Styrolution ABS (India) - Company Update - Angel Broking

Styrolution ABS (Styrolution)' performance, during FY2015, was impacted by i) rubber plant shutdown for expansion, thus resulting in the company resolving to importing rubber, ii) falling crude oil price resulting in inventory loss and iii) sluggish demand as end-user market consumers expected ABS (acrylonitrile butadiene styrene)' prices to decline. With expanded capacity of rubber and styrene acrylonitrile copolymer (SAN) coming on stream, low probability of inventory loss in future, and successful implementation of Triple Shift growth strategy, the company would be able to report stable financial performance, going forward.

Stability in crude oil prices and capacity expansion to drive growth: With crude oil expected to stabilize above $60/barrel, we anticipate a gradual uptick in demand for the company's products. Further, meaningful contribution from the enhanced capacity (SAN and rubber) coupled with introduction of products in the premium market will enable the company to improve its market share. Also, with the company providing tailor made products to take advantage of ABS' flexibility of composition and structure which allows its use in diverse applications, will enable the company to penetrate the market more comprehensively and improve its market share further due to its leadership position.

Outlook and Valuation: With the automobile household industry expected to see gradual uptick in demand, we expect the company to post a revenue CAGR of 11.2% (adjusted for FY2015) over FY2015E-17E to Rs. 1,440cr in FY2017E. The EBITDA is expected to grow at a CAGR of 38.7% over FY2015E-17E to Rs. 133cr while EBIDTA margins are expected to improve to 9.2% in FY2017E owing to lower raw material cost. The net profit is expected to register a CAGR of 58.9% over the same period to Rs. 72cr in FY2017E. We recommend an Accumulate rating on the stock, with a target price of Rs. 698, assigning a P/E multiple of 17x to its FY2017E EPS of Rs. 41.1.

Shares of STYROLUTION ABS (INDIA) LTD. was last trading in BSE at Rs.627.75 as compared to the previous close of Rs. 611. The total number of shares traded during the day was 5305 in over 233 trades.

The stock hit an intraday high of Rs. 630 and intraday low of 611. The net turnover during the day was Rs. 3294009.

Source : Equity Bulls

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