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

Ladies and gentlemen, good day. And welcome to the INEOS Styrolution India Limited earnings conference call. We have with us today Mr. Sanjiv Vasudeva, Managing Director; Mr. Sanjeev Madan, Chief Financial Officer; Mr. Abhijaat Sinha, Head Legal and Company Secretary; Mr. Munjal Parekh, Head of Business Partner in India and SM Asia; Ms. Amita Mistry, Compliance Officer; Mr. Jigar Shah, Head of Accounting India; and Mr. Adil Marawala, Manager, Corporate Communications. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjeev Madan. Thank you, and over to you, sir.

Thank 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 the year ended 31st March 2020, on 25th June 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 35,900 lakh as compared to INR 48,218 lakh in January to March '19 and INR 33,968 lakhs in the previous quarter. Profit before tax in current quarter stands at INR 889 lakh as compared to loss of INR 2,034 lakhs in January to March '19. Profit before tax in January to March '20 stands at INR 889 lakh as compared to loss of INR 4,376 lakh in previous quarter. However, after inclusion of exceptional item, loss was INR 581 lakh in the previous quarter. Regarding year-to-date performance, revenue net of GST from operations stands at INR 157,900 lakhs in financial year 2019/'20 as compared to INR 29,053 lakhs in previous year. Profit before tax and exceptional items in financial year 2019/'20 stands at INR 2,446 lakh as compared to loss of INR 1,848 lakhs in previous year. However, after inclusion of exceptional item losses, profit -- loss before [ tax ] stands at INR 1,350 lakhs in financial year 2019/'20. Regarding quarterly segment performance, speciality, profit before tax and other unallocable expenditure stands at INR 1,333 lakh in current quarter as compared to a loss of INR 891 lakh in previous quarter, which include exceptional item of INR 1,525 lakhs. And profit of financial year 2019/'20 stands at INR 2,905 lakh, which include exceptional item of INR 1,525 lakh as compared to INR 2,840 lakh in previous year. Polystyrene profit before tax, interest and other unallocable expenditure is INR 647 lakh in current quarter as compared to loss of INR 2,968 lakh in previous quarter, which includes exceptional item of INR 2,270 lakh. And loss in financial year 2019/'20 stands at INR 1,830 lakhs, which include exceptional items of INR 2,270 lakh as compared to INR 2,639 lakh in previous year. The company has adopted modified retrospective approach as per Ind AS 116 leases effective from April 1, 2019. Accordingly, comparatives of the year ended March 31, 2019, including quarter ended March 31, 2019, have not been retrospectively adjusted. On the initial date of the application, the company has recognized right-of-use asset, an amount equal to the lease liability adjusted by the prepaid lease rent as at April 1, 2019. In the financial results for the current quarter or year, operating lease expenses has changed from rent, including in other expenses, to depreciation cost for the right-of-use assets and finance cost for interest accrued on lease liability. Consequent to the nationwide lockdown announced by the government of India, the company plants and offices were shut down from March 23, 2020, onwards. Since the gradual easing of the lockdown from May 2020 onwards and in line with the various directives of the government, the company's clients have commenced operations in phased manner, in line with the market demand. The COVID-19 crisis has caused significant disturbance and slowdown of economic activity. The company's management has done an assessment in the situation, including the liquidity position and the recoverability and carrying value of all assets and liabilities as at 31st March 2020, and concluded that there are no material adjustments required in the financial statement as of March 31, 2020. However, the impact assessment of COVID-19 is continuing process given the uncertainty associated with its nature and duration. The impact of COVID-19 on the company's financial statement may differ from that estimated as at the date of approval of the financial statement. The company will continue to monitor any material changes as the situation evolves. Okay. So this is all about the clarification and details about our financials. Now we can go forward for the queries or any clarification which are needed. Thank you.

[Operator Instructions] The first question is from the line of [ Amit Tawani ] from [indiscernible] Capital.

During the March quarter, we saw that there was some disruption in China as far as supply chain goes. And they -- I think they were more slightly affected than we are in the June quarter as far as the supply chain goes. So was it -- in fact, a lot of areas in Wuhan and other companies are under lockdown. So what is that their supply was affected? So we got the advantage of their supply chain getting disrupted. Is that where we've got certain advantage in the March quarter?

