Supreme Petrochem manufactures polystyrene, Speciality Polysterene, Expanded Polysterene [XPS] and Expandable Polysterene [EPS].
They are common plastic inputs used for making various packaging products, insulation boards, toughened plastic parts for consumer electronic gadgets and high tech components for automobiles etc.
The company has entered in to a Memorandum of Understanding (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.
It 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 volatility and falling trend in input prices, leading squeezed margins.
Now, with improved supplies and stable prices of key input, the margins have improved from Q4, 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. We recommend a BUY in the stock with target of Rs 55 in 12 month’s time frame.