1

SYNOPSIS

� INEOS Group Limited is a privately

owned multinational chemicals company

headquartered in Lausanne, Switzerland.

� INEOS ABS (India) Ltd is a pioneer in

developing the market for the versatile

engineering thermoplastic material–

Acrylonitrile Butadiene Styrene in India.

� During the quarter ended, the robust

growth of Net Sales is increased by

14.74% Rs. 2062.97 million.

� INEOS ABS (India) Ltd is the 3rd major

global chemical giant INEOS Group,

approx. with a turnover of USD 45

billion.

� Net Sales and PAT of the company are

expected to grow at a CAGR of 20% and

22% over 2009 to 2012E respectively.

� Company’s products ABSOLAN and

ABSOLAC are preferred as market choice

products among major industries.

Years Net sales EBITDA PAT EPS P/E

CY 10 7431.27 1166.64 700.30 39.82 14.69

CY 11E 8620.27 1304.25 783.19 44.53 13.14

CY 12E 9740.91 1463.52 882.92 50.21 11.65

Stock Data:

Sector: Speciality Chemicals

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 723.80/328.55

Volume (2 wk. Avg.) 2299.00

BSE Code 506222

Market Cap (Rs in mn) 10287.81

Share Holding Pattern

1 Year Comparative Graph

INEOS ABS BSE SENSEX

C.M.P: Rs. 585.00 Target Price: Rs. 661.00 Date: Sept. 27th 2011 BUY

INEOS ABS (India) Ltd Result Update: Q2 CY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

INEOS ABS (India) Ltd 585.00 10287.81 39.82 14.69 3.08 40.00

BASF India Ltd 611.95 2648.86 30.96 19.77 2.74 80.00

Clariant Chemicals 723.00 1927.57 111.52 6.48 5.25 300.00

Pidilite Inds. Ltd. 165.90 8402.57 6.02 27.56 7.37 175.00

Investment Highlights

Q2 CY11 Results Update

INEOS ABS (India) Ltd disclosed a marginal increase in standalone profit for the

quarter ended June, 30 2011. During the quarter, the profit of the company surged

9.36% to Rs 158.45 million from Rs 144.89 million in the same quarter last year.

Net sales for the quarter rose 14.74% to Rs 2062.97 million, while total income

for the quarter rose 15.69% to Rs 2090.27 million, when compared with the prior

year period. It posted earnings of Rs 9.01 a share during the quarter, registering

9.36% increase over prior year period.

Quarterly Results - Standalone (Rs in mn)

As At June-11 June-10 %change

Net sales 2062.97 1798.01 14.74%

PAT 158.45 144.89 9.36%

Basic EPS 9.01 8.24 9.36%

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Break up of Expenditure

Company Profile

Incorporated as ABS Plastics Limited in the year 1973 then changed its name to ABS

Industries Limited. The erstwhile ABS Industries Limited now INEOS ABS (India)

Limited (the ‘Company’) w.e.f. June 17, 2008, is a pioneer in developing the market for

the versatile engineering thermoplastic material – Acrylonitrile Butadiene Styrene

(ABS) in India, when it started its operation in 1978 by manufacturing and marketing

ABS polymer under the brand name of ABSOLAC.

The company also set up India’s first modern and dedicated Styrene Acrylonytrile

(SAN) plant in 1993, with technical know-how from M/s JSR, Japan for manufacture

of various grades of ABSOLAN – SAN.

In early 1997, Bayer Industries Private Limited, a 100% holding company of the

German major, Bayer AG acquired a majority share of 51% in ABS Industries Limited.

The company then became a part of the Bayer group and was rechristened as “Bayer

ABS Limited”.

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In early 2004, Bayer Group globally decided carving out of styrenic-based Polymer

products, beside other business, into a new group LANXESS, business was then

globally transferred to a 100% subsidiary of Bayer AG to a Company styled as

LANXESS Deutschland GmbH. Once the business operations at Bayer ABS Ltd were

regrouped within the LANXESS group, LANXESS AG has become an ultimate holding

Company under the spin off process.

INEOS Group, approx. turnover of 45 $ Bn, entered into an agreement with LANXESS

AG, Germany, to acquire world over the styrenic business (ABS) and in the process

INEOS ABS (Jersey) Limited entered into an agreement with the promoters of the

Company and LANXESS INDIA Pvt. Ltd. to acquire major the stake in LANXESS ABS

Ltd. INEOS Group made an offer to the general shareholders through open offer, to

acquire major stake in LANXESS ABS Ltd. to an agreed price stated in the open offer.

