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Supreme Petrochem Ltd.
• The company manufactures polystyrene, Speciality Polysterene, Expanded Polysterene [XPS] and Expandable Polysterene [EPS].
• They are common plastic inputs used for making various Packaging products, insulation boards, toughned plastic parts for consumer electronic gadgets and high tech components for automobiles etc.
• Company has entered in to MOU with Nova Chemicals of USA for producing CUP grade EPS beads, with arrangements to sell back to Nova, as also to selected countries. This is a restricted high technology product, and if all goes well, company will setup 20,000 MTs capacity by June 2010.
• Company is also setting up SEZ for Plastic processing in Raigarh, Maharashtra and a minor port nearby.
• Last year's performance of company was poor due to tight availability of key input -styrene monomer, high volatiltity and falling trend in input prices, leading squeezed margins.
• Now, with improved supplies and stable prices of key input, the margins have improved from Q-4, and they are likely to remain so.
• With economic activity picking up, the demand for company's products will grow at a healthy pace. We expect company to report significant improvement in performance in current year.
• The stock is available at 3X of our expected earnings for 2010 and looks attractive for investment. Buy with target of Rs 55 in 12 month's time frame.
Background
The company manufactures polystyrene [2,72,000], Speciality Polysterene [25,000], Expanded Polysterene [XPS] [5,000] and Expandable Polysterene [EPS]. It is the leader in Polystyrene business in the Indian market place with more than 50% market share and is also the largest exporter of Polysterene from India to more than 80 countries. Its exports are also significant. It will expand the capacity of the speciality Polysterene products further to 50,000 Mts [from 25,000 Mts] in next couple of years. These are used in Alloys/ Blends/ Compounds/ Masterbatches of polymers and mainly in auto/autocomponents segment. Company has achieved TS-16949 certification, which is pre-requisite for product uses in automobile segment. XPS board plant is one of its kind with green technology, these boards are used as an important insulation medium for residential or commercial buildings, thus saving on air-conditioning and electricity. Company is developing Insulation as total value added solution to be offered to retail as well as institutional clients. The company has taken over management control of Shin Ho Petrochemical (India) ltd, and existing player in Expanded Polystyrene (EPS) in Chennai, with an installed capacity of 6,000TPA. Capacity expansion for the same is under progress. Company has entered in to MOU with Nova Chemicals of USA for producing CUP grade EPS beads, with arrangements to sell back to Nova, as also to selected countries. This is a restricted high technology product, and if all goes well, company will setup 20,000 MTs capacity by June 2010. The main inputs are Styrene Monomer and PBR. Styrene Monomer prices are directly linked to the crude prices which are steady now and the availability is also comfortable, with the new capacities going on stream in the current year in Kuwait, Saudi Arabia and Iran. Company is also setting up SEZ for plastic processing in Raigarh and a minor port nearby.
Risks and concerns
The key input Styrene monomer is also fully imported and prone to price volatility. As key input is fully imported and exports are also significant, so forex fluctuations/management is another risk.
Source: Internet (By: DD SHARMA)
