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

Good day, ladies and gentlemen. Welcome to the Styrenix Performance Materials Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Bhupesh Porwal. Thank you, and over to you, sir.

Yes. Thank you very much. Welcome all. Namastay, everyone, and a very warm welcome for our quarter 1 FY '27 earnings call. Thank you for taking the time to be here with us today. I hope you all have had a chance to go through the financial results and investor presentation available on our website and the stock exchange. The quarter gone by was marked by an operating environment characterized by heightened uncertainties driven by evolving global macroeconomic conditions, geopolitical developments and fluctuations across key markets. Despite these challenges, we remain focused on disciplined execution, operational resilience and serving our customers effectively as demand for our core products continue to remain strong. I will now take you through our financial and operational performance for the quarter before we open the floor for the questions. First, on the stand-alone financial highlights. Coming to our quarterly financial highlights on a year-on-year basis, total income for Q1 FY '27 stood at INR 770.5 crores, a growth of 6.6%. EBITDA for quarter 1 FY '27 stood at INR 201.4 crores, a growth of [ 11.9% ]. EBITDA margins for quarter 1 FY '27 improved to 26.1%, an increase in 1,420 basis points. Profit after tax for Q1 FY '27 stood at INR 137.3 crores, a growth of 150.09%. Profit after tax margin for Q1 FY '27 stood at 17.8%, a growth of 102 basis points. Sales volume for Q1 FY '27 stood at 38.9 kt, a dip of 26%. Consolidated financial highlights. Now on consolidated basis for the quarter, total income for quarter 1 FY '27 stood at INR 1,014.2 crores. EBITDA for quarter 1 FY '27 stood at INR 223.6 crores and EBITDA margin stood at 22%. Profit after tax for Q1 FY '27 stood at INR 138.3 crores and profit margin stood at 13.6%. Consolidated sales volume, which includes both India and Thailand for Q1 FY '27 stood at 50.8 kt. With this, I conclude the financial highlights, and we will now proceed for Q&A. Thank you very much.

[Operator Instructions] The first question is from the line of Nirav Jimudia from Anvil Wealth.

I have a few questions. Sir, first on the volume part. Like when we see this quarter, how you have seen the demand in the Indian market, both for the ABS and PS when compared on a Y-o-Y basis? So if you can explain whether it was like the availability of raw material for the existing players in India, which has lowered down our volumes and these volumes were replaced with the imports coming to India? Or let's say, the demand was impacted because generally, there was unwillingness from the customers to take the materials at the higher price? So if you can just share your thoughts here.

Okay. Thanks, Nirav, for your question. So essentially, there was a lot of disruption, as you know, because of the Middle East. And that started, in fact, in the first week of March itself. We also saw some impact of it in the last quarter, but not to the extent that we witnessed in the current quarter. What happened in March -- towards the end of March essentially is obviously, the prices went up quite a lot and there was significant volatility. And due to that uncertainty, which arose in the market, there was a concern on part of certain segments of markets, specifically the, I would say, the non-OEM sector or the unorganized sector, where there was a less willingness to buy any material. And so there was those concerns which existed during this quarter and which resulted in lower demand per se, particularly in the kind of unorganized sector. In polystyrene, that impact was more. And in ABS, the impact was a little bit lesser, but we saw the impact on kind of lower demand for both the product segments during this period.

Got it. So let's say, like when we see on an annualized basis, let's say, both for ABS as well as the PS, on an average, generally, if you just average out quarterly demand comes to around 75,000, 80,000 tonnes, let's say, for ABS and close to around 90,000 tonnes for PS when we just average out the yearly numbers. So if you can just give us some understanding, let's say, on this base of the quarterly demand, which we see across, how much it was this quarter in terms of some percentage numbers or quantification of numbers that would be helpful.

So like I mentioned, whatever drop in demand has been seen across both the segments and whatever drop in sales we have had, I think both are in line with each other, essentially. So we normally don't give breakup of volumes between all the different segments. So I would not be able to do that. But if you look at the total polymer that we would have sold for total volumes, whatever dip we saw is in line with whatever dip has been across the segment essentially across both the segments for that -- for this particular quarter, which would be to the order of 15% to 20% essentially or maybe 25%.

Got it. So safe to assume that, let's say, the OE demand was not impacted both on the ABS as well as the PS part, but it was more of the non-OE demand, which has impacted our volumes?

