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

Okay. So sir, going forward, if these are normalized profits, then we expect to maintain these gross margins over the next couple of quarters?

Like I explained earlier, it's very difficult for us to predict. Because the margins are dependent on what happens with the [indiscernible] and the prices of ABS, polystyrene, which are driven by the overall demand -- supply-demand situation globally and in APAC as well. So it's very difficult for us to predict. But like I said, we are in a good position right now and we'd like to maximize margin and keep improving our product mix and segment mix going forward.

Okay, sir. And one other question was on the sourcing of raw materials. So you've mentioned there are some container shortages, which we have been experiencing. So sir, if you could give some color on that.

The container shortages between Korea, China and the whole APAC region, predominantly driven by the shipping lines, where we saw the prices of some of the containers going 4x, 5x than the normal container costs. And even if people who are prepared to pay 4x, 5x higher, the containers were not available. So there was a supply-demand issue happening in the China, Korea, that side. That has improved over the last 2 months. And we expect the situation to get normalized in a month or so.

Okay. And sir, if you could, since we faced a lot of issues in our raw material procurement, is the company looking at backward integration to manufacture the product within India? Is that a possibility going forward?

That's varies because the key [indiscernible], like I mentioned, is styrene. And for styrene, the total demand in India is about 1 million tonnes. And for 1 million tonnes, you would put a multibillion-dollar kind of a plant, which is a very, very, very big step. So as of now, we have no such plans.

The next question is from the line of [ Anuj Jain ] from [ Globe Capital ].

Congratulations for a great set of numbers. I have broadly one or two questions. One, I just wanted to understand how is the demand scenario on ground, I mean, which we have seen in the last quarter from October to December. So how it is panning in the month of January and until now February? So how is the demand scenario on the ground?

Yes. We see the demand to be pretty good. You see a very big V-shaped recovery last year, right, across -- when you look at the automotive number, the household electronics numbers and in general, the refrigerators sold, the air conditioners sold. Everything was up 30%, 40%, 50% share. Automotive was up nearly 35%, 40% in some cases. Now -- but they have come down double digit, I would say. I just look at the SIAM data, it's still double-digit number for two-wheelers. And based on the forecast, I still believe the next 3 to 6 months should be pretty strong. Look, none of us can predict what happens in India, right?

Yes. But I mean just a normal business scenario.

Yes. Directly, it's sustainable.

Okay. And the other thing is not -- I mean I just want to understand how -- I mean about the -- on the inventory side. I mean how you are managing -- I mean what are your plans on managing the inventory side? Because the raw materials, styrene and ABS, are on a pretty high level. So I mean what kind of -- how much inventory you are maintaining? I mean what is the pricing we are maintaining?

Well, we typically try to maintain a month's inventory, okay? How much hindsight...

1 month is a normal scenario, in a normal business scenario?

Yes. You would have it in a month [indiscernible], okay? And so there's always a bit of a concern, what if the prices decline, correct, which just happened in the past. At times, [indiscernible] suddenly drops for raw materials. And that's why some of the contracts come into play. Because when the market prices drop, your contracted customers still value and respect the old prices based on your contracts. It's in the formula. While the spot prices, if I go to the market with the spot price, I may not be able to realize the complete raw material costs. So our take on this is balance it with -- have a very balanced portfolio, both contracted, non-contracted customers, number one; number two, try to keep your inventory all the better and have a very accurate forecast planning from our sales guys, right? Because inventory is in relation to what sales forecast you have and depending on the different raw materials. So those are the kind of levers that we use. But the supply chain as such, right -- because styrene is not manufactured in India, butadiene, probably lesser, right? Because butadiene, now we have manufacturers in India. You have IOC, OPaL, right? These guys make butadiene, so we can source locally. So there's no need to carry a month's inventory, correct? Because you can source it here in India. But acrylonitrile, styrene, you need to get it from other parts of Asia.

The next question is from the line of [ Ayush ], individual investor.

Congrats on a good set of numbers. So what was our volume growth during the quarter?

What is?

Year-on-year versus quarter 3 of last year.

We generally do not disclose volume numbers. I think we disclosed the revenue numbers, but it was double-digit growth.

Double-digit growth. Okay. And because our new capacity, I guess, almost 30% capacity came in last year. So at least on the volume side, can we expect a double-digit growth going ahead?

We hope so.

Yes. And sir, just wanted to understand, so what were the ABS spreads during quarter 3? And how have they moved in January and February?

So ABS prices were more like INR 2,300 kind of levels, [ INR 2,230 ], around INR 2,300. And they are at around INR 2,000 levels right now. So it went up from INR 1,800 levels to INR 2,300. And they are at INR 2,000 levels right now.

