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rupal_197201@yahoo.co.in (PLEASE ADD ONLY ACTIVE REGULAR PEOPLE AND ONLY RELATED TO STOCK MARKET )
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Thursday, January 28, 2010
SOME BROKARAGE NEWS LETTER FOR EXPIRY (TODAY NEWS LETTERS)
rupal_197201@yahoo.co.in (PLEASE ADD ONLY ACTIVE REGULAR PEOPLE AND ONLY RELATED TO STOCK MARKET )
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Investment Idea...
Supreme Petrochem Ltd.
CMP Rs 31/-
Target [6 months] 50/-
BUY.
RESULT UPDATE
Results for half year ended - Dec.09, are better then expected and
going by first half profit of Rs 27.11 Crs [against loss of Rs 45.74 Crs]
we estimate [on conservative basis], full year profit to be around Rs
97 Crs, giving an EPS of Rs 10/-.[better then our expected EPS of
around Rs 9/-]. We also expect increased dividend to around 18-20%
this year, making it good for dividend yield also. BUY.
Investment Argument
• The company manufactures polystyrene, Speciality
Polysterene, Expanded Polysterene [XPS] and
Expandable Polysterene [EPS].
• They are common plastic inputs used for making various
Packaging products, insulation boards, toughned
plastic parts for consumer electronic gadgets and high
tech components for automobiles etc.
• Company has entered in to MOU with Nova Chemicals
of USA for producing CUP grade EPS beads, with
arrangements to sell back to Nova, as also to selected
countries. This is a restricted high technology product, and
if all goes well, company will setup 20,000 MTs capacity by
June 2010.
• Company is also setting up SEZ for Plastic processing
in Raigarh, Maharashtra and a minor port nearby.
• Last year's performance of company was poor due to tight
availability of key input -styrene monomer, high volatiltity
and falling trend in input prices, leading squeezed margins.
• Now, with improved supplies and stable prices of key
input, the margins have improved from Q-4, and they are
likely to remain so.
• With economic activity picking up, the demand for
company's products will grow at a healthy pace. We expect
company to report significant improvement in
performance in current year.
• The stock is available at 3X of our expected earnings for
2010 and looks attractive for investment. Buy with target
of Rs 55 in 12 month's time frame.
Background
The company manufactures polystyrene [2,72,000], Speciality Polysterene
[25,000], Expanded Polysterene [XPS] [5,000] and Expandable Polysterene
[EPS]. It is the leader in Polystyrene business in the Indian market place with more
than 50% market share and is also the largest exporter of Polysterene from India
to more than 80 countries. Its exports are also significant.
It will expand the capacity of the speciality Polysterene products further to
50,000 Mts [from 25,000 Mts] in next couple of years. These are used in Alloys/
Blends/ Compounds/ Masterbatches of polymers and mainly in auto/autocomponents
segment. Company has achieved TS-16949 certification, which is
pre-requisite for product uses in automobile segment.
XPS board plant is one of its kind with green technology, these boards are used
as an important insulation medium for residential or commercial buildings, thus
saving on air-conditioning and electricity. Company is developing Insulation as
total value added solution to be offered to retail as well as institutional clients.
The company has taken over management control of Shin Ho Petrochemical
(India) ltd, and existing player in Expanded Polystyrene (EPS) in Chennai, with
an installed capacity of 6,000TPA. Capacity expansion for the same is under
progress.
Company has entered in to MOU with Nova Chemicals of USA for producing
CUP grade EPS beads, with arrangements to sell back to Nova, as also to
selected countries. This is a restricted high technology product, and if all goes well,
company will setup 20,000 MTs capacity by June 2010.
The main inputs are Styrene Monomer and PBR. Styrene Monomer prices are
directly linked to the crude prices which are steady now and the availability is also
comfortable, with the new capacities going on stream in the current year in Kuwait,
Saudi Arabia and Iran.
Company is also setting up SEZ for plastic processing in Raigarh and a minor
port nearby.
Risks and concerns
The key input Styrene monomer is also fully imported and prone to price volatility.
As key input is fully imported and exports are also significant, so forex
fluctuations/management is another risk.
Result Update & Recommendation
Results for the company for H-1 ended Dec.'09 were in line with our expectations
and company reported profit of Rs 27.11 Crs [against loss of 45.74 Crs]. In
second half last year company made profit of Rs 65 Crs. Now looking to improved
utilization and reducing interest cost, if we assume a very modest profit Rs 70
Crs in second half, the total PAT for full year will be Rs 97 Crs. In this case,
we think, stock can show EPS of Rs 10/- for full year and looks underpriced.
Company may also give good dividend of 18-20% and in that case yield will also
be very good at current prices. BUY….BUY
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