Yes. I think in our case, that is true. I think there would have been some impact on the OE segment as well, but the impact would be far more exaggerated on the non-OE sector for sure. So I think the OE sector demand impact would have been muted relative to the impact on the unorganized sector.

Perfect. Sir, second question is like what would be now our approach, given the kind of volatility we have been seeing both on the raw material prices as well as on the freight side or, let's say, on the natural gas side? So I was talking just from the operational side. So what would be our strategy in terms of improving our volumes in the quarters to come, a? And b, what could be the demand drivers going forward, both for ABS as well as PS? Are you seeing some newer applications coming up, both for PS and ABS, which can take up those incremental volumes in the market? Or you believe that growth predominantly will come more from the existing applications taking more volumes?

So essentially, Nirav, what happens is there is obviously a strong correlation between demand and the supply and pricing right in the market. And this is not only in the case of our polymers. But if you see across the board, when there is kind of a significant increase in polymers, you do see a dip in demand, right, across the board. So it's a broad-based kind of demand destruction, if you will, or -- I would not even call it destruction. It is more along the lines of a cautious approach by -- on part of certain category of buyers who would be wanting for things to normalize a little bit before the demand picks up again. So I think as far as we are concerned, obviously, nothing changes in our strategy as far as the business is concerned. We are still doing whatever we need to do. We believe that things would normalize in a certain period of time. And accordingly, we would have those volumes to be ready. So in terms of demand drivers, there are multiple segments that we are present in. There are multiple segments that we are additionally also approaching the additional product lines. So I mentioned all of this in previous calls and presentation. So the strategy doesn't change in any which way. But I think it doesn't matter ultimately which polymer or which blend or which product you go after. The demand would have -- would be impacted in all segments if the volatility remains so much and the uncertainty remains so high in the eyes of the buyers. So if people feel that in the next 10 days, the price is going to go down significantly or go up significantly, lot of people would have a kind of a wait-and-watch approach. So that segment of that market would always behave like that. So regardless of what you do, it is always going to be the same situation. So our strategy, in fact, has to remain dynamic to the extent that we have to meet whatever demand is there, we have to make sure that the raw materials that we procure, we do it in a sensible manner, the most sensible possible manner and we are able to cater to the demand, which is justifying both the price volatility as well as the acceptance in the market for those kind of pricing. So as long as we remain dynamic, we keep decisions which are extremely current with what is happening. And that, of course, has been a lot more volatile in recent times. I think that is the only change, if you will, or modification of our existing strategy. Otherwise, nothing changes.

Perfect, sir. Sir, last thing, just if you can just share the import situation for ABS and PS, if you have some sense in terms of how you have seen this quarter in terms of the imports of both ABS and PS into India vis-a-vis the earlier quarters?

So frankly, Nirav, I don't know if you're aware, but the government...

Have not been available...

Has taken a call where they are not in favor of sharing a lot of import data across India or export data for that matter. So there are no real channels where this data is easily available. But I think -- I don't have a very exact number or exact information which I can provide at this stage. But based on our interaction with our customers and kind of market that we broadly understand, I think we have not seen any significant variance in imports in the last quarter. It has been more or less similar. For certain countries, I think there has been some challenges in production because of structural issues. As you know, there is a lot of energy, which comes from the Strait of Hormuz and also fuel or naphtha, which comes from there for a lot of the countries, which would be traditional manufacturers or exporters to India. So that impact would have been there, and that obviously would result in kind of some stressful situation for their ability to export to India. So -- and that we have observed as well in the market where a lot of the players who would have been earlier present, were no longer quoting aggressively in the market either.

[Operator Instructions] the next question is from the line of Aditya Khetan from SMIFS Institutional Equities.

Congrats on a good set of performance. Sir, just a couple of questions. Sir, first is on to -- if you can provide the split between the OEM and the non-OEM side. And also, sir, like as you mentioned, like the demand in the non-OEM side was a bit of impacted. So just wanted to dig it more deeper. Like is it across the clients in the non-OEM side or they were like selective pockets, wherein the -- so there was resistance to pick up the volumes? And secondly, sir, when we look on to the benefits what we have received in this quarter, what would be the sustainable run rate of margins whenever the benefit reverse? Like historically, when I look, we were at around 10% to 12% broad margin range. Obviously, the last 2 quarters has been quite of an inflated one. What would be the sustainable numbers we can work on going forward?

