Monday, July 30, 2012

>Styrolution ABS (India)

For 2QCY2012, Styrolution ABS (India) Ltd. (formerly known as INEOS ABS India Ltd.) reported sequentially flat top line at `236cr, 8.2% higher than our estimate of `218cr. EBITDA came in at `14cr, far lower than our estimate of `18cr. Operating margins fell by 357bp sequentially to 6.1% owing to 385bp higher raw material cost. The company reported net profit of `10cr, 40% lower sequentially on the back of poor operating performance.

Persisting short supply coupled with capacity expansion to boost growth
Styrolution has recently expanded its capacity of ABS and SAN. This provides company an opportunity to reap benefits owing to domestic ABS demand supply gap (met by imports) which has persisted for long and continues to exist. In addition to capacity expansion company has come up with many tailor made products taking advantage of ABS’ flexibility of composition and structure, which allows its use in diverse applications.

Outlook and valuation
We expect Styrolution’s revenue to post a CAGR of 14.5% to `1,081cr over CY2011-13E on the back of consistent developments by the company. EBITDA is expected to grow at 18.7% CAGR to `115cr leading to margin expansion of 74bp to 10.6% in CY2013E. Net profit is expected to post CAGR of 23.1% to `82cr in CY2013E. At CMP of `670, stock is trading at PE of 14.4x and EV/Sales of 1.1x for CY2013E. We remain positive on the stock and recommend Accumulate with a target price of `744, based on target PE of 16x and implied EV/Sales of 1.2x for CY2013E earnings.

To read report in detail: STYROLUTION ABS