Fuelled by the increasing worldwide demand for engineering thermoplastics, INEOS

ABS (India) Limited, a public listed company in NSE & BSE has already commissioned

its expansion of SAN capacity from 36,000 tpa to 65,000 tpa, which has helped

increasing its capacity of ABS from 60,000 tpa to 1,00,000 tpa. This expansion to

100,000 TPA is being funded through internal accruals. The SAN polymer is being

used for captive consumption for making ABS and is also being sold as merchant

product.

Company’s Infrastructure

• Nandesari Plant

• Katol Plant

• Wind Farm

Products

Company’s products ABSOLAN and ABSOLAC continue to be the preferred market

choice among user industries such as Consumer Durables, Automotive, Business

Machines, Telecommunications, Electronics and IT related machines.

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• Absolac

Absolac is plastic resin produced from Acrylonitrile, Butadiene & Styrene. It is a

widely used intermediary product. Its applications range from home appliances to

Automobile and consumer durables to business machines.

• Absolan

Absolan is also a polymerized plastic resin which is produced from Styrene &

Acrylonitrile. It has its main applications in the Lightings, Stationeries and

novelties, Refrigerators and cosmetic packing.

Clients

Some of the prominent clients of the Company include Samsung, LG, Videocon,

BPL, Ford, Hero Honda, Cello, Lexi and Bajaj. With an uptrend in consumer

spending on automobiles, white goods and electronic products the demand for ABS

resin is growing up significantly.

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) CY09 CY10 CY11E CY12E

Description 12m 12m 12m 12m

Net Sales 5594.70 7431.27 8620.27 9740.91

Other Income 41.09 47.23 54.31 60.83

Total Income 5635.79 7478.50 8674.59 9801.74

Expenditure -4741.64 -6311.86 -7370.33 -8338.22

Operating Profit 894.15 1166.64 1304.25 1463.52

Interest 0.00 0.00 0.00 0.00

Gross profit 894.15 1166.64 1304.25 1463.52

Depreciation -144.85 -139.78 -143.97 -155.49

Profit Before Tax 749.30 1026.86 1160.28 1308.03

Tax -259.39 -326.56 -377.09 -425.11

Profit After Tax 489.91 700.30 783.19 882.92

Equity capital 175.86 175.86 175.86 175.86

Reserves 2548.44 3166.72 3949.91 4832.83

Face value 10.00 10.00 10.00 10.00

EPS 27.86 39.82 44.53 50.21

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Dec-10 31-Mar-11 30-Jun-11 30-Sep-11E

Description 3m 3m 3m 3m

Net sales 2116.48 2010.81 2062.97 2166.12

Other income 17.11 24.63 27.30 30.85

Total Income 2133.59 2035.44 2090.27 2196.97

Expenditure -1775.11 -1700.36 -1820.45 -1862.86

Operating profit 358.48 335.08 269.82 334.11

Interest 0.00 0.00 0.00 0.00

Gross profit 358.48 335.08 269.82 334.11

Depreciation -34.74 -34.70 -35.37 -36.08

Profit Before Tax 323.74 300.38 234.45 298.03

Tax -104.56 -98.50 -76.00 -98.05

Profit After Tax 219.18 201.88 158.45 199.98

Equity capital 175.86 175.86 175.86 175.86

Face value 10.00 10.00 10.00 10.00

EPS 12.46 11.48 9.01 11.37

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Key Ratios

Particulars CY09 CY10 CY11E CY12E

No. of Shares (in mn) 17.59 17.59 17.59 17.59

EBITDA Margin (%) 15.98% 15.70% 15.13% 15.02%

PBT Margin (%) 13.39% 13.82% 13.46% 13.43%

PAT Margin (%) 8.76% 9.42% 9.09% 9.06%

P/E Ratio (x) 21.00 14.69 13.14 11.65

ROE (%) 17.98% 20.95% 18.98% 17.63%

ROCE (%) 38.14% 39.08% 35.10% 32.32%

EV/EBITDA (x) 11.51 8.82 7.89 7.03

Book Value (Rs.) 154.91 190.07 234.61 284.81

P/BV 3.78 3.08 2.49 2.05

Charts:

Net Sales & PAT

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P/E Ratio(x)

EV/EBITDA(x)

10

P/BV

Outlook and Conclusion

� At the current market price of Rs.585.00, the stock is trading at 13.14 x CY11E

and 11.65 x CY12E respectively.

