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

Ladies and gentlemen, good day, and welcome to the Q4 FY '21/'22 Earnings Conference Call of INEOS Styrolution India Limited. We have with us today from the management of INEOS Styrolution India Limited; Mr. Sanjiv Vasudeva, Managing Director; Mr. Sanjeev Madan, Director, Finance; Ms. Amita Mistry, Litigation and Secretary Officer; and Mr. Abhijaat Sinha, Company Secretary and Head Legal, India. [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 March 31, 2022, on 26 May 2022. We will brief you about the major highlights of the performance. Now regarding the quarterly performance, revenue net of GST from operations in current quarter is INR 62,390 lakhs as compared to INR 63,655 lakhs in January to March 2021 and INR 51,191 lakhs as in previous quarter. Profit before tax in current quarter stands at INR 13,010 lakhs as compared to INR 21,645 lakhs in January to March 2021 and INR 7,343 lakhs as in previous quarters. Regarding year-to-date performance, revenue net of GST from operations stands at INR 217,902 lakhs in financial year 2021, '22 as is compared to INR 163,148 lakhs in previous year. Profit before tax in financial year 2021, '22 stands at INR 44,258 lakhs as compared to INR 37,607 lakhs in previous years. Now regarding the segment performance, quarterly segment performance, specialities. Profit before interest, tax and other unallocable expenditure stands at INR 9,195 lakhs in current quarter as compared to INR 5,645 lakhs in previous quarter, and profit in financial year 2021, '22 stands at INR 32,640 lakhs compared to INR 29,153 lakhs in previous year. Polystyrene profit before tax and other unallocable expenditure is INR 4,040 lakhs in current quarter as compared to INR 1,843 lakhs in previous quarter. And profit in year '21/'22 stands at INR 12,197 lakhs as compared to INR 9,414 lakhs in previous year. On March 2022, there was a fire in the section of the company's plant located at Nandesari. Fire was extinguished internally and the plant was brought to safe mode. All operations were discontinued at the Nandesari plant for carrying out necessary repairs. The plant has resumed operations from May 12, 2022, after completion of repairs and received all statutory and regulatory clearances. On April 18, 2022, INEOS Styrolution APAC Pte Ltd promoters proposed through an offer for sales to dispose of up to 25,32,330 equity shares of the company of the face value of INR 10 each, representing 14.40% of the total paid up equity share capital of the company with an option to additionally sell 16,88,220 equity shares, representing 9.6% of the total paid up equity share capital of the company, present to, of the said OFS promoter on April 19, 2022, and April sold in aggregate 24,28,040 equity shares, representing 13.81% of the total paid up equity share capital of the company. Board of Directors had declared second interim dividend of INR 105 per equity share of INR 20 each at its meeting held on May 26, 2022. Thank you. Now we can go for the clarifications or the questions, whatever we have. Yes. Please go ahead for any questions if anybody has.

[Operator Instructions] We have the first question from the line of Sohin Chag, who's an Individual Investor.

Hello?

Yes, we can hear you.

Okay. Am I audible? Okay, fine. I'm Sohin Chag, speaking from Marwadi Shares & Finance, and I'm also an individual and a family investor. My question was primarily regarding the OFS. So the company was -- the promoters were thinking of having a 25% stake. They could only eyes of 14% profit, right? Am I right? And the greenshoe option was not exercised. So my question is whether they have plans to further come up with an OFS and they have a certain target to dispose of certain amount of stake.

Yes. This is Sanjiv Vasudeva. So this is a question for the promoters. So we are not in a position to speak on behalf of the promoter. Thank you.

Will that be all Mr. Sohin.

Yes, with this kind of a response that should be all because usually, there might be some guidance something regarding that because Mr. Vasudeva could be aware that in spite of good results and great performance, growth has happened with share price. As an investor, we kind of look forward to make some sense out of it.

We have the next question from the line of S. A. Narayan from Capricorn Research.

