Recommendation from Commodity Chemicals Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

STYRENIX PERFORMANCE MATERIALS : GROWTH TRIGGERED BY CHANGING LIFESTYLES

HERE IS WHY
✓   Demand for polymers on the rise
✓   Product applications across a wide range of industries
✓   Debottlenecking process to add monetary benefits

Covering more than 80,000 commercial products, India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers and fertilisers. The country’s polystyrene market demand stood at 280 KT in FY 23-24 and is projected to grow at a CAGR of approximately 5 per cent until the fiscal year 2030.

Polymer is one of the widely used chemical products in almost all the sectors as a substitute of metal and mineral-based products due to its high performance, cost-effectiveness and low weight. Keeping in mind the wide use of polymers and its future potential, our choice scrip for this issue is Styrenix Performance Materials. It was formerly known as INEOS Styrolution India Limited.

The company is a producer of Absolac (ABS) and Absolan (SAN) in India. ABS is a plastic resin used for manufacturing home appliances, automobiles, consumer durables and machinery. SAN is a polymerised plastic resin used for products such as lighting, stationery, novelties, refrigerators and cosmetic packing. The company also manufactures polystyrene which is used for food service and packaging, refrigerator components, electronic goods housings, etc.

In Q1FY25, on a standalone basis, the company’s revenue increased by 28.49 per cent YoY to ₹698.71 crore compared to ₹543.77 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 16.7 per cent. The PBIDT excluding other income increased by 76.09 per cent to ₹89.72 crore YoY as compared to ₹50.95 crore from the previous year’s same quarter, while sequentially increasing by 24.85 per cent.

The net profit stood at ₹61.2 crore compared to ₹32.45 crore, a YoY increase of 88.6 per cent, while sequentially increasing by 23.99 per cent from ₹49.36 crore. We think the management is optimistic about future growth and efficiency improvements, with a focus on debottlenecking, expansion, cost-savings and new product launches. The company has launched new products under the brands STYROLOY and ASALAC.

Its debottlenecking projects are ongoing to increase capacity which is expected to reach 100-105,000 tonnes of ABS this year. Projects are underway to reduce power and fuel costs, with expected savings of 30-40 per cent this year. Power and fuel cost savings are expected to add material benefits. The company’s products are used in almost every industry as raw materials. These have a wide range of applications.

Given that the Indian household items’ penetration in urban and rural is growing much faster due to increase in per capita income and spending, overall, the polymer demand is likely to grow much higher than the GDP growth.

The company has a big list of marquee clientele from all the industries, including Hero, Honda, Bajaj, TVS, OLA, LG, Samsung, Haier, Godrej, Flair, Linc, Steelbird, Vega, and many more. The shares of the company are currently trading at a PE of 23.3 times as against the industry PE of 22 times. In the last three years, the company has delivered average ROE of 28.4 per cent and ROCE of 36.3 per cent, respectively. Considering its business, growth and the increasing use of polystyrene, we recommend BUY.