Subscribe to Styrolution ABS OFS, says Angel Broking
Brokerage house Angel Broking has recommended investors to subscribe for Styrolution ABS (India) offer for sell (OFS) issue as the stock is attractively valued at 5.2x PE for CY2014E earnings and at 23 percent discount to its last traded price (20th May, 2013).
Angel Broking's Offer for Sale (OFS) note on Styrolution ABS
Styrolution ABS is a leading manufacturer of an engineering plastic namely styrene monomer, polystyrene and ABS. The company is a 50/50 joint venture between BASF and INEOS ABS formed by combining the styrenic business of two of the largest global chemical companies. In the domestic market, Styrolution is the market leader and holds 60 percent market share in ABS resins segment and 68 percent in SAN resins segment.The Promoter, Styrolution Jersey, also the parent company proposes to sell 2,167,562 equity shares (12.3 percent of total paid up equity capital) at Rs 400 per share in order to abide by the June 2010 amendment of 'Securities Contract Act' mandates listed companies to have a minimum 25 percent of public shareholding by June 2013.Persisting short supply coupled with capacity expansion to boost growth Styrolution which has expanded its capacity (ABS from 60,000TPA in 2010 to 80,000TPA in 2011) has an opportunity to reap benefits owing to domestic ABS demand supply gap (met by imports) which has persisted for long and continues to exist. Further, CRISIL Research estimates that the domestic supply of ABS would grow at 17 percent CAGR in order to meet the demand growth of 10 percent CAGR during CY2010-15E, providing revenue visibility for the company. Thus, persisting short supply and continued demand growth coupled with capacity expansion is to enhance the top-line growth of the company.Outlook and valuation: We expect Styrolution's revenue to post a CAGR of 11.2 percent over CY2012-14E to Rs 1,223cr in CY2014E on the back of consistent developments by the company. The EBITDA and net profit are expected to post a CAGR of 11.1 percent and 11.8 percent respectively over CY2012-14E. At OFS floor price, the stock is attractively valued at 5.2x PE for CY2014E earnings and at 23 percent discount to its last traded price (20th May, 2013). Hence we recommend investors to Subscribe for Styrolution OFSDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions 
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