At first glance, this company’s latest numbers look contradictory. The company sold more material, reported lower revenue and delivered one of its strongest quarters on profitability. The explanation lies in a mix of global supply disruptions and a much bigger import substitution opportunity.
Welcome to the latest edition of Hidden Gems Weekly. In recent weeks, we examined a leading construction equipment manufacturer, a niche power equipment manufacturer benefiting from India’s transmission buildout, a company quietly conquering India’s industrial supply chain, a packaged food exporter building global brand buffers and a niche coatings player riding premiumisation trends. This week, we turn to a company that could ride India’s manufacturing push by helping replace imported engineering plastics with locally produced alternatives.
Markets have a habit of falling in love with quarterly numbers.
One good quarter suddenly becomes the beginning of a new growth cycle. One weak quarter is treated as evidence that a company’s best days are behind it. Neither is usually true.
Styrenix Performance Materials is a good example. The company manufactures engineering plastics such as Acrylonitrile Butadiene Styrene, Styrene Acrylonitrile and Polystyrene, which are used in products ranging from automobiles and consumer appliances to electrical equipment and electronics. As India manufactures more of these products, demand for engineering plastics tends to rise.
Its March quarter looked exceptional. Operating margins jumped to 19.2% from 11.8% a year earlier, while profit after tax surged nearly 59%. Unsurprisingly, most discussions around the company have centred on one question: Can these margins sustain?