Yes. Mr. Vasudeva, thanks for good results. Need to know you see -- I noticed you have written off INR 28 crores. I wonder why you are not going ahead with your expansion plans?

So we took that hit, I think, whatever, yes, that is because as per the right practices, we need to take this financial hit as there are no short-term plans to make the investment in India.

You mean the capacity in the country between you and your competitors is adequate to cater to your customer needs for the next 24-odd months because when you propose this expansion, you had mentioned that it would take approximately 18 to 24 months to go live. Now which means that if you're not going live with the expansion, the capacity is adequate for the next 24 months? Or would I be right?

No. India is short of capacity, and we do know that competition is also adding capacity. As the company INEOS is a global company, right? Yes. And as a business, they prioritize, where to make the investments first, and as of now, the priority is not to invest in India. That doesn't mean that an appropriate time INEOS may decide to make that investment here. But in the short term, INEOS made a decision not to go ahead with that capacity expansion.

Got it. Got it. I'll leave it you.

Also I would like to comment upon like we already have the existing capacity. And if you recall, we had invested into the Moxi plant in earlier just 2 years back and additional added the 35 kt capacity. And due to COVID, you all know that demand was pretty much lower, and we still have capacity for which we can run. Just an additional comment from me.

Nice of you. But currently, what is the level of capacity utilization that you have?

So Moxi plant is about 100 kt, right? And we have not -- we don't disclose generally the full utilization numbers, but we still have sufficient capacity in the Moxi plant for compounding for the next couple of years.

Fair enough. Sure, covered for 2 years, I'm okay.

[Operator Instructions] We have the next question from the line of Brijesh C from NSTW Consulting.

My question on management was, can the management guide us as to what is its dividend policy approach because earlier in October, it pays out a large dividend. And again, it's paying out a very large dividend. So what really is the payout approach that the company is adopting here?

So on the dividend, it's a decision which has been taken considering the profitability of the company and a very strong cash position, yes. So we had a very strong cash position last year, and we are in a similar position this year. I think I also had 1 of the gentlemen earlier INEOS as a global company with multiple investments and projects. So the company decides based on what makes sense not just for India, but on a global basis, yes. So that is 1 of the driving factors for this decision, along with a very strong cash position. And the good part is we still have sufficient cash to going forward and outlook is positive. So those were the driving factors for the company to make this decision.

As far the company can decide, but there are also minority shareholders in the company, and they also need to know exactly what is the policy of the approach here. It can't be a single majority shareholder, they have to guide to certain policy or approach in terms of payout.

So just to add to what Sanjiv said, we don't have a specific policy here and it's based on the profitability and the cash that we are generating in the business right now.

Exactly my point that there has to be some policy, some approach. It can't be decided like whenever you pay out certain, a very lump sums and then you don't pay out some amount at all. So there has to be some policy...

So the company has been paying regular dividends over the years. I don't think company did not pay only once.

Not this level, not this level, not this level, not this amount. So there has to be some approach how does the shareholder predict in terms of payouts. Payouts cannot be such lumpy in nature?

But this is what Board has decided based on the results of the company.

Exactly that's my point, the Board then has to communicate certain policy or approach to certain things. Board decided I mean, when the Board -- when Board decides something, the Board has to communicate a certain policy or approach to doing something.

I don't think so. That's not something which -- it's the decision of the Board, depending on the results and...

Every Board takes decisions, but they also communicate certain policy approach. You cannot just take a decision and not communicate any policy approach to that, sir.

What's the policy approach you are looking for here? Like I don't get it.

Certain payout ratio, certain 20%, 25%, 30%. Certain every company has a predictable dividend payout ratio.

It's not required. It's not required. So -- and there's like it's company's discretion, whether there does not need to be a payout ratio to communicate it at all times. It depends on the cash availability, we have a policy already in place and which says that the Board has the right to decide the dividend at the appropriate time. The policy clearly mentions that it's available on the website, if you want to check.