� Earning per share (EPS) of the company for the earnings for CY11E and CY12E

is seen at Rs. 44.53 and Rs. 50.21 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 20% and

22% over 2009 to 2012E respectively.

� On the basis of EV/EBITDA, the stock trades at 7.89 x for CY11E and 7.03 x

for CY12E.

� Price to Book Value of the stock is expected to be at 2.49 x and 2.05 x

respectively for CY11E and CY12E.

� We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.661.00 for Medium term investment.

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Industry Overview

The Specialty Chemicals segment in the Indian Chemical Industry is a new emerging

sector which brings promises of huge growth.

Specialty chemicals are those chemicals which are produced at a low volume; they are

high priced and usually targeted at a wide variety of markets. These chemicals are

developed under the user's specifications which usually vary from one user to another.

The methods of development depend on the application and the function of the

chemicals. Prices of various products vary from Rs. 200 to 1500 per kg.

Industry Structure

Major commodity chemical manufacturers due to low margin migrating to speciality

chemicals, as it provide higher profitability and low investment. Most of the erstwhile

textile auxiliary manufacturers have now started synthesizing exotic molecule and

thus emerging as specialty chemical manufacturers.

Industry can be divided into

• Large Indian - Hico Products, Balmer Lawrie

• MNC subsidiaries - Ciba Specialty Chemicals, Color Chem, Foseco, Clariant

India

• Small Indian - Ahura Chemicals

Major Players

• Clariant India Ltd.

• Ciba Speciality Chemicals

• Color Chem

• BASF

• Foseco

• Hindustan Organic Chemicals and

• Balmer Lawrie

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User segments

• Major consumers : textile, leather, paper and detergent industry

• Other users : rubber, paints, agro chemical, oil & gas industries

• Emerging applications: for anti fungal finishes, Teflon finishes flame retardant,

oil and water repellent, wrinkle free coatings, etc.

Market Characteristics

Industry

• Industry peruse fragmented and characterized by a large number of smaller

players in the unorganized sector

• Organised sector dominated by MNC with strong links to parent organization

• HOC and Balmer Lawrie significant players of Indian origin

Market

• Market for speciality chemicals estimated around Rs. 2000 crores/ US $ 465

mn (400,000 tpa)

• Some of the speciality chemicals are Catalysis, Gelatin, Leather, Textile

Chemicals, Plasticizers, Rubber Chemicals, etc.

• Industry has basically evolved from the textile auxiliary chemical industry

Distribution

• Initially, customers developed through direct (company) contacts

• MNCs and large Indian companies then, market standard brands through

dealer channels

• Large requirements are addressed directly by the company

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Key Success Factors

• Branding for a `core group’ of chemicals and `customising’ them for clients

based on their specific operating conditions and requirements

• Forge links with a foreign partner - for inputs on R&D, product development

and application engineering skills

• Focus on specific user markets, exports

Future Outlook

• Emphasis on improvement in process efficiencies and increased productivity

driving speciality chemicals demand

• India being looked as a sourcing point by West

• Following the outcry regarding pollution in the West there has been a shifting of

global capacities for production and consumption to Asian regions

Demand Drivers

• New application areas being addressed resulting in wider usage and thereby

growth

• Growth of oil, paints, textile, rubber sector will fuel demand for speciality

chemicals

• With home & personal care segment, health & hygiene and cosmetic sectors

opening up, demand for speciality chemicals would grow.

The Specialty Chemicals segment is disunited with a huge number of companies.

TNCs have a stellar inherence in this sector. Many of the present textile

manufacturers are emerging as specialty chemical developers.

Market Characteristics

• The specialty chemicals segment is estimated around US $ 465 million

• The industry has emerged from textile auxiliary chemical industry.

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Future of the Specialty chemicals segment:

• Focus on improvement in efficient processes for enhanced productivity

• India to be one of the main source of base materials

• The demand of the segment depends on the demand of the end users.

_____________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates 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. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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