Yes. Thanks, Aditya. So first of all, with regards to OEM, we don't give exact numbers. But broadly, at least on [ ABS ] side, our OEM is typically around 70% or a little bit higher and non-OEM would be the balance. And like I said, the OEM sector has some impact -- has had some impact as well. But the non-OEM sector has had a more significant impact. So I think -- and in the case of polystyrene OEM is probably a little bit lower and the non-OEM would be a little bit higher. So OEM probably would be closer to 50% and non-OEM would be the balance. So there, of course, again, there has been an impact. So between both the segments, like I said, the non-OEM has had a much more significant impact, without being able to give you an exact number there. But you can, I think, very well calculate based on our dip in volumes, what that impact would have been across the two segments. As far as the benefits of whatever has happened, I think this is just snapshot in time or a specific situation or specific event or a series of events which have happened in a specific quarter. And it is not indicative of the sustainable business of the company, as I mentioned in the past. So I think one has to consider whatever happened prior to these events as the sustainable performance. And that doesn't change. I think whatever impact we have had on volumes, I think, would get corrected once situations normalize. And I think what we saw towards the end of the quarter, there was some normalization, which had come about. But again, the volatility remains, as you know, we don't comment on current quarters, obviously, as historically, and we will not do so also in this call. But there is obviously that normalization, which we believe would happen over a period of time. And once that happens, we will be back to the same operational basis, which has existed in the past on an annualized basis in the company, and that would not deviate from that number.

Got it, sir. Sir, my second question is on to the Thailand business. Sir, the quarter gone by also we have witnessed some higher cost. Sir, it has been 6 quarters like and the cost is still on to the higher side. Any sort of like materials have changed? Like you mentioned earlier, we were looking to reduce the fixed cost, but that is still not meaningfully visible in the numbers. And secondly, sir, on the volume side of Thailand, that also looks quite a bit subdued. How should we look, sir, on to volumes for Thailand for FY '27 and '28 and also for the stand-alone business?

So as far as Thailand is concerned, there has been no increase in costs. The costs are where they are. We have not given any specific guidance on any of those costs being reduced with any specific period of time either. So I can't comment on that right now. We do believe that it will take some amount of time for volumes to pick up. And obviously, the current climate is not very conducive to giving any indication of when that will happen. I mean you can appreciate the volatility which exists in the region and hence, has significant global implications as well that it is virtually impossible to give the volume and the demand scenarios, given the current scenario. So for Thailand, again, very difficult to state any of those things. Volume guidance, again, it will entirely depend on how things normalize. But I think as a management of this company, our job is to best navigate the current situation and ensure that we are running our plant to the best of our capability and making sure that our customers are served in the best manner possible, which we have managed to do in the past quarter. There has been concerns around energy availability with fuel being curtailed, of course, in the interest of the general population, which makes sense. There has been issues on supply chain with raw materials. There has been multiple challenges, but I think the company has been through those challenges, and we have still managed to cater to all our clients to the extent it was required. And we intend to do the same thing in the following quarters as well.

The next question is from the line of Priyank Chheda from Vallum Capital.

First on -- again, you touched upon the demand side. Consumption sectors to which we cater roughly, say, auto, electronics, households, applications; I think they haven't seen that kind of -- the end-consumer demand has not been that down versus what we have witnessed in our volume. So I believe this has to do with a lot of OE, non-OE inventory or a channel stocking, destocking, whichever happens in the volatile times. So what my question essentially is that balance 9 months should have a very high catch-up in demand, right? I mean even if we were to catch up for last year's volume, balance 9 months should see at least a high teens or mid-teens kind of a volume growth. Would you -- any thoughts on that, sir?

Thanks for your question. So again, from what we understand when we speak to our clients, and obviously, there is some aspect of what you're saying is relevant as well, where there is some stocking, destocking in turn with retailers, which could be our customers' customer, if you will. But ultimately, I think overall, when the prices go up, we do believe there is some impact at multiple levels. So in some segments like appliances and all, there has been some impact for sure. In auto, I think the effect has been muted. It is not that significant. But across the board, I would not say there has been no impact. There has been some impact. And of course, the -- in our case, that might be slightly more exaggerated, like I mentioned, because of the non-OE part as well, where the demand is completely dependent on -- sometimes on pricing, which takes place from month-on-month or quarter-on-quarter. So anyway and especially when there is this kind of significant volatility on normalized price changes, you don't see this kind of gap, but this is kind of an unusual situation. I think with regards to the next few quarters, again, like I mentioned, we don't know exactly what is going to happen because uncertainty and volatility continues to plague our systems. I think there is still no clarity on how things are going to move in the next quarters. So I cannot comment on how that will happen. But if things normalize, we do obviously anticipate that the demand will definitely pick up to the tune of what has happened earlier, and we will still return back to the growth levels that we anticipate in the business.

