Press Release

INEOS Styrolution India Limited

August 10, 2022
Ratings
Amount
Facilities Rating1 Rating Action
(₹ crore)
CARE A+ / CARE A1+ (CWD)
Long term / short term bank (Single A Plus / A One Plus) Placed on Credit watch with
256.00
facilities (Under Credit watch with Developing Implications
Developing Implications)
256.00
Total bank facilities (₹ Two hundred fifty-
six crore only)
Details of facilities in Annexure-1

Detailed rationale and key rating drivers

The ratings assigned to the bank facilities of INEOS Styrolution India Limited (SIL) have been placed under ‘Credit watch with
developing implications’ in view of the recent announcement for sale of entire 61.19% equity stake of Ineos Styrolution APAC Pte
Ltd. (ISAPL) in SIL to Shiva Performance Materials Private Limited (SPMPL) and the possible impact of the same on the credit
profile of SIL. CARE Ratings would closely monitor the developments with respect to this announcement and would take a view
on the ratings of SIL post change in ownership of SIL and gaining greater clarity on the new promoters’ plans for SIL along with
analyzing the impact of the same on the business and financial profile of SIL.
The ratings assigned to the bank facilities of SIL continue to derive strength from its established and long track record of operations
along with its leadership position in the Indian Acrylonitrile Butadiene Styrene (ABS) and Styrene Acrylonitrile (SAN) co-polymer
markets with focus on customized speciality products, its improving position in polystyrene business, its diversified clientele and
stable demand prospects from end user industries. The ratings also factor established position of the current promoter of SIL in
the styrene-based polymer business globally, its state-of-the-art manufacturing facilities and established arrangement for
procurement of key raw materials. SIL’s profitability improved significantly during FY21 (refers to the period April 1 to March 31)
and FY22, while its leverage and debt coverage indicators continued to remain comfortable and it had strong liquidity in-spite of
large dividend pay-outs in FY22 and Q1FY23.
The ratings, however, continue to be constrained by high volatility associated with its profitability wherein it had incurred losses
during FY19 and FY20, susceptibility of SIL’s profitability to volatile prices of its raw materials and foreign exchange rate
fluctuations associated with imported raw materials which, however, gets partly addressed by formula based pricing and hedging
practices of SIL. The ratings are further constrained by strong competition from imports (especially from South-East Asia) and
presence in a competitive and cyclical chemical industry, which is also exposed to stringent environmental compliance and is
susceptible to accidental fire.

Rating sensitivities
Positive factors – Factors that could lead to positive rating action/upgrade:
• Sustenance of PBILDT margin and ROCE above 20% in the medium term
• Optimum utilization of expanded capacity of ABS & SAN on a sustained basis

Negative factors – Factors that could lead to negative rating action/downgrade:

• Decline in scale of operations marked by TOI lower than ₹1,200 crore on a sustained basis
• Decline in PBILDT margin to less than 10% on a sustained basis
• Deterioration in capital structure marked by overall gearing beyond 0.75 times
• Any large size predominantly debt funded capex taken up by the company which has material impact on its capital structure
and debt coverage indicators

Scheme of stake sale by promoters

On August 01, 2022, SIL has announced on the stock exchange that Shiva Performance Materials Private Limited (SPMPL,
acquiring company) has entered into a share purchase agreement with ISAPL (holding company of SIL), pursuant to which SPMPL
has agreed to purchase all the equity shares held by ISAPL in SIL i.e. 61.19% of the equity share capital of SIL at a price of ₹600
per equity share totaling to ₹645.67 crore. Consequently, in compliance with the SEBI Regulations, SPMPL along with Geetganga
Investment Private Limited, Mr. Rakesh Agrawal, Mr. Rahul Agrawal, Mr. Vishal Agrawal, Mrs. Uma Agrawal and Mrs. Madhavi
Agrawal in their capacity as the persons acting in concert with the Acquirer, have announced an open offer for acquisition of
26.00% of the equity capital of SIL from the public shareholders of SIL on a fully diluted basis, at an offer price of ₹848.72 per
equity share totaling to ₹388.06 crore payable in cash. As per open offer announcement, this transaction is likely to be completed
by Q3FY23. As such CARE Ratings would await further developments to unfold and more clarity to emerge in this regard to assess
the impact of this stake sale on the credit profile of SIL. Pending such clarity, CARE Ratings has placed the ratings of the bank
facilities of SIL on ‘credit watch with developing implications.