That's okay. I won't debate further.

We have the next question from the line of Subhankar Ojha from SKS Capital.

So that was actually on the dividend policy, I don't want to talk -- I mean talk further on it in terms of I had a question exactly on the same. Secondly, can you give a bit of an outlook on the current pricing of ABS and polystyrene. I mean how has the pricing been post the closure of March quarter?

So overall, the prices of ABS and polystyrene are linked to the prices of styrene, right? Because that's the key raw material, yes. In the last quarter, the prices of styrene has increased by about $400, yes? Now we have also seen an increase in the last 3, 4 months, the prices of both ABS and polystyrene, may not be to the same extent, yes. But overall, the pricing is -- I would say, predominantly dependent on the raw material prices. I think the more important question is what's happening with the margin, right, yes? So -- and overall, we still see decent margins, right? It may not be as healthy as what it was a year back, but we still see decent margins for both ABS and polystyrene, yes.

Is it as good as -- I mean, obviously, we are behind the peak margin. So are we kind of similar to quarter 3 level -- a quarter 4 level.

We have good margins. Let me put this, I cannot give any numbers and make comparisons. But as you rightly guessed, it's not the peak margin, but still very healthy margins here.

Will that be all, Mr. Ojha?

Thank you. Yes, that's all. Thank you.

We have the next question from the line of Urvija Jha from Isha Securities.

Hello?

Yes, we can hear you.

Okay. I think it's a follow-up on a few certain previous questions. You said that we are continuing to make decent margins. So one, what would be the sustainable margins that we can -- given that you are close to the market, that you can guide us, we can make for FY '23, we are targeting for FY '23?

Well, we can't give a full guidance on the margin, but like I explained earlier, right, the margins are healthy, and we predict healthy margins going forward.

Okay. And sir, so that means that we would be continuing to generate a decent amount of cash flow. So as a management and then professionally run Board, what is your vision for this cash flow?

Well, we will see as and when we generate the cash, right, what we want to do as a company, INEOS is a global company. Obviously, you would like to utilize the cash for investments in India at an appropriate time, the right decision will be made. Thank you.

And if we are not continuing with the current CapEx then in what areas would be the -- are we evaluating? Because I believe even in this year, we would continue to make a decent amount of cash flow? So what areas would -- is the MNC trend evaluating for CapEx?

Well, we use our CapEx for the regular maintenance activities, right? Any kind of plans around utilizing the CapEx to add new capacity will be announced at an appropriate time, yes?

And what is the vision overall for the MNC parent at the cost of reiteration. So for the India business, I think we have been expanding a lot in Chinese capacities. And I think our Indian plants also need some bit of upgradation and some bit of maintenance to bring them to the perfect to get them upgraded. So what kind of vision overall as a parent? Because we are -- did not -- we don't have any concrete plants for India as of now. So can you please throw some light?

I think this is a question for the parent, yes, but my understanding from the parent is that they also view India as a very key market. And as a company, decision have to be made around prioritization and China is a priority as of now. So at an appropriate time, I believe the parent will make a decision on India.

And I think our plants also need certain upgradation and all. Sir, what are -- how are we evaluating that?

So when we run the business, right, we have CapEx plans for regular maintenance and upgradations in terms of safety, in terms of regular new technologies. So that those investments are already planned in our operating plant for this year and next year, right? So that's not an issue. I think -- so from that perspective, we are well covered. The question is, I think, which a few other gentlemen have also asked more around the CapEx investment, right? So -- which is the difficult thing to make.

So O&M CapEx will be -- is how much?

Sorry?

Because I think we have almost net debt. O&M, operation and maintenance CapEx is how much in a year because we are almost net debt. So say, if we generate another year of good cash flow, then -- and we have not paid any final dividend. So are we expecting an interim dividend or...

Well, we just announced an interim dividend yesterday. So I'm not sure, is a question.

So what is the quantum of O&M CapEx, that annual CapEx?

