Styrenix Performance Materials Limited (506222) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the INEOS Styrolution India Limited Earnings Call for Third Quarter Ended on December 31, 2019. We have with us from the management of INEOS Styrolution India Limited Mr. Sanjiv Vasudeva, Managing Director; Mr. Sanjeev Madan, Chief Financial Officer; [ Mr. Munjal Parikh ], Head, Controlling; Ms. Amita Mistry, Compliance Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management. Thank you. And over to you.

Dear shareholders, investors and analyst fraternity, we welcome you to this earning call. Your company, INEOS Styrolution India Limited, has declared its results for third quarter and 9 months ended 31st December, 2019, on 7th February, 2020. We will brief you about the major highlights of the performance. Regarding quarterly performance, revenue net of GST from operations in current quarter is INR 33,968 lakh as compared to INR 44,552 lakhs in October to December '18 and INR 43,684 lakhs as compared to in previous quarter. Loss before tax and exceptional item in October to December '19 stands at INR 581 lakh as compared to loss of INR 30 -- INR 3,546 lakh in October to December '18. However, after inclusion of exceptional item, loss before tax stands at INR 4,376 lakhs in current quarter. Loss before tax and exceptional items in October to December '19 stands at INR 581 lakh as compared to profit of INR 705 lakh in previous quarter. However, after inclusion of exceptional item, loss before tax stands at INR 4,376 lakhs in current quarter. Now regarding year-to-date performance. Revenue net of GST from operations stands at INR 122,000 lakhs in YTD December '19 as compared to in INR 150,836 lakhs in YTD December '18. Profit before tax and exceptional item in YTD December 2019 stands at INR 1,557 lakh as compared to in INR 186 lakh in YTD December '18. However, after inclusion of exceptional item loss before tax stands at INR 2,239 lakh in YTD December '19. Coming to the regarding quarterly segment performance. First, specialties. Profit before tax and other unallocable expenditures stand at in INR 634 lakh in current quarter as compared to INR 1,408 lakh in previous quarter. And profit in YTD December '19 stands at INR 3,097 lakh as compared to INR 4,506 lakh in YTD December '18. Polystyrene loss before interest, tax and other unallocable expenditure is INR 698 lakh in current quarter as compared to a loss of INR 94 lakh in previous quarter. And loss in YTD December '19 stands at INR 207 lakh as compared to INR 2,733 lakh in YTD in December '18. The company has adopted modified retrospective approach as per para (c) (h) of Ind AS 116, Leases, effective from April 1, 2019. Accordingly, comparatives of the year ended 31st March, 2019, including quarter and half year ended September 30, 2018, have not been retrospectively adjusted. On the initial date of application, the company has recognized right of use of asset an amount equal to the lease of liability adjusted by prepaid lease rent as at April 1, 2019. In the financial results, for the quarter end period, operating lease expense has charged from rent, including in other expenses to depreciation cost for right of use of assets and finance cost for interest accrued on lease liability. Regarding exceptional item. In respect of one of the lease hold lines, the company has received provisional order from relevant authority demanding to pay INR 1,940 lakhs compared to transfer -- towards transfer fee and nonutilization of land charges. Accordingly, the company has created the provision for the said amount during the quarter ended December 31, 2019. Management is reviewing all available option and remedial, including request to concerned higher authorities for waiver or reduction of charges. Pursuant to this provisional order, the company has reviewed its similar leases for potential liability and accordingly estimated provision of INR 1,855 lakh has been made during the quarter ended December 31, 2019. So this is all about the clarification and details about our financials. Now we can go forward for the queries for any clarification which we are needed.

[Operator Instructions] We have a question from the line of [ Aditya Khaitan ] from East India Securities.

Sir, I would like to know, so we have reported a volume decline of 7% in this quarter as compared to Y-o-Y basis. So what would be the primary reason for this?

