Dear Readers,

We keep saying that besides long-term investment, one should also look at Special situation opportunities like delistings, buybacks, demergers, etc because in a lot of such cases the correlation with the markets is much lower and therefore such opportunities add stability to the portfolio and deliver additional gains.

In line with the same philosophy, we would like to share with you details on Ineos Styrosolution’s delisting opportunity. We shared the same with Alpha + members.

Ineos Styrosolution delisting opportunity was initiated on 24th Aug’19 around 590-595 odd levels and closed at 832-833 with gains of ~40%.

Compared to the same, the benchmark indices are down 1-10% since then.

The company has announced the bidding window from 16th Jul’20 to 22nd Jul’20; however, considering substantial increase in the volatility during the bidding period and the fact that we were getting decent premium on the indicative offer price and our initiation price, we have closed the opportunity with gains of ~40% in 11 months.

Below, we have produced the detailed initiation note on Ineos Stryrosolution for the purpose of understanding and participation in such opportunities.

 

New/Returning Member

A few days back we initiated another delisting opportunity with seemingly lower downside and possibility of strong upside like Ineos. Currently, we have 2 active delisting opportunities.

You can access latest Investment Reports, Special situation opportunities and Model sheet by opting for Premium Subscription at the following LINK

 

Ineos Styrosolution – Aug’19 Special situation
(24th Aug’19 note on the stock)

Dear Members,

We have released 24th Aug’19: Special situation opportunity on the proposed de-listing of Ineos Styrosolution India Ltd (NSE Code – INEOSSTYRO). The same has also been produced below. For details and other updates, please log into the website at the following link – https://katalystwealth.com/index.php/my-account/

Note: For any queries, mail us at info@katalystwealth.com

Date: 24th Aug’19

CMP – 591.65 (BSE); 595.00 (NSE)

Rating – Positive – 3% weightage; this is not an investment advice (refer rating interpretation)

 

Ineos Styrosolution India Ltd (NSE – INEOSSTYRO) – Basic details

INEOS Styrosolution India Limited (ISS) is the leader and number one producer of ABSOLAC (ABS) and ABSOLAN (SAN) in India. ABS is a plastic resin produced from Acrylonitrile, Butadiene & Styrene, used for manufacturing of home appliances, automobiles, consumer durables and business machines.

The company is owned by Ineos group [through 75% stake of Ineos Styrolution APAC Pte Ltd. (SSG), Singapore]

ISS has modern manufacturing facilities and a state-of-the-art R&D center located in Gujarat. It has an installed capacity of 80,000 MTPA of ABS, 100,000 MTPA of SAN and 78,000 MTPA of Polystyrene.

It also has an ongoing project to expand its ABS compounding capacity by 34,000 MTPA at its Moxi plant at a tentative cost of Rs 130 crore.

As far as parent company of ISS is concerned, SSG is part of the Ineos group and is a global leader with focus on Styrene Monomer, Polystyrene, ABS Standard and Styrenic Specialties. The company employs more than 3,500 people worldwide, has 20 manufacturing sites in 10 countries, serves customers in 106 countries and reported sales of 5.4 billion Euro (~ Rs 43,200 crore) in CY 2018.

 

De-listing offer from the Promoters

On 16th Aug’19 the company received a letter from the Promoter group expressing their intention to make a voluntary delisting offer to acquire 43,96,407 equity shares representing 25% of the share capital of the Company held by the public shareholders and accordingly delist the equity shares of the Company from BSE and NSE.

Currently the Promoter group holds 75% equity stake in the company and intends to acquire the remaining 25% through the de-listing offer.

Further, the promoters have also expressed their willingness to accept the equity shares at a price of Rs 480/- per share.

The above is just an indicative offer price and the shareholders are free to tender shares at a price of their choice; though at the same time the promoters are under no obligation/restriction to accept the equity shares at, above or below the indicative offer price.

 

Important points with respect to de-listing offer

ISS’s performance over the years has been consistent with around Rs 70-100 crore PBT for the last few years and the stock is currently quoting at market cap of Rs 1000 crore i.e. ~13.5 times PBT. Thus, both fundamentally and from the viewpoint of valuations the stock is much better in comparison to several other de-listing opportunities of the past.

FY 19 was poor in terms of profitability and it could be on account of several business-related factors like: fall in prices of ABS, increased competition from imports, etc; however, it’s been observed in the past that just before the promoters announce their intention of de-listing, the financial performance deteriorates significantly.

As a result of both deterioration in performance and general market conditions, the stock had corrected from the highs of 1100 to around 390 odd levels before Promoters announced their intention to de-list the stock.

As already mentioned above, Promoters have suggested an indicative offer price of Rs 480 per share and that will more likely act as a floor price against the actual floor price of Rs 419 per share.

 

Rationale behind this opportunity

The market cap of ISS is ~1000 crore and for acquiring 25% equity shares from the public shareholders the promoters will have to spend somewhere in the range of 200-400 crore (depending on the delisting price).

From the above sections we know that Promoter group is a multi-national entity with sales in excess of Rs 40,000 crore. We also know that promoters have taken a major leap in terms of their decision to go for delisting offer.

They have also timed it well i.e. during extremely bad market conditions with the stock quoting near 2011-2013 levels.

Lastly, in the past many de-listing cases, especially involving foreign promoters, shareholders have tendered shares at 100-200% premium to floor prices and in a lot of such cases promoters have accepted such prices.

To us, ISS looks like a case where the shareholders may again tender shares at substantially higher prices than floor price; though like most of the previous cases we would not like to participate in reverse book building (RBB) and rather take advantage of appreciation in stock price (if at all) in the run up to RBB.

 

Risks/concerns

The floor price for the offer is Rs 419 per share and the indicative offer price is Rs 480 per share and the stock is already trading at a premium of 24% to the indicative offer price and 42% to the floor price.

We are still some steps away from reverse book building, if the promoters backtrack on the de-listing proposal there would be a rush to exit from the stock and one may not be able to exit before the stock has corrected by 20-30%.

Secondly, if public shareholders do not approve the de-listing proposal with requisite majority the above-mentioned scenario of 20-30% correction will pan out.

 

Disclosure: I do not have any holding in Ineos Styrosolution India Ltd.

 

Best Regards,

Ekansh Mittal
Research Analyst
http://www.katalystwealth.com  
Ph.: +91-727-5050062, Mob: +91-9818866676
Email: info@katalystwealth.com

 

Rating Interpretation

Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments

Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years

 

Research Analyst Details

Name: Ekansh Mittal     Email Id: ekansh@katalystwealth.com    Ph: +91 727 5050062

Analyst ownership of the stock: No

Details of Associates: Not Applicable

Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.

Disclaimer: www.katalystwealth.com (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to retail clients on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690

The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision

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This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.

The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.

We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.

Disclosure (SEBI RA Regulations)

Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No

Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No

Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No

Whether it or its associates have received any compensation from the subject company in the past twelve months – No

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Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No

Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No

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