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Ineos ABS India (INEOS), an 83% subsidiary of Ineos Global Group, is India's
leading manufacturer of an engineering plastic named acrylonitrile butadiene
styrene (ABS). On the back of capacity expansion and product development, the
top line of the company is expected to grow at a CAGR of 19% during
CY2010-12E. The business of the company is to be transferred to ‘Styrolution’, a
50/50 JV between BASF and INEOS and as specified in the company release on
BSE, ‘an indirect change in control of INEOS ABS India Limited is expected’, which
may trigger an ‘Open Offer’ in the next one year, in our view. The stock is
attractive at 12.7x PE and 0.9x EV/Sales for CY2012E. We recommend Buy on
INEOS ABS India with a target price of `702, based on a target P/E of 16x and
implied EV/Sales of 1.1x for CY2012E.
Investment rationale
Transfer of business to ‘Styrolution’ to act as a key trigger
Ineos Group and BASF have agreed to form a 50/50 joint venture, which is to
include INEOS ABS, INEOS NOVA (sister concern) and Styrene, ABS, polystyrene
businesses of BASF to form a new company as ‘Styrolution’. The deal is expected
to be completed by 4QCY2011. As announced in the company release on BSE
that “an indirect change in control of INEOS ABS India Limited is expected”, which
we believe may trigger an ‘Open Offer’ in the next one year. Since Ineos group
holds 83% stake in INEOS ABS Ltd, a successful open offer may lead to delisting
of the company.
Capacity expansion to help tap the unfulfilled demand
As there is a gap between supply and demand of ABS, CRISIL Research estimates
supply would grow at a 17% CAGR to meet the demand of a 10% CAGR during
CY2010-15E. Assuming the market share of INEOS to remain constant at 60%,
volumes for INEOS ABS resin is likely to grow by 17% over the same period.
Considering the slowdown in the economy we have assumed that the volumes will
grow at 9% yoy and 10% yoy in CY2011E and CY2012E, for which the company
has already expanded its capacity by ~ 33% to 80,000 TPA in 2011.
Outlook and valuation
Net sales of the company is expected to grow at 19% CAGR during CY2010-12E.
The company’s EBITDA margin is expected to fall to 11.2% due to high rawmaterial
prices in CY2011E and CY2012E. We expect Net Profit to dip in
CY2011E by 3% yoy but rise by 14% yoy in CY2012E to `77cr. At the CMP of
`559, the stock is trading at PE of 12.7x and EV/Sales of 0.9x of CY2012E. We
recommend Buy on INEOS ABS India with a target price of `702, offering an
upside of 25% from current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ineos ABS India (INEOS), an 83% subsidiary of Ineos Global Group, is India's
leading manufacturer of an engineering plastic named acrylonitrile butadiene
styrene (ABS). On the back of capacity expansion and product development, the
top line of the company is expected to grow at a CAGR of 19% during
CY2010-12E. The business of the company is to be transferred to ‘Styrolution’, a
50/50 JV between BASF and INEOS and as specified in the company release on
BSE, ‘an indirect change in control of INEOS ABS India Limited is expected’, which
may trigger an ‘Open Offer’ in the next one year, in our view. The stock is
attractive at 12.7x PE and 0.9x EV/Sales for CY2012E. We recommend Buy on
INEOS ABS India with a target price of `702, based on a target P/E of 16x and
implied EV/Sales of 1.1x for CY2012E.
Investment rationale
Transfer of business to ‘Styrolution’ to act as a key trigger
Ineos Group and BASF have agreed to form a 50/50 joint venture, which is to
include INEOS ABS, INEOS NOVA (sister concern) and Styrene, ABS, polystyrene
businesses of BASF to form a new company as ‘Styrolution’. The deal is expected
to be completed by 4QCY2011. As announced in the company release on BSE
that “an indirect change in control of INEOS ABS India Limited is expected”, which
we believe may trigger an ‘Open Offer’ in the next one year. Since Ineos group
holds 83% stake in INEOS ABS Ltd, a successful open offer may lead to delisting
of the company.
Capacity expansion to help tap the unfulfilled demand
As there is a gap between supply and demand of ABS, CRISIL Research estimates
supply would grow at a 17% CAGR to meet the demand of a 10% CAGR during
CY2010-15E. Assuming the market share of INEOS to remain constant at 60%,
volumes for INEOS ABS resin is likely to grow by 17% over the same period.
Considering the slowdown in the economy we have assumed that the volumes will
grow at 9% yoy and 10% yoy in CY2011E and CY2012E, for which the company
has already expanded its capacity by ~ 33% to 80,000 TPA in 2011.
Outlook and valuation
Net sales of the company is expected to grow at 19% CAGR during CY2010-12E.
The company’s EBITDA margin is expected to fall to 11.2% due to high rawmaterial
prices in CY2011E and CY2012E. We expect Net Profit to dip in
CY2011E by 3% yoy but rise by 14% yoy in CY2012E to `77cr. At the CMP of
`559, the stock is trading at PE of 12.7x and EV/Sales of 0.9x of CY2012E. We
recommend Buy on INEOS ABS India with a target price of `702, offering an
upside of 25% from current levels.
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