BCL Industries & Infrastructures Ltd: Bargain bet
(BSE Code: 524332) (CMP: Rs.85.75) (FV: Rs.10)
Promoted by Mr. Rajinder Mittal in 1976 as Bhatinda Chemicals, BCL Industries & Infrastructures Ltd (BCL) is one of the largest agro-based companies in North India with a vertically integrated plant. Its manufacturing unit is located at Bhatinda in Punjab. BCL operates through three segments - Edible Oils; Distillery; and Real Estate. Edible Oil extraction and Distillery accounted for 64.5% and 32% of its total revenue in FY17. BCL’s ‘edible oil’ business includes refined vegetable oil, vanaspati ghee, mustard oil, rice, etc, which are sold under the following brands - Homecook, Vanaspati, Do Khajoor, Murli, etc. It purchased an Edible oil and Rice Shelling unit (Kissan Fats Ltd) at Jalalabad in Punjab in 2002. This unit has a 3 MW state-of-the-art co-generation power plant for captive consumption, which runs on non-conventional energy sources. Both the plants are equipped with modern technology. Its total power plant capacity is 8 MW.
BCL’s distillery produces a variety of Indian made foreign liquors (IMFL) like Gin, Whisky and Rum. Its 100 KLPD distillery started in FY13 at Bhatinda at a capex of Rs.35 crore to manufacture a wide range of liquors under the brands ‘Asli Santra’, ‘Ranja Sounfi’, ‘Punjab Special’ Whisky/Rum/Dry Gin, ‘Rajdhani Special’ Whisky, ‘Masaledar’ Sharab and IMFL ‘9 Star’ Whisky. It has undertaken capex of Rs.55 crore to add 100 KLPD in a distillery unit spread over 4.3 acres along with a 8 MW power plant. Its total capacity now stands at 325 KLPD. BCL’s real estate vertical, which currently contributes only 3.5% to the total revenues, is progressing well. The income from this segment zoomed 140% to Rs.22.5 crore in FY17 from Rs.9.4 crore in FY16.
For FY17, BCL’s net profit soared 55% to Rs.10 crore on 27% higher sales of Rs.671 crore fetching an EPS of Rs.7.1 and a dividend of 10% was paid. During Q1FY18, it posted 76% higher net profit of Rs.4.6 crore on 32% higher sales of Rs.171 crore fetching an EPS of Rs.3.2.
With an equity capital of Rs.14.2 crore and reserves of Rs.82.9 crore, BCL’s share book value works out to Rs.69. Its borrowings are Rs.229 crore. Cash and short-term loans of Rs.31 crore give it a net DER of 2.2:1, which is a bit high due to its distillery project. The value of its gross block is Rs.213 crore. The promoters hold 51% of the equity capital and PCBs hold 38.1%, which leaves just 10.9% stake with the investing public. According to the latest IMARC survey, BCL ranks seventh in of extra neutral alcohol (ENA) production in India. It aims to be the No.1 player along with its associates after setting up the Kharagpur unit through its subsidiary - Svaksha Distillery Ltd. This is a partnership project with Kolkata-based Svarna Infrastructure for setting up a 200 KLPD capacity plant and a 8 MW co-generation plant across 20 acres of land. With the commissioning of this plant in FY19, BCL will emerge as India’s largest grain-based alcohol manufacturing company with 525 KLPD capacity. Of the aggregate capacity of 980 KLPD of ENA in North India, ~325 KLPD or approximately 33% is owned by BCL and its associates. Going forward, BCL’s key objective is to add capacity to its distillation business to consolidate its position and enhance its market share. The per capita edible oil consumption in India has grown to ~14.7 kg. However, this remains below the estimated world average of ~21.6 kg. The growing population, rising income levels and improved supply conditions are likely to boost the consumption of edible oil going forward.
The Indian alcoholic beverages market is one of the fastest growing markets in the world with several unexplored segments. With a compelling business potential and economies of scale poised by the market, international players are expected to expand their operations in the Indian alcoholic drinks market in future. The Indian alcoholic beverage market is expected to grow at 11.1% CAGR during FY15-20. (Source: KEN Research).
India is emerging as the largest global market for whisky with sales of over 60 million cases per annum. Other spirits (Brown – Brandy/Rum, White – Gin/Vodka/Rum) constitute the balance 40% of the IMFL market. White spirits, although only 5% of the market, are growing at a much faster pace of 40% per annum as against the 10-12% growth of the overall IMFL market. Traditionally, BCL fares better in the last quarter. Based on the current going, BCL is expected to post an EPS of Rs.12.5 in FY18 and Rs.15 in FY19. At the CMP of Rs.85.75, the stock trades at a P/E of just 6.86x on FY18E and 5.71x on FY19E earnings as against the industry average P/E of 11x for the solvent extraction segment and 90x for the brewery and distillery segment. The high average P/E of distillery is due to the high P/E ratios of United Spirits and United Breweries. The liquidity in this counter is rather low but will improve as the company posts good results going forward. The liquidity is expected to rise further once value buying starts in the counter after the company’s prospects become more visible. The stock has the potential to appreciate around 40% in the medium-term with a price target of Rs.120 at a forward P/E of 8x on FY19E earnings.