Your question -- your definition of March quarter is from April onwards or in the month of March?

March quarter is Jan, Feb, March.

No, not really. I mean not really. We didn't see a lot of benefit because of the disruptions in supply chain or the situation of COVID in China, which happened more so in January, February time frame, right? In India, it caught pace from March onwards, but we didn't see in the Q1, in the Jan to March quarter, any major advantage because of the issues in China.

Okay. So the competition will be able to supply their material in India quite comfortably is what we are seeing?

I did not catch you 100%. The -- your voice was cutting.

So our competition, the Chinese competition, was able to supply into the Indian market quite easily in India.

On the products that we deal with, both ABS and polystyrene, there are, as such, not many imports from -- much imports from China. It is predominantly from Korea or from the Middle East, yes?

Okay. Okay. And so our benefit we got on the margin front was -- is that purely because of oil price decline?

Yes. The delta margin kind of improved, not just for us but across the industry in Asia and globally, so that helped. And we look oil to be more or less stable at around $40 going forward here.

So are these margins sustainable at $40 oil?

For the foreseeable future, it looks like. But these are very cyclical markets, so every quarter, things can change.

That's correct. That's -- and we've seen -- because of the complex situation of the border with China, are we seeing certain imports on -- but you are saying that we don't compete with China on imports at all. So that part doesn't impact us, the China situation on the border?

That's correct.

Okay, okay, okay. And how is the capacity utilized? Are our plants completely back to normal working well like pre-COVID? Are they functioning at the same rate right now?

The plants as of now are not at the pre-COVID rate because the market demand has not picked up 100%, and it's not back to normal yet. But surely, we are having a decent capacity utilization, more than 50% capacity utilization now.

Okay. Okay. And do you think we are -- so we had a -- as you mentioned that margins in this industry are cyclical. Do you think we have reached the trough for the margin [ is over ]? Would you -- can you call the bottom as far as the drop in the margin goes?

Difficult for me to speculate yet on this.

But if you were to give a more sustainable margin number going forward, a long-term number. I'm not rely asking for the next quarter or something.

I think long term, typically, you would see a $400 kind of margin, delta margin, in ABS and about $150 to $200 kind of margins in polystyrene. But that's the average over a span of last 10 years in Asia. That's what we have seen.

And as far as capacity building with the demand/supply kind of scenario in the industry, do you think it is kind of -- is it -- are we seeing a phase where not many people are looking to add capacity as far as Asia goes because of very weak margins? So what -- are we seeing that play out? The capital cycle, sorry, are we seeing that the play out but not many -- much capacity getting added?

I mean in ABS, the capacity is getting added. In polystyrene, there's not much capacity being added at the -- in Asia as well, yes? And as far as we are concerned, we just added our compounding capacity, which got operational in December last year. We went from 65 Kt to 100 Kt at our Moxi plant and we shut down 10 Kt of [indiscernible] the old asset. So from that perspective, our capacity is good enough to take through the demand as well.

Okay. Okay. And you said that in polystyrene, we are still seeing capacity additions for the industry.

We are not seeing. We are not seeing.

You don't. But in ABS, yes?

ABS in Asia, we are seeing. Right. In China, we have companies adding capacity.

Why would that be the case even though the margins are so weak?

Well, the margins -- I think you misheard. The margins in the last few months have been pretty good. And historically, the margins of ABS stands at $400, like I said.

[Operator Instructions]

I'm [indiscernible]

[Operator Instructions] So sorry to interrupt, but can you speak closer to the handset, please? Your voice is breaking up.

[indiscernible]

Mr. [indiscernible], sorry to interrupt, but we are unable to hear you clearly, sir. Can you move to a better reception area, please? The next question is from the line of [ Amit Tawani ] from [indiscernible] Capital.

Sir, can you please update us as to what is happening on the delisting front?

Abhijaat, you may want to comment?

