Styrolution ABS Posts Strong September Quarter Results

Styrolution ABS (formerly known as Ineos ABS), which is into the manufacturing of engineering plastics, has come out with strong financial results for the September 2012 quarter. Styrolution manufactures Acrylonitrile Butadiene Styrene (ABS) which finds use in industries such as home appliances (30 per cent of the total ABS’ demand), automobiles (28 per cent), telecom (5 per cent) and electrical & electronic applications (15 per cent).

After a few muted quarters the company has posted strong results for the September quarter with the topline of the company at Rs 262.80 crore while the bottomline stood at Rs 22.18 crore as against Rs 207.78 crore and bottomline of Rs 8.35 crore respectively in the September 2011 quarter. This results in topline growth of 26.48 per cent and bottomline growth of 165 per cent on a YoY basis. The performance has been quite strong on a QoQ basis also where the topline growth stands at 11.36 per cent and bottomline at 122 per cent.

The sales growth has been mainly on account of the demand-supply mismatch leading to better volumes and higher realisation. On the realisation front, the tailor-made product was the primary factor behind a significant improvement. Styrolution enjoys a 60 per cent market share in India and hence the increased demand helps the company in terms of volume growth. Further, the company has already carried out capacity expansion in 2011, taking its capacity to 80,000 tonnes per annum (TPA) from its earlier level of just 60,000 TPA.

The capacity expansion has helped the company cater to the increased demand. It also has plans to take the capacity to 1,10,000 TPA by the end of 2012. Since SAN is an intermediate product in the production of ABS to assist and support the increased ABS resins production, the capacity expansion for SAN from the existing 60,000 TPA to 1,00,000 TPA is in process too.

Apart from the volumes, the operating margins have also improved significantly to 12.71 per cent. While on a YoY basis the improvement has been 676 basis points, on a QoQ basis the volume has increased significantly by 621 basis points. The major factor behind the improved margins has been the increased realisation and a fall in the raw material prices. The net raw material cost as a percentage of sales has declined to 72.63 per cent from 79.84 per cent in the June 2012 quarter and 79.24 per cent in the September 2011 quarter.

Crude is the basic raw material for the company and the stability in crude prices helped the company perform better. Going ahead we expect the margins to improve further as the rupee has appreciated against the USD and Styrolution imports a majority of its raw material (up to 78 per cent). The appreciating rupee is expected to benefit the company on the margin front. Hence we expect the company to sustain its margins at the current levels.

Considering the favourable demand-supply mismatch leading to better growth, sustained margins and capacity expansion plans, we recommend investors to accumulate the counter at the current levels.