INEOS Styrolution India Ltd

Stock Opportunities Untested - but worth a good look
1

I was quite surprised to know that there in no writeup on this company, so here goes…

What if I told you there is a company meeting the the following investment criteria, would you be interested :

  1. MNC company
  2. 75% held by promoters
  3. 10 paid up
  4. zero long term debt
  5. doing quarterly sales of 300r +
  6. quarterly ebitda 34 cr+
  7. Dividend paying
  8. Had 3 manufacturing facilities with combined area 1.27 million sq feet
  9. Investor friendly management which gives quarterly ppt and does concalls with investors
  10. Available at mcap of 1300 cr
  11. Reliance MF building up position every quarter

Sounds interesting…the name of the company is Styrolution ABS (India) Limited. It is the market leader for ABS (Acrylonitrile Butadiene Styrene, 45% india market share, capacity 110,000 mtpa ) and SAN (Styrene Acrylonitrile, 60% india market share, capacity 100,000 mtpa ) in India with three manufacturing facilities located in Gujarat.

ABS is a styrenics co-polymer used for manufacturing plastic components for a wide range of applications, with a major focus on automotive, household appliances, electronics,etc.
SAN is a transparent styrenics copolymer used mainly in applications including household appliances, imitation jewellery, etc

For full range of applications its good to visit www.styrolution.com and check out products and industries. This is the website of the MNC parent … will give you an idea of the full range of product application.

The parent is also strong with sales of 5.4 billion Euros in 2014 and is the leading global styrenics supplier . A 80 year old company , Styrolution ( the parent ) employs around 3100 people, operates 15 manufacturing sites in 9 countries, and has a broad customer base spread across over 100 countries worldwide.

Other key facts

  • 70% of sales comes from specialty and 30% from commodity products
  • crude is key raw material
  • current capacity utilization for specialty is 80%…will hit 100% in 2 years
  • they work on cost plus model, so neutral to crude price. However they need to book inventory loss/ gain if oil moves down/up respectively
  • margin on specialty is double that of commodity products
  • competition is from one local player and imports
  • the specialized polymer industry grows at more than GDP, and this company aims to grow at atleast 2% more than the industry.

Given the above, I feel the stock needs to be re-rated.

Discl : invested at slightly higher levels
map when posted : 1300 cr

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2

No comments anyone ?

BTW, stock is up 10% today…hopefully someone bought.

Disc : Invested

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Data: Screener.in

OPM (TTM) = 7.74%

RoCE last year = 12.89%
RoCE 3 yr Avg. = 15.91%
RoCE 5 yr Avg. = 21.64%
RoCE 10 yr Avg. = 22.61%

As of today, a pedestrian OPM with a falling RoCE does not inspire confidence.

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Styrolution ABS - Margin should continue in double digits barring any inventory losses - Jun-qtr Concall update

• Q1 saw Volumes growth of 15% as compared to Industry volume growth of about 13%. The company was able to gain some market share. However due to lower crude oil prices, there was a negative value growth which led -2% decline in Revenue during the qtr.

• Margins improved on back of lower crude oil prices, better product mix and inventory gain of raw materials. While it’s difficult to project on inventory side, management expects the margins should continue to be in double digit barring any inventory losses to come in due to lower crude oil prices.

• Capacity utilization rate is around 80% in specialty chemicals. The company has increased the capacity of ABS from about 80 ktpa to around 1.1 lakh tpa in Oct’14. SAN capacity remained at 1 lakh tpa which is also used for captive consumption to produce ABS. Every 100 ton of ABS 75 ton of SAN is required. To that extent company is consuming SAN and balance is sold in external market.

• In terms of market share, overall, the company has market share of about 44% in ABS in India and about 60% in SAN. In terms of sales, about 70% comes from specialty chemicals and rests are from commodity products for the company. The sales should inch up towards specialty products which have nearly double the margins that of commodity products.

• Subsidiary company Styrolution Pvt Ltd is engaged in business of producing Polystyrene. Management expects the company to do well in FY16 given poor base of past couple of years and some visible demand recovery. Company has invested around Rs 100cr in Styrolution India Pvt ltd which has turnover of around Rs 500cr in 12 months ended Dec’14.

• Globally, the Parent is a market leader in ABS and is second to none in EU and US. In Asia, there are competitors like LG. In India, there is a local competitor called Bhansali Engineering and about 20% of total demand of ABS is met through imports.