Annual CapEx ranges depending on the year to different numbers. It can range right from something like INR 20 crores to maybe INR 70 crores, INR 80 crores depending on which specific plants needs, what kind of upgrades.

Okay. And can you give a little bit...

We have enough cash to run our business in a healthy way without compromising on safety, the quality of our plants, the products that we make and without taking major loans. So we're in a good position, you can be assured there.

Yes, sir. But I think it all depends on the growth. We are running healthily. And -- but since the market is in an upbeat, only if we capitalize on these sizes, that's when the company and the shareholders are the benefit, right? So we just wanted to understand the growth perspective. Another thing is, can you throw some light on since still ease out. So the demand dynamics in the Indian market is, like if you could throw some light there?

Sure. No, our demand is strongly linked to key markets like automotive, household boards and general consumer products, right? I think last 2 years, the demand were a bit on the lower side, yes. So we have seen a demand decline. Of course, post-COVID, you had this sudden surge of demand, which is kind of also kind of been a bit flat. We see a good demand for household electronics, a much higher demand more sustainable year-on-year. Automotive, two-wheelers in particular, continue to be lagging. So if I compare with 2018, right, or 2019, the pre-COVID level, I don't think automotive has reached that level. So we are about 10%, 15% below that, yes. Cars demand is good. But unfortunately, we have the semiconductor issues and supply chain issues. So they have been also trying to eat up the higher cost of commodity prices like steel and other raw materials that they use, yes. So cars are still growing at more or less 2% to 3%, yes. Having said all this, May has been a good month, April, May. So Jan to March for automotive was a bit on the lower side. But I think post-COVID, with things stabilizing, we expect the economy to come back to for 6%, 7% growth level. And typically, plastics and ABS grows at 1.5x the GDP or so. So we are looking at a 10% kind of a growth number going forward.

Okay. I think, I'll get back in touch -- get back if I have any further questions.

We have the next question from the line of Sohin Chag, an Individual Investor. Mr. Sohin Chag, can you hear us?

Hello, can you hear me?

Yes, we can hear you now.

I have a follow-up question. Since we are now talking about the Indian office and we don't have much to talk about worth of orders might be thinking. I would like to know since COVID has passed almost, what is the prior plan of, what do you same cost illness, prior rolls and prior finger illusions from here?

So let me -- because your voice was not very clear. So your question is, what is our vision for the next 5 years or so 5 to 10 years? Is that your question?

Yes, yes. Since you clearly said that for short term guidelines, the prior will be more of that work. So first let me try to speak what is in the...

Mr. Chag, if you could go off the speaker phone because your voice is actually pretty much mumbled right now.

Okay. I'll try and do that.

This is better, yes. Now we can hear you much better.

Yes. My query was that since the management is pretty clear that right now, short-term priority is China...

Mr. Chag has dropped from the call. So we have no further questions. I would now like to hand over the floor to Mr. Abhijaat Sinha for closing comments.

I think there are a couple of people in the queue. Mike, I think you can probably just maybe figure out.

Give me a moment. We take the next question from the line of Manav Kapasi, an Individual Investor.

Am I audible?

Yes, you are.

I had a question on the ABS segment that with 1 of our competitors expanding your capacity and another 1 doing a greenfield CapEx. Are we in a stage to lose market share there? And what are we doing there to protect our ABS competitive edge?

So yes, we are aware of the competitive activity to increase their capacity. We have global plans as well. So in terms of actions, we have global plans from which we can do some sourcing, number one. Number two, I think we answered earlier, our utilization is not -- we are not fully utilized. So we do have some capacity for the short, medium term. We continue to -- thirdly, we continue to focus on margins because at the end of the day, it's all about profitability, yes. So we continue to focus on margins, to optimize our business through working on new products, working with the right set of customers, with the right customer and product mix. So with those actions, we believe we should be able to sustain our profitability at fair numbers, right? It's probably not at the peak number, which you saw about a year back, but has kind of fair numbers for the coming year.

