Styrenix performance materials Limited.( earstwhile ineos styrolution )
CMP 1020, Mcap 1785 cr, Debt:0
This company is mainly into manufacturing of ABS and PS .
In ABS almost 70% is speciality and 30% is commoditty and in PS almost 40% speciality and 60% is commoditty and they are working to increase the specialty part here.
In ABS currently there are two big players in India, Styrenix and Bhansali. Total consumption for the year 22-23 was almost 3 lakhs done and imports were almost 140,000 tons. There is one new player Supreme petrochemical who entering with 140,000 capacity in phased manner 70,000 each and first being commercialized in second half of 2024 calender. The technology with which they will manufacture ABS is mass while the other two players are manufacturing through emulsion process the difference between the two process is that in mass the production is a continuous process where as in emulsion there is batch processing and its combination of SANS with other products to arrive at ABS . Globally ABS is manufactured 90 % through emulsion and 10 percent mass, all imports in India are from emulsion processed ABS.While the end application of both the process might be same in emulsion process there is a possibility of customization which according to styrenix is an edge over the other process.
It seems that the market for a ABS shall continue to grow at around 7% per year and so by the time capacities of supreme petro are on stream, requirement would possibly go to 370,000 ton p.a. After the company being taken over by the Indian managers there has been some margin improvement and there seems to be much more scope for improvement. While the management is not providing any guidance it seems that 14 to 15% ebidta margin is achieveable.
The capacity utilization in ABS currently stands at closer to 60 to 65% and in PS it seems that it stands at 80%. Management is guiding that they can easily go to hundred percent and by bottlenecking here and there they can grow more without committing to any CAPEX.
One negative thing which I have gathered is that th management has placed all their shares in pledge for the acquisition and that might be the reason for declaring handsome dividend.One of the analyst on the call did try to get some hint on whether the management will reduce the pledge from the money which they have received through dividend but the management has not committed anything. At 10 multiple and with scope of increasing the margin as well as increasing the volume it seems to me that the company is valued at a discount ,I think there is chance for atleast 30 to 40 % appreciantion from here.
Mr Rakesh agarwal was MD in the company untill 2012 and post that the company MNC was not able to grow it and no capacity increase was done in last decade.I gathered that there was some insider trading case against him in the past many years back since he was priviy to information of take over….and some trade happened in one of his relative accounts. Open offer to shareholders were at 848.5rs. Management took over operations from November 2022.
Any comments especially on the management will be highly appreciable.
Disclosure : invested
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