So actually, I'm talking about the spreads, not the prices, the spread between our ABS and raw materials.

The spread is also pretty healthy.

So it has continued to be healthy in January and February?

I went on February. January, you can check the data on ICIS between ABS and styrene prices, but spread is healthy.

Okay. And sir, on the LG Chemicals, has the plant restarted?

To the best of my knowledge, they have not restarted.

Not restarted. Okay. And lastly, what kind of capacities are coming in ABS over the next 1 year?

We do understand that there's at least 500,000 tonnes coming in China in the next 1 year.

The next question is from the line of Vaibhav Badjatya from HNI Investment.

Yes. About the mix of contracted and non-contracted customers, so you also said that it is somewhat different than what the competitors have. So is it like our mix towards non-contracted customers are higher than our competitor? Is it the case?

Look, all I can say is we have a mix of contracted and non-contracted customers.

Yes. But I think earlier, you indicated that the mix was higher. So I just wanted to -- I missed those comments. So I just wanted to confirm.

I think I've said that we have a good mix. Our mix is probably different than what the competition's mix is.

Okay. Got it. And on the polystyrene, there is this antidumping duty. And on the top of it, LG Chemicals -- LG plant has got there. So what's your current sense on the margins there in that segment? Is it here to stay? Or you are seeing some kind of new capacity coming in somewhere within India to put pressure on margin? What's the sense on the margin trend in that segment?

Are you talking about antidumping duty for polystyrene?

Yes.

That has not been implemented yet. And there was a recommendation made by the DGTR to the finance ministry. And eventually, it has not happened. So that's something we are observing very carefully. And also there were delays due to the COVID, right, in this whole process. So that's something that we expect should happen. LG Polymers, like I mentioned, to the best of my knowledge, they have not started. So the supply-demand scenario is healthy. I have read that Supreme, in their annual report, talked about adding new polystyrene capacity in a year or so. So that's the information we have here.

The next question is from the line of [ Gupta ], individual investor.

My -- I have just two questions. One, of course, there are certain questions around capacity addition. And my understanding is that you had commissioned a study a couple of years back to be evaluated if it's sensible to go for us for the expansion or not. I just wanted to understand what's the progress on that, number one. And number two, can you throw some color on exports? Is that a strategy at all for the group or you're concentrating more on domestic?

So from a study perspective, yes, we have done some studies. We have the kind of cost analysis of what's needed to make investments in India. The business has made no decisions yet on the investment plans. Because of COVID, we had a very unprecedented kind of time, where you're not sure what's going to happen with demand, what's going to happen with India as a country, right, globally for that matter. So I think everyone's kind of -- is kind of still recovering. After the COVID, we are all glad that things have improved for India. And let's see if we can have good, sustainable, profitable growth, not just for us but for all the segments in the country in general, the GDP. And as and when applicable, if the economics make sense, the company will consider the investment, yes.

Okay. And how long does it take, what's the period of time? You said that everything right on the capital expansion?

It takes a couple of years, right? Like it's the [indiscernible] decision, it takes a couple of years.

Okay. And my next question was on export. Can you throw some light on that?

Yes. I do understand that on the products that we sell, polystyrene is exported by one of the competitors. We don't have any plans to do our export of polystyrene. Obviously, because [indiscernible], right, their demand -- the Indian demand is pretty good. On the ABS side, again India is short of ABS. [indiscernible] India's demand is imported. So there's no reason for yet to export until unless you get much, much higher prices than what you sell in India, which is not the case because these are the prices [indiscernible] based on the global prices. So yes, to answer you, ABS, we also do not have plans to export as of now.

Okay. Can you give me a rough sense of the market share, if you could, please, at a high level, your market share in the domestic market?

Our market share would be higher than 30%.

The next question is from the line of [ Nitin Kapur ], individual investor.

Yes. Sir, can you hear me?

Yes, we can hear you.

Yes, sir, I just wanted to confirm, in the statement, you have said, we expect that ABS and the styrenics market to get long sometime this year. Sir, can you elaborate on this? What can I infer from this?

So today, it's a sellers market, right? It's very short, correct? The prices are very high. But in due course -- I mean they're not going to have these kind of margins and prices, right, sustained for whatever happens. Oil prices never stay at $120 or never say at $48, right? $48 becomes $50, becomes $60, right? It's only the price of diesel and petrol that goes one way. They keep going up.

So the meaning is that get long. What's the inference from this? To get long sometimes, does long means normal or what?

Long means -- yes. So long means the supply-demand situation, so it becomes more of our buyers market, yes?

Okay. Right, right, right. And secondly, sir, just one more question. What's the scope of -- what this is -- you don't have any expansion plans. And what I understand is that your capacity utilization is still quite high. So from where the future growth is expected in the company?

