Styrolution ABS (India): Recommendation Review

We had recommended Styrolution ABS (India), formerly known as INEOS ABS India, to investors in DSIJ Vol. 27, Issue No. 14 (dated July 1, 2012), when the scrip was trading at Rs 719, with an expected price appreciation of 10-15 per cent in a one-year time frame. Our conviction was backed by factors like its consistent divided paying history, a high market share in absolac, its new capacity getting operationalised in 2011, a decent performance in the March 2012 quarter and a positive outlook for the sector.

The company is a market leader with a 65 per cent market share in the absolac market. The current growth rate of this market hints at the good prospects of the industry going forward. After our recommendation, the company announced its June 2012 quarter results. Here, the topline stood at Rs 236 crore (Rs 206.30 crore) while the bottomline saw hardly any improvement at Rs 9.99 crore (Rs 15.84 crore) due to higher raw material (crude) prices.

There has been a demand-supply gap (met by imports), which has persisted for long. Anticipating a growth in demand, the company recently expanded its capacity from 60000 mtpa to 80000 mtpa, and is in the process of further increasing this to 110000 mtpa by 2014. This increase in capacity will drive growth in the coming years. Crude prices have declined, and even the rupee has depreciated, which will provide relief on the cost front and result in better margins. Further, the company has come up with many tailor-made products.

We are of the opinion that investors should hold on to the counter at the current levels, as we expect the company to perform better in the coming quarter.