Visibility of growth in sight, comfortable valuations, Import Substitution in play, Initiate with BUY
Styrenix Performance Materials (SPML) (formerly known as INEOS Styrolution India Ltd) is one of the leading manufacturers of Polystyrene (PS), Absolac (ABS) & Absolan (SAN) in India. The company is focussed on capacity expansion in base businesses products like ABS & PS coupled with inorganic acquisition opportunities to drive future growth. The company through its acquisition of INEOS Thailand opens new markets globally & materially expanding its presence worldwide. As a leading ABS and SAN producer, the company is well poised to capture growing domestic demand and would benefit from import substitution opportunity. The company is incurring capex of Rs7.5bn over the next 3 years to expand capacities in ABS & SAN. At peak utilization levels this will add ~Rs15-20bn to the topline & Rs2.5-3bn to EBITDA over the next 5 years. Through relentless R&D efforts, the company ensures continuity to introduce new products, blends and other value-added grade thereby, enhancing its portfolio with differentiated and value-added offerings. The company has deep rooted longstanding relationships with a lot of marquee clients across India & across different sectors like automotive, household appliances, electronics, medical devices, stationery, toys. By offering superior product solutions tailored as per customer needs, the company has a competitive edge which drive growth. The business is sticky in specialty grade ABS where it benefits from relatively lower competition from imports & no other reliable domestic supplier. Over the next 3 years, we anticipate volume growth of ~10% from FY25-28E led by ramp up of Thailand business & capacity expansion in base businesses. The company has multiple triggers & trading at a steep discount to its large competitor in the domestic market. We feel new confidence in promoters’ ability to transform will align the company for new multi-dimensional growth path & the multiples will re-rate as conversion cost in Thailand drifts down coupled with stronger growth trajectory in volumes in base business. The stock is trading ~15.7x P/E multiple with EPS of Rs 130 as on Sept’ 27E. We assign target multiple of 22x & hence we arrive at a target price of 2864 per share which is an upside of ~40% from current valuations.
Market leader in ABS & SAN, current promoters are the pioneers of the ABS industry
Styrenix Performance Materials Ltd – Initiating Coverage – SMIFS Institutional Research
