Styrolution ABS – Margin should continue in double digits barring any inventory losses – Jun-qtr Concall update

• Q1 saw Volumes growth of 15% as compared to Industry volume growth of about 13%. The company was able to gain some market share. However due to lower crude oil prices, there was a negative value growth which led -2% decline in Revenue during the qtr.

• Margins improved on back of lower crude oil prices, better product mix and inventory gain of raw materials. While it’s difficult to project on inventory side, management expects the margins should continue to be in double digit barring any inventory losses to come in due to lower crude oil prices.

• Capacity utilization rate is around 80% in specialty chemicals. The company has increased the capacity of ABS from about 80 ktpa to around 1.1 lakh tpa in Oct’14. SAN capacity remained at 1 lakh tpa which is also used for captive consumption to produce ABS. Every 100 ton of ABS 75 ton of SAN is required. To that extent company is consuming SAN and balance is sold in external market.

• In terms of market share, overall, the company has market share of about 44% in ABS in India and about 60% in SAN. In terms of sales, about 70% comes from specialty chemicals and rests are from commodity products for the company. The sales should inch up towards specialty products which have nearly double the margins that of commodity products.

• Subsidiary company Styrolution Pvt Ltd is engaged in business of producing Polystyrene. Management expects the company to do well in FY16 given poor base of past couple of years and some visible demand recovery. Company has invested around Rs 100cr in Styrolution India Pvt ltd which has turnover of around Rs 500cr in 12 months ended Dec’14.

• Globally, the Parent is a market leader in ABS and is second to none in EU and US. In Asia, there are competitors like LG. In India, there is a local competitor called Bhansali Engineering and about 20% of total demand of ABS is met through imports.

• As per the management, they are not focused on exports and their entire focus remains on India and Make in India concept. Going forward, new products and mixtures have been aimed and will be tested. These products have higher realizations and increase the overall productivity of consumers as well. Overall, for FY16, it’s difficult to say the revenue growth as it depends upon crude oil prices, but management expects strong performance on profitability to continue.