Well, we do have -- being a multinational company, we do have our sister plants in other parts of APAC and in globally which can support the growth in India.

Sir, any fresh products that you plan to produce in India, sir?

We do keep new products, some health care-related [indiscernible] in fact, not just in India, it's also meant for some of the other air purifiers and other materials which are used during this COVID time, yes. So we keep identifying new areas predominantly on the health care side, where we can specify some new products. Now not all those new products are made in India yet. We start with imports. And later, we can always look at them as the market becomes bigger.

The next question is from the line of Shivaji Mehta from Nippon Mutual Fund.

Sir, you mentioned Supreme will also be adding some capacity as per their annual report and also LG, once their capacity kind of comes back after some time. How do you really see the supply-demand scenario shaping up in the next few years?

So we are going with these assumptions, right? So the two assumptions you are making is whatever Supreme has, they will do. And number two, assumption is that LG will come back, right? So I think we'll have to, first, if both assumptions come true, then we are talking about 80 to 100 kt coming from Supreme and another 70 kt or so coming from LG, correct? Then of course, the supply will again become higher than the demand because the demand in India is around 250,000 tonnes for polystyrene. So the scenery will change. But again, these are assumptions, we'll have to just wait and see what happens in the coming 1 year and then take it from there.

Sure. So also, what would be the price difference between, say, the contracted customers and non-contracted customers?

We don't disclose those information, sorry.

Sure. If you could also help, how would the end user industry be spread for us in terms of revenue? Is that something you could share?

Well, like I said, the segments that we focus on are automotive, household electronics, of course, toys, and then emerging segments like health care, where we can get more high-value products. Construction is one segment that we are focusing on. And yes, so we have -- we try to play in most of the segments, more so in some segments than the others. And I mentioned a few times like automotive is key for us.

The next question is from the line of [ Ayush ], individual investor.

So actually, I'm coming back to my previous question. So I was asking you what kind of capacities are coming in? And you mentioned some 5 lakh tonnes is coming up in China, right?

That's correct, for ABS.

For ABS, so what kind -- so what is the average demand growth for the industry for the year? And how much of the supply can be absorbed basically?

Well, the demand in India is more 250,000, 300,000 tonnes for ABS, right? And then you can take a double-digit growth.

No. But I guess global demand and supply will affect prices, right? So I'm talking about globally. So with the...

Good question. I forgot to remember the global demand outside of -- I would say about 30 million tonnes of ABS. I have to check on that.

Okay. So basically, my question is are the capacities that are expected to come over the next 1 or 2 years, can they be absorbed by the demand or it is significantly greater than the demand?

No. A lot of capacities are announced. And which of them actually come through, it's something to be seeing, okay? Generally, there's a healthy balance between supply and demand and capacity -- new capacity will come maybe in 3 years, right? But the demand goes steadily, correct? Demand is more like, how do you say it, like 45-degree angle while your capacity comes in steps. So there will be a period where it's tight, where it's long. Very difficult for us to predict, but the businesses work like this, right, in cycles, okay?

Okay. Okay. And secondly, sir, do we have any HRG rubber capacity in-house? Or do we completely import it?

No, that's what we have in the base, that's HRG rubber.

28,000 tonnes is HRG.

Yes.

And how much is -- so we have the ABS capacity of 1 lakh tonnes. So is the 28,000 tonne capacity enough for catering to 1 lakh tonnes of ABS capacity? Or is more required?

Yes, it is.

It is enough. Okay. And on the -- so we had also faced some issues on job book, right? Like there were some job book issues, which we expect, which we had mentioned that. Once the new capacity in Moxi plant commences, the job book issues will also lower down. So has that played out accordingly?

Yes, that has happened.

The next question is from the line of Vaibhav Badjatya from HNI Investment.

Yes. I had just a follow-up on the earlier participant's question. So on the HRG rubber, you've indicated that it is sufficient. But in the credit rating report, it has been clearly mentioned that there are some capacity contracts on HRG at year-end. So I'm just trying to reconcile the two facts. Is it -- have they been solid for December 2020, which is the latest credit rating report? Or there is some misunderstanding over there?

HRG, we have the capacity of 28 kt, right? And I think one of the gentlemen asked is that enough to make 100 kt of imports, correct, based on Moxi. And typically, you use up to 25% to 30% HRG in the formulation. Okay, that's not rocket science. I mean, you can visualize and you'll find out how much HRG is needed [indiscernible]. So from that [indiscernible] is that if you want to grow further, right, we'll be short of HRG, yes.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Abhijaat Sinha for closing comments.

Hello. Thank you, everybody, for your interest in the company and attending the earnings call. We look forward to connecting with you during the next earnings call, which happens probably in May. Thank you, and have a nice day.

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