Yes. So after the shareholders' approval, we've not -- like the promoters will give a go ahead for filing the application. I think we were waiting. Because of the COVID, it has got delayed much longer than we had anticipated. So I think once these things relax and the agencies are back on track, I think there could be some. So we still are awaiting internal clearance from the promoter to make an application to the stock exchanges. That's why we're here.

So we still don't have the exchange approval? Am I right? Am I right when I say that?

We've not applied for it, yes.

We've not applied for an exchange approval. Okay.

Yes, yes, yes. It's got delayed because of the COVID [ thing ]. February, March, there's been no movement.

Okay. And what about SEBI approval? Or will that come after the exchange approval?

There's no SEBI approval involved here. It's only to the stock, yes.

Okay. Okay. So once we -- once the COVID situation settles, then we will apply for exchange approval.

Correct. And anyway, you will have to look out for the public announcement. And also, it will be all upon the approval comes through -- once we apply and the approval comes through, you'll see it in the public announcement. And as a shareholder, the -- shareholders will get all the necessary details, yes.

Correct. Correct. But I mean, I'm just thinking, are we running out of time? Because I think our shareholders' approval dated 1st of October. So I think we have a 1-year time frame within which we need to launch the offer, right?

That's correct.

So I think, we have...

Yes. I know we're a little late on those segments. But yes, so we -- once we know it, it will all be in the public domain, right? So whenever it happens, yes.

Great. So this 1 year is what? Is it 1 year from the date you -- of launching the reverse book building? Is it 1 year from the deal of coming out of -- the price -- the public announcement? What is that 1 year?

The 1 year is for completing the process, including the reverse book building and the buyout.

Okay, including the payment to the shareholders. Okay. Okay.

Yes.

The next question is from the line of [ Kushal Borlegal ], an individual investor.

Could you please take us through your projection for your end-user segments, the industries to which you cater to, post-COVID over the next 3 to 6 months and the related margin that you expect in your various product lines?

Well, so as you know, we cater to automotive, household electronics, and we have small appliances, packaging. And automotive, if you see -- we see a healthy recovery in 2-wheelers versus the 4-wheelers. I would say they're back to at least 50% to 70% kind of capacity utilization, the 2-wheelers. As far as 4-wheelers are concerned, they are still below 50% utilization. And I think for the foreseeable couple of months, it's going to stay that way. Household electronics, we see the capacity utilization to over 50%, yes, and should get better in each passing month. Same goes for some of the other segments like packaging and all. In terms of margin, like I mentioned earlier, we are enjoying healthy margins across the industry for both ABS and polystyrene, not just in India, but at APAC level. And for the foreseeable few months, we expect it to be healthy, but you never know, yes? These are very cyclical markets. It can change within a month or 2, yes? So it's very difficult for us to predict the margin. But as of now, things are looking better for India coming out of the COVID here with each passing day.

Okay. Just as a small follow-up question. Given the volatility in the raw material prices that we've seen over the last 3, 4 months or so, have you gone about any hedging or taken a call on procurement in -- amid this volatility? Or is it just business as usual as you were used to?

Yes. We do not speculate and try to so-called do trading of some of the raw materials. We make our plans based on the demand that we have and then procure [ overall ] accordingly, yes, to manage our inventory levels.

[Operator Instructions] Next question is from the line of [ Kushal Borlegal ], an individual investor.

A small follow-up on the earlier participant's question with regard to the delisting. When you do go for promoter clearance and with further updates in the public domain, will the original floor price and cap, which was mentioned in the delisting approval, hold? Or will it change?

So nothing changes whatever happens.

So the original approval was for a floor price of 419 and a cap of 480. So just trying to understand the formality.

No, that was not the cap. So that was a suggested price, right? So there's no cap. The cap is determined by the shareholders once they start bidding the reverse book building.

As there are no further questions, I now hand the conference over to Mr. Abhijaat Sinha for closing comments.

Yes. Thanks, everybody, for joining the call. And thanks for showing interest in the company. And once like we'll see you and answer your further queries in the next investor call. Thanks, and have a nice day. Thank you.

Thank you. Ladies and gentlemen, on behalf of INEOS Styrolution India Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.