• As per the management, they are not focused on exports and their entire focus remains on India and Make in India concept. Going forward, new products and mixtures have been aimed and will be tested. These products have higher realizations and increase the overall productivity of consumers as well. Overall, for FY16, it’s difficult to say the revenue growth as it depends upon crude oil prices, but management expects strong performance on profitability to continue.

1 Like
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Stock seems to overvalued at this Juncture i keep away from this stock

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the market for ABS and SAN is mainly split between Styrolution and Bhansali Engineering Polymers (BEP).

BEP came out with its quarterly results yesterday, which has shown operating profit jump more than 100%. Best of all, operating margin jumped from 1.88% to 6.44% yoy.

If Styrolution can mirror the same results , we can see a repeat of the 1st quarter performance here. This will give us an EPS of ~ 20 for 6m.

Also, traditionally September has been a strong quarter for the company.

Lets wait and watch.

1 Like
7

Styrolution ABS - Margin contraction seen as negative surprise

  • Q2 Sales were higher +5% yoy to Rs 287cr driven mostly by high volume indicating market share gain.

  • Ebitda, however, declined -4% yoy to Rs 18cr while margin saw 50bps yoy contraction to 6.2% even after inventory gain of 16cr vs gain of 10cr yoy/qoq

  • Interest cost were lower by -62% yoy to Rs 1cr while tax expense were also lower by 3%

  • Consequently, PAT grew +13% yoy to Rs 9.3cr

  • Q2 EPS at Rs 5.28/sh and ttm EPS at Rs 20.53/sh

  • Gross debt at Rs 118cr (vs Rs 133cr in Mar’15) and NW at Rs 530cr. D/E at 0.22x.

1 Like
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Was on the management call today.

The MD said that the margin contraction is due to inventory losses booked in the quarter. Net of inventory loss, the business is running at a steady 28-29% gross margin.

He said that if inventory losses were to be ignored, Q2 would have been the same as Q1FY16. In that case the PAT would have more than doubled compared to Q2FY15.

He also said that he doesnt see losses on this account in Q3.

The story remains intact…added some more position today at 720.

Mcap when posted : 1261cr
Disclosure : 13% of portfolio. average cost of acquisition is above 800

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Call was addr by Myung Suk Chi MD & CEO.Highlights by Capital Mkt
The company has capacity of about 110000 MT of ABS and is operating around 75% of installed capacity.Of the total sales, about 87% is ABS sales and rests are SAN products.In terms of market share, overall, the company has market share of about 44% in ABS in India and about 50% in SAN. Almost 75% of SAN produced by the company is consumed in house.
The company had an inventory gain in June’15 quarter and inventory loss in Sep’15 quarter. Net to net things mostly even out in H1 FY’16. At steady state of inventory, the gross margin of the company is around 28%.Management expects the merger with Styrolution Pvt ltd to be completed by end of Mar’16.As per the management, they are not focused on exports and their entire focus remains on India.After Styrolution ABS, Bhansali Engineering is the 2nd largest player with about 20% market share and about 25% of total demand is met through imports.
Automobiles and Consumer durable account for significant demand for company’s final product, ABS. within automobiles,2 Wheelers particularly bikes account for major demand followed by passenger car vehicles. All consumer durables be it refrigerator, washing machine, mixer etc require ABS.The slower rural economy has affected the demand of bikes and consumer durables. As per the management, there is a demand and demand will increase if the prices of raw material remains steady.
Going forward, new products and mixtures have been aimed and will be tested in H2 FY 2015-16. These products have higher realizations and increase the overall productivity of consumers as well.Overall, for FY’16, it’s difficult to say the revenue growth as it depends upon crude oil prices, but management expects strong performance to continue.

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Held this years ago when it was Bayer ABS & later Lanxess ABS, had decent returns then. Was considering buying it again but the business growth hasn’t translated to similar growth in the bottom line.

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As the initiator of this thread, I hereby disclose that I have exited my position in the stock due to the foll reasons

  1. management says falling crude led to inventory loss in the last quarter. Hence, as crude fell much more in Q3, the potential for inventory loss is much more in Q3
  2. Better value elsewhere where they is clearer visibility of performance

mcap when posted : 1232 cr

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CONFERENCE CALL

Styrolution ABS

Inventory loss and other one-off expenditure affected the margins

The company held its conference call on 5th February 2016 and was addressed by Key management
Key Highlights

For the 9 months ended Dec’15, total volumes sale stood at 65.8 KT up by 5% YoY. However for the Dec’15 quarter, the volumes were lower by more than 10% to 19.5 KT largely due to lower overall demand.