And just a follow-up on that. What is the overall industry landscape when it comes to ABS? What sort of view do we have for the next 2 to 3 years? What sort of demand will the Indian economy have for ABS with the auto industry having current expense, and then once that normalizes, what sort of demand can the Indian economy gather?

I think I did answer that question. I think you're looking at a 10% kind of a growth for ABS here for sure. And this is with the auto not fully recovering, right? If you look at the number, auto still not fully recovered, still we are looking at a 10% growth number, right? Strongly driven by household, electronics, multiple other segments, ABS goes in multiple segments, not just household electronics. So overall, we are looking at a healthy 10% plus kind of demand for the foreseeable. And not just for ABS, right? Plastics, in general, right, if you look at the statistics over the last 4 decades, right, has been growing at around 10% kind of number. So I don't think demand would be an issue going forward.

And do we have some numbers to quantify on what sort of demand do we have or that won't be?

India uses about 250,000 tonnes of ABS. And if you can do a 10%, we are talking about 25,000 tonnes extra demand every year, broad level.

[Operator Instructions] We have the next question from the line of Urvija Jha from Isha Securities.

Hello? Hello? Hello?

Yes, we can hear you.

Okay. Sir, you threw some light on demand in India. Can you explain the global supply situation because I think pricing would largely be determined by that?

The global demand is also.

No, supply also is like some -- since a lot of expansions are going on. So like why -- when that should be on stream and when the pricing should normalize? I mean, since just can you give an idea on when these capacities are coming on stream?

Well, we do understand that China is adding quite some capacity, a couple of million tonnes. But we also what we need to realize is announcements turning into the reality, right? Because is something which has to be clearly thought through because not all announcements turn into actual capacity addition. So we do know that in the next 5 to 10 years, we have a few million tonnes of capacity addition in China coming. On the demand side, short term, of course, the demand is a bit low because of COVID in China, right? So they're spring and I do not know for how long, but we expect the demand to rebound, right? If anyone's guess, right, maybe 6 months down the road, yes, 3 months down the road, yes, and demand supply always balances itself out over a span of 3 to 4 years, yes. So I think broadly speaking, ABS in general, is a product that is growing across, not just in India, across APAC and across globally. And the supply/demand kind of balances it out, will balance it out over the next 3 years.

We have the next question from the line of Sohin Chag, who is an Individual Investor.

Sir, can you hear me now? Sorry, I got disconnected. I would repeat my -- should I repeat my question. It was regarding what could you -- what would be your 5-year vision for INEOS Styrolution India?

So the 5-year vision will be a company which has sustained profitability, okay? Number one. Number two, a company which has differentiated products, more specialized products. Number three, a company which is most importantly safe well run and a great company for employees to work. So those would be the kind of 3 major areas of focus for us.

Yes. That's great to hear. Any R&D or new product categories or new products in pipeline, if you can throw something light there?

Yes, we are working on the several OEMs on -- I can't disclose specific products, but we do have products around lightweighting, yes. How do we make lightweight products, scratch resistant products.

The reason specifically for that question was because automobile industry, which is -- I mean, market for you, which is going through a huge transition as we all -- I was wondering if INEOS is going to clear path in it.

Sure. Sure. We work with all the major OEMs of automotive, right, INEOS have their different needs. So their needs -- they have needs around lightweighting, they have needs around scratch resistant and they have needs around specific color, black color, they have needs around lower orders. So those are the several macro trends and the common needs of the OEMs. So we are working closely with all of them on these products here for the future.

And yes, a big fan of being INEOS written on the Mercedes Formula 1 car.

We have no further questions, sir. I would now like to hand the conference over to Mr. Abhijaat Sinha for closing comments.

So we would like to thank everybody for joining the call and taking interest in the company, and we look forward to seeing you at our next investor call, which is likely to happen somewhere in August. So thank you, and have a nice day.

Thank you. Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.