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Styrolution ABS 4QCY2013 performance highlights and results update

February 20, 2014, Thursday, 05:53 GMT | 00:53 EST | 10:23 IST | 12:53 SGT
Contributed by Angel Broking

Styrolution ABS (Styrolution) reported a mixed set of numbers for 4QCY2013. Its top-line grew by 35.3% yoy to Rs.345cr, higher by 22.4% as compared to our estimate of Rs.282cr. The EBITDA dipped by 12.8% yoy and came in at Rs.21cr, while margins contracted by 330bp yoy to 6.0% owing to higher raw material cost as a percentage of sales. The net profit dipped by 6.1% yoy to Rs.14cr, still, 35% higher than our expectation of Rs.10cr, mainly on account of higher other income by 87.2% yoy.

Despite short term concerns, persisting short supply to ensure growth

The prevailing slowdown in the Indian economy has fenced the growth in varied user industries (like automobile and consumer durables) catered to by Styrolution, subsequently restricting its top-line growth. Moreover, Styrolution has its 80% of the raw material imported which constitutes ~74% of the net sales. Considering the relatively elevated levels of exchange rate (currently ~Rs.62/USD), sustaining operational margins is of great concern. However, ABS’s long persisting domestic demand supply gap coupled with stable currency (owing to the initiatives undertaken by the government) provides sufficient growth visibility for Styrolution.

Outlook and Valuation

With initiation of revival in the economy, we expect Styrolution’s revenue to post a CAGR of 7.4% over CY2013-15E to Rs.1,290cr in CY2015E. The EBITDA is expected to grow at a CAGR of 7.1% over CY2013-15E to Rs.92cr while margins are to stabilize with stabilizing currency at 7.2% in CY2015E. The net profit is to register a CAGR of 10.6% over CY2013-15E to Rs.62cr in CY2015E. As we rollover to CY2015E, we recommend Accumulate rating on the stock with a target price of Rs.457, based on target PE of 13x for CY2015E.