Essentially, the background to ask was just that because we also compete with, say, imports that are coming up. So I just wanted to confirm that there's no channel which has structurally changed its route to imports. I mean there can be destocking in the interim. But ultimately, the volumes have to catch up to the consumer demand.

No, you're right, it has to. But again, to what extent that stocking destocking happens, to what extent certain non-OEM or unorganized sector chooses to manufacture and keep stock based on the extreme uncertainty and how those things play out over the next few quarters is a little difficult to predict, unless you know exactly when the situation will normalize. But the underlying demand of the customers obviously would get some impact also in the face of such volatility. Eventually, when things normalize, we expect that demand to be coming back strong, as you already rightly mentioned.

Perfect. So now when that happens, we're talking about normalization, when that happens, should the margins settle down higher than whatever they were in the past, right? I mean the long-term average is whatever we know, should they settle down at a higher level just because, I mean, there would be some supply that would have gone up and down in the global market? We are competing with imports and their cost parity have gone up. Organically and directionally, you are getting into -- I mean, going into adding capacity into a higher-margin product. So some reference on, say, a settlement of the margin levels when everything is normalized?

I think for the purpose of our analysis, it is best to assume that things would normalize to the same level and rather than assume that there will be any significant expansion of margins because there is a lot of volatility again and uncertainty around when and what will happen in the future, not like to hazard guesses around that. I think like I mentioned, our strategy remains consistent as an organization where we are going to go after the growth and we will go after the additional value-added products. And obviously, with expansion, we will get whatever cost -- operating cost leverages that we can get. So the strategy of the company doesn't change because from a medium- to long-term perspective, whatever events have happened or continuing to happen in the short term would not have any material impact. And I think for the purpose of your analysis, it would be best to assume that kind of a directional basis only.

Sure, sir. Last thing, you have been a lot conservative then...

Sorry to interrupt, Mr. Priyank, can you please rejoin the queue for any follow-up questions? The next question is from the line of Rahul Agarwal from IKIGAI Asset.

I had three questions. Firstly, on the inventory side, just wanted to clarify a few things. So the quarter gone by on the finished product side, the demand was low. How did the plants run? Did we produce at full capacity and then anticipating demand will recover into the balance 9 months? So how is the inventory situation on the finished goods side in the India business? And on the RM side, I think we would have had some inventory start of the quarter last quarter. And then the current situation obviously required for alternate sourcing, which now I just wanted to know how is that being sourced. Is that a higher-priced inventory now purely because the transit times are higher, freight rates are higher? So just some comments on steel monomer and [ ACM ] imports in terms of pricing, timing availability. Second question was on ABS CapEx. I read in the commentary that this year itself, we should start. Just wanted to know the SAN merchant sales from the existing plant, will that completely stop from Jan '27 because of capital usage? And third is just from a prewar perspective, we entered this fiscal with an expectation of mid-single-digit growth in terms of volume as capacities are all running full and the new plant comes sometime later in the year. Post war now, I think we've got some extra bonus and extra cash flow to utilize in the business. In my understanding, that's about INR 100 crores in last 2 quarters add together. How do you think about utilizing this cash flow better in terms of if there is any option available in the business to get the business growth higher? Those are my three questions.

