to 2.2 million (m) barrels per day.

A coalition comprising eight OPEC+ members, including Saudi Arabia and Russia, revealed plans on Sunday to initiate the phased withdrawal of these cuts over a 12-month period beginning in October.

They emphasized that this decision hinges on prevailing market conditions and remains subject to potential reversal if deemed necessary.

In contrast, OPEC+ intends to uphold separate segments of production cuts totaling 3.6 m barrels per day until the conclusion of 2025.

This announcement may benefit companies like Bhansali Engineering, which rely on petrochemical products.

If the reduction in oil production leads to stable or lower raw material costs, it could potentially improve its profit margins.

Hence, following the announcement its share price is on an upward trajectory.

#2 Good Financial Performance

During FY24 the company's total net revenues declined due to uncertain geopolitical conditions.

Net sales dropped 10.3% in FY24 to Rs 12.2 billion (bn) from Rs 13.6 bn reported in FY23.

Despite the decline in sales, investor confidence in the company remained strong, bolstered by its robust financial performance in FY24.

It reported a substantial increase in net profit, rising by 30.8% to reach Rs 1.7 bn during the year.

The net profit margin for FY24 stood at 14.7% as compared to 9.9% for FY23. It continues to be a zero debt company.

This significant profit growth highlights the company's ability to effectively manage costs and maintain profitability. This contributes positively to investor sentiment amid the sales challenges.

#3 Good Operational Performance

The company effectively used its production facilities in the FY24, achieving significant milestones in production and sales.

It reached a record production level of ABS and saleable SAN, totaling 75,152 tones per annum (TPA), which equates to 100.2% of its installed capacity of 75,000 TPA. This demonstrates its ability to operate at maximum capacity efficiently.

The company saw an increase in sales volume, with total sales amounting to 75,143 TPA. This represents a growth of 2.36% compared to the previous financial year's sales volume of 73,388 TPA.

This increase underscores growing demand for the company's products in the market.

Achieving full capacity utilisation and recording higher sales volumes are positive indicators of operational efficiency and market acceptance of the company's products.

What Next?

Looking ahead, Bhansali Engineering has ambitious plans to enhance its production capacity. The company aims to increase its ABS production capacity from 75,000 TPA to 200,000 TPA at its existing plants in Abu Road (Rajasthan) and Satnoor (Madhya Pradesh).

To achieve this, the company has appointed Toyo Engineering India as an engineering consultant for front end engineering design (FEED) and capex cost estimation.

The realistic project cost for expanding to 200,000 TPA ABS capacity will be determined based on TOYO's detailed report, which will also include the costs of increasing SAN, HRG, and compounding capacities at the company's plants.

This expansion will be funded through internal accruals, allowing the company to maintain its zero debt status in the future.

Recognising that capacity expansion is the need of the hour, the management is committed to implementing the project by March 2026.

Additionally, Bhansali Engineering's R&D center has made significant strides in developing and improving product grades. During FY24, the R&D center successfully developed or enhanced properties of 18 new grades, of which 8 have been commercialised.

Furthermore, the R&D centre developed over 179 new colour grades, with 44 of them being commercialised. This continuous focus on R&D has led to new and improved products, fostering customer loyalty and satisfaction.

However, it is important to note that while these expansion plans and R&D achievements are promising, they are not without risk. Any delays or unforeseen challenges in the expansion project or market fluctuations could impact the company's future performance.

How Bhansali Engineering Share Price has Performed Recently

In the past five days, Bhansali Engineering share price has rallied 27.3%. In the last month, it is up 37.1%.

In 2024, so far its share price has rallied 27.9% and it has surged 51.8% in the last year.

The stock touched its 52-week high of Rs 137.5 on 21 June 2024 and a 52-week low of Rs 81.7 on 13 March 2023.

About Bhansali Engineering

Bhansali Engineering Polymer is engaged in the manufacturing of acrylonitrile butadiene styrene (ABS) resins and styrene acrylonitrile (SAN) resins, which are classified under the category of highly specialised engineering thermoplastics.

Its products include ABS, ASA, Polycarbonate-ABS (PC-ABS) and specialties.

Its PC-ABS blends are used in automotive and electronic applications. Its ABS for different categories include injection moulding, for extrusion and for blow mounding.

Its ABS applications include home appliances, automotive, electronics and electrical and others with a range of colours and shades.

Its ASA applications include automotive and construction. Its customers include companies dealing in automobiles, home appliances, electronics, health care and kitchenware.

The manufacturing facilities of the company are located at Abu Road, Rajasthan and Satnoor, Madhya Pradesh.

To know more, check out Bhansali Engineering's financial factsheet and its latest quarterly results.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...