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Styrolution ABS Ltd 3QCY2012 performance highlights and results update

Contributed by Angel Broking

Styrolution ABS Ltd (Styrolution) reported a strong set of numbers for its 3QCY2012. The top-line for the quarter grew by 26.5% at Rs.263cr, 10% higher than our estimate of Rs.230cr. The EBITDA was up by a whopping 170% yoy and came in at Rs.33cr, higher by 48% than our estimate of Rs.23cr. The operating margin for the quarter expanded by 670bps yoy to 12.7% mainly due to low base coupled with lower raw material cost as a percentage of sales. The net profit stood at Rs.22cr, 164% higher yoy and higher than our estimates of Rs.15cr owing to a strong operating performance.

Persisting short supply coupled with capacity expansion to boost growth

Styrolution had expanded its capacity of ABS and SAN. This provides the 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 the 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 16.3% over CY2011-13E to Rs.1,116cr in CY2013E on the back of consistent developments by the company. The EBITDA and net profit are expected to post a CAGR of 13.7% and 17.6% respectively over CY2011-13E. Currently, the stock is trading at a PE of 15.3x and EV/Sales of 1.0x for CY2013E. We recommend Accumulate on the stock with a target price of Rs.744 based on target PE of 17.5x for CY2013E earnings.