This is Sanjiv, yes. So the year-on-year decline in volume is predominantly both in specialty ABS and in polystyrene. For ABS, we sell a good amount of our volume in automotive, which is down 12% year-on-year. So that has driven this negative 7%. And on the polystyrene side, in September -- well, in August, single-use plastic ban for packaging was announced, which had impact for couple of months in terms of low uptake in the packaging segment, so that has affected our volumes. And we had a shutdown as well in December, leading to relatively lower volumes for polystyrene.

Okay. So sir, on a 9-monthly basis, has the industry de-grown by how much percentage?

So automotive has degrown by about 12%. In fact, in the last quarter, it degrew by -- as well, yes. However, there has been some uptake in the months of November and December for automotive, but it's still year-on-year down, yes.

And sir, how has the ABS industry degrown by?

ABS industry would have, again, degrown by a similar kind of a number. I won't have -- maybe not 12%, maybe by 5%, 7%, yes, as well because ABS not just goes into auto, it goes in other segments like household consumer goods, which probably have not degrown by 15%. They have been flat or a bit down, yes.

Okay. So taking a 2- to 3-year view, how you see the demand, whether it could remain stable? Or is it likely to like go up? So what is your view on that, taking a 2- to 3-year outlook going ahead?

We expect the demand to come back. It may take another 6 months for the demand to come back. In the auto segment, we believe that after the BS6 is implemented, we should see some uptick in the auto. That's what we also hear from a lot of OEM suppliers, the second half would be better. In terms of household segment, the demand has been there. It is not as affected. Our product also goes in small appliances, where the demand has been pretty consistent, yes, on toys, sports, leisure, helmets, yes, where the demand has not dropped that much. So we expect the demand to continue, I would say, single digit, probably this year. And before -- it will probably take a year or so before it get back to double-digit growth.

Okay. But sir, the demand growth -- so this would also depend on the pricing front. If we look, the pricing of ABS is going down continuously, so that is because of the crude prices falling to record low levels. So if you foresee that prices won't go up in the near term, the demand, do you expect it to remain constrained? Or like it would...

Demand has nothing to do with price. Because ABS is used for specific applications, right, and you cannot substitute ABS with other materials, yes. Same goes for some of the other plastic materials, yes. It's difficult to substitute them at times. So it's predominantly tied to demand. Price is something else, which is tied to the overall price of benzene and the price of all the raw materials in the whole supply chain.

Okay. So current prices are -- of ABS are around?

Current prices of ABS are around $1,300, $1,350 to $1,400, yes. It's much lower than what it were about a year back. So it's dropped by $200, $300.

$200, okay. And the same on the raw material front?

Same goes for the raw materials. Raw materials have dropped in similar kind of level. Key raw material is styrene for ABS. And average prices for last -- the whole of last year would be around, let's say, $1,500, $1,300, $1,500 and now the prices are more like $900 levels, yes.

Okay. On the coronavirus impact front, how you foresee things to move ahead? Are you seeing a big bang or like a mediocre impact in the near term?

We expect a mediocre impact because our -- most of our raw materials are not from China. We have very little -- few raw materials from China. And so that will not give us an effect on our production, per se. Coming to the demand side. What we do here, there are some auto OEMs depend on some of their parts from China, so do some of the household electronics. I think mobile phones, where our materials does not go, mobile phone use a lot of parts from China, yes. So they are probably most affected. But some of the consumer goods, air conditioners and all they use, motors and all are made from China. So they may have some short-term glitches in their supply chain, but we do not anticipate a very, very dramatic fallout of the coronavirus in India.

We have the next question from the line of Parth Adhiya from B&K Securities.

Just one question on the single-use plastic ban. What would be your exposure to that particular segment in terms of your revenue?

So about for 20% or so would be our exposure to this segment. And the way we are trying to work on it is we are working on nonpackaging applications, yes. So a lot of household OEMs use polystyrene, for example, for refrigerator parts, for air conditioners, they're used in displays, their sheet's made out of polystyrene. So we are looking at those kind of customers to venture out into to kind of fill the gap caused by the SUP ban.