Thanks, Rahul. I think more than three questions, but I'll try to answer all of them to the best of my ability. With regards to inventories, especially on finished goods, I think there is no significant change in the inventories that we have carried in the product, if you look at year-end or quarter end rather between specific quarters. I think our production numbers have been in line with our sales forecast. We do believe that whatever sales numbers will come online or whatever requirement will be there from the market in the next few quarters, we would be able to cater to that demand based on whatever we need to do. With regards to raw materials also, I think we have had kind of a little higher inventory, which we have carried towards the end of this quarter, in fact, as opposed to the last quarter. There has been some uncertainty on -- there was some uncertainty at the beginning because some of our styrene monomer specifically used to come from the Strait, which is no longer an option, so -- at least in the current climate. We do believe it will normalize, but it may take some time. So we have alternate sources for styrene monomer, for instance, you asked specifically. And those sources we have tapped into. So we are fully covered. The lead times are a little bit longer in other suppliers as opposed to the Middle East, which is obviously the closest to us. So the lead times can be 10 to 15 days higher from that perspective. And keeping that in mind, obviously, there is a little bit higher inventory that we carried in terms of pricing. If you look at styrene monomer before the war, it was around $1,000. It went up to almost $1,600, $1,700. It came down to about $1,200 and has moved between $1,100 and $1,400 since then. So there has been a lot of volatility in styrene monomer, acrylonitrile and butadiene, all three. Butadiene, as you know, we buy it locally. So there is no real impact as far as the inventories are concerned. But the pricing on butadiene also moved up to more than $2,500 from $1,000. It's come down significantly from that peak. Acrylonitrile also went from $1,200 to close to $1,800, $1,900, and now it's between $1,400 to $1,600. So there has been a lot of movement on all these materials, and that is a pricing trend, which I can give you as of now. What is going to happen in the coming quarters is, again, very difficult to predict. It will depend on kind of all the geopolitical developments that we are seeing. As far as our ABS expansion is concerned, like I mentioned in our investor presentation, it is online, and we do expect it to be completed accordingly. The SAN merchant sale which we are doing are not going to be impacted by this. San merchant sales will continue as is. We are expanding capacities on all sites, which is in rubber, SAN and compounding to meet the additional capacity expansion requirements. So there is not going to be any impact over there, and we will continue to sell SAN. So I think overall, in terms of volumes, whatever we may have predicted at the beginning of the year and the current situation we are in is obviously different. If things normalize, can the volumes go back to what we had predicted in the beginning of the year? Yes, maybe. But I think we will have to wait and watch because there has obviously been some volume which has reduced in the first quarter. To what extent we are able to catch up that and are able to realize additional volumes in the next few quarters will again depend on how the entire environment evolves and the demand supply situation also kind of evolves accordingly. So we'll have to wait and watch, and there is not much I can comment on this at this stage.

And just on the capital allocation, please?

I'm sorry, on the...

On the capital allocation -- on the extra cash flow, which the company has earned, is it a better -- is there any other incremental thought on that to utilize it better?

Not really. I think it, again, remains in line with our earlier philosophy. So we obviously try to find the best use for our capital and the most judicious use. So we don't believe that the company typically doesn't hold on to too much of capital if it doesn't utilize it. We have obviously CapEx planned for the year. And that CapEx, along with whatever cash flow we are generating, we try to ensure that all our shareholders are also fairly treated accordingly. We make sure that whatever resources are required by the company for its growth are kept in line with that and whatever cash is not -- is returned to the shareholders. So the company's strategy in terms of maintaining its capital requirements, its ratios has all been very consistent, and we continue to do the same thing going forward.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, I just wanted to understand on the pricing scenario. I mean, as you mentioned, the current prices are still volatile, right? And the volatility that we have seen in first quarter has continued into second quarter. So has the price level has been higher than what the average we have seen in the first quarter? I mean, in terms of volatility, you means the prices are higher?

Deepak, are you referring to the current quarter?

Yes. I'm talking, as we speak, I mean, currently in July month or August month. So how has the pricing been as compared to what we have...

Generally, we do not comment on specific information with regards to the current quarter. But the -- like I mentioned, the raw material and the pricing of the finished product normally kind of moves in tandem, depending on, again, mostly normalized scenarios. In extraordinary circumstances like that we have today, there can be some gaps, which are, of course, short term in nature. But we do see obviously some gaps over there even in the current situation. But I will not be able to tell you whether the price is today higher or lower because, again, we are in the middle of the quarter. And generally, we have to wait and watch because every week, every day, there are some new changes. There are new news with regards to what is happening in the Strait of Hormuz, what is happening in terms of raw material pricing. So with that kind of volatility, it is impossible to give any number and not that we even, frankly, give numbers with regards to current quarters. But yes, previous quarter's pricing was significantly higher than the earlier quarter. And towards the end of the quarter, that did moderate. And again, there is -- like I mentioned, there has been some volatility associated with that.

Okay. Okay. And this gap that you are mentioning, this gap led us to see abnormally high margins, rate in the first quarter? Would that be a right understanding?