What happened was the overall industrial demand including automobiles and households grew well prior to Diwali and inventory was built up. However post Diwali, demand didn’t pick up as anticipated. So high inventory together with lower demand resulted in overall lower demand of ABS and SAM products in Dec’15 quarter.

However since Jan’16 onwards, demand is stable and crude is also rising. What the company wants is a stable crude oil prices which will help in creating a base for demand. Much demand is held up due to uncertain raw material price direction.

The company is increasing its sales of Premium products which will help in increasing margins.

Some of the one off expenditure during the Dec’15 quarter includes; Employee benefit costs of Rs 52 lakh due to bonus act, increase in other expenditure due to provisions on doubtful debts of Rs 2.8 crore and increase in charges and storage rates by Kandla port trust to the extent of Rs 1.61 crore.

There was an inventory loss of around Rs 4.5 crore during the Dec’15 quarter.

Management expects a 10-15% increase in volume in Mar’16 quarter over Dec’15 quarter.

ABS capacity utilization is hovering around 85% for 12 months ended Dec’15 and management expects to operate around 95% for calendar year Dec’16.

While ABS demand improved by around 5% towards auto sector, the company was able to increase its volume towards auto segment by 11%. It increased its supply to TVS Motors and almost all new passenger car models.

House hold sector grew by around 15% pre Diwali, but since then the segment is not performing well and is affecting the overall growth. However the company performed better than the industry.

Other sectors were growing in line with the GDP growth.

The subsidiary performed better than the last year and further financials will be shared at the year-end results.

Going forward, new products and mixtures have been aimed and are well tested in FY’16. These products have higher realizations and increase the overall productivity of consumers as well.

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13

CONFERENCE CALL - from Capital Markets

Expects around 9-10% volume growth in FY’17

The company held its conference call on 17th May 2016 and was addressed by Key management

Key Highlights

  • FY’16 includes the results of the amalgamated results of Styrolution India Pvt ltd (SIN) and thus results for the Mar’16 quarter and 12 months ended Mar’16 are not comparable with corresponding previous period.

  • However removing the performance of SIN on a comparable basis, net sales for Mar’16 quarter was up by around 10% YoY and volumes were up by around 18% to 23 KT on YoY basis. On a full year basis, volumes were up by around 9% to 88.8 KT and revenue was up by around 2%.

  • Other operating income for Mar’16 quarter includes sale of Styrene monomers from SIN of around Rs 44.70 crore. This is a trading sale and will remain more or less every year.

  • The company has used the Pooling of interest method for merger with SIN. SIN has revenue of around Rs 109 crore with Rs 2.28 crore of Ebidta.

  • Despite higher volumes, revenue declined due to reduced sales price due to lower crude oil prices and thus lower realization.

  • The company has surplus capacity of rubber and polystyrene while ABS was more or less operating at full capacity. The company has various tolling arrangements with vendors where it manufactures the ABS at their tolling sites.

  • Mar’16 quarter was a normal quarter and there was small inventory gain seen during the quarter.

  • Management expects blended Ebidta margin of around 8% in next couple of years.

  • Accumulated losses and MAT credit resulted in tax reversal for FY’16. Management expects normal tax rate for FY’17.

  • Management is seeing some demand pick up from automobiles, households, toys, stationery, packaging etc. As per the management volumes are not a problem and is confident of around 9-10% volume growth in FY’17 also.

  • SIN reported a loss at PBT level of Rs 4.17 crore for FY 16. The loss was reduced from FY 15 which was at Rs 14 crore. Management expects to break even the Styrene business in Mar’17 as volumes are picking up and prices are stabilizing.

  • The ABS market share of the company will be around 40% as on Mar’16.

  • The company is increasing its sales of Premium products which will help in increasing margins.

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Vishnu, you have been doing top job - Thanks for the updates on all the companies in last few weeks.

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Carrying on from where @hemantbhatia had left off.

He was the original inspiration behind sharing the concall information.

Hemant deserves all the credit.

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Thanks Vishnu - appreciate your efforts…Thank You.

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Vishnu, Thanks for your efforts for all the updates. Yes we appreciate the work done by Hemant Bhatia and Deepak Swamy (who used to do so much before).

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Hello Vishnu - do you have access to the conference call post Q1 results?

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Came across a study on speciality chemical sector https://www.avendus.com/media/35472/avendus_specialty_chemicals_report.pdf

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Super! thanks for sharing @ishandutta2007