1
Complete definitions of the ratings assigned are available at www.careedge.in and in other CARE Ratings Ltd.’s publications.
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 Press Release

Detailed description of the key rating drivers

Key rating strengths
Synergies of global collaboration with its parent which is a leading player in styrene business: SIL is currently owned
by INEOS group [through 61.19% stake held by ISAPL which had reduced from 75% in April 2022]. IASPL holds leading position
in styrenic products such as styrene monomer (SM), polystyrene (PS), styrene-butadiene block co-polymers (SBC), other styrene-
based co-polymers (ABS, SAN, etc.) and co-polymer blends. SIL has benefitted from access to technology by virtue of it being a
part of the INEOS group. It also helps SIL to compete effectively against large scale producers from South–East Asian countries.
SIL’s Board of Directors is competent marked by experienced professionals including nominees from INEOS group.

Market leader in ABS and SAN business in India which has diversified application: SIL manufactures various grades of
ABS under the brand name ‘Absolac’ and SAN under the brand name ‘Absolan’ and has been a pioneer in this field and continues
to remain the market leader in both these product segments in India. ABS and SAN are versatile engineering thermoplastic
material and their high-impact, ignition-resistant and other properties meet the application needs across a broad range of market
segments. ABS finds application across industries such as electrical and electronics, automotive, household consumer durables,
information technology etc. while SAN is mostly used in the stationery, cosmetic, packaging, toys and extrusion segments.

Diversified clientele: As articulated by SIL’s management, it caters to the ABS requirements of leading automobile
manufacturers in India on contractual basis. It benefits from its presence in the specialty grade of ABS where it faces relatively
less competition from imports. Apart from automobile sector, SIL caters to the demand from household consumer durable
applications along with demand for the other commodity grades of ABS which in turn results in large and diversified customer
base.

State-of-the-art manufacturing facilities: SIL has modern manufacturing facilities and a state-of-the-art R&D center located
in Gujarat. SIL has an installed capacity of 100,000 MTPA of ABS and 78,000 MTPA of polystyrene as on March 31, 2022.
Commencement of enhanced capacity of ABS has resulted in reduced reliance on job-work from December 2019.

Stable demand outlook: In-spite of impact of Covid-19, TOI of SIL had remained largely stable at ₹1632.06 crore during FY21
(₹1580.77 crore in FY20) whereas its TOI improved by nearly 34% during FY22 to ₹2179.02 crore on a y-o-y basis on the back
of improved demand prospects from key end-user industries. Further, short supply of polystyrene in domestic market from Q2FY21
onwards aided SIL’s polystyrene sales volume during FY21 and FY22.

Improvement in profitability during FY21 and FY22, post losses incurred in preceding two years: SIL’s profitability
has improved from H2FY21 onwards primarily due to sharp rise in prices of ABS, SAN and polystyrene which continued to remain
elevated in FY22 as well. SIL’s PBILDT margin improved sharply from 9.33% in H1FY21 to 33.55% in H2FY21 aided by elevated
polymer prices as well as moderation in its raw material prices. PBILDT margin, though moderated, remained healthy at 23.07%
during FY22. Styrene and acrylonitrile are the key raw materials which are majorly imported by SIL whereas butadiene is sourced
locally. For manufacturing ABS, butadiene is required to be converted into intermediate product called HRG rubber before it’s
blending with SAN. Further, the profitability in its polystyrene business had been inherently thin due to its commodity nature and
stiff competition from imports at competitive prices. However, profitability of SIL’s polystyrene business improved in FY21 and
FY22 on the back of supply-side bottlenecks in India arising mainly from closure of a large manufacturing plant on account of an
accidental fire.

Comfortable leverage and debt coverage indicators: SIL had drawn term debt of ₹100 crore to undertake capacity
expansion of ABS due to which its capital structure had moderated marginally. However, capital structure marked by overall
gearing has improved from 0.45 times as on March 31, 2020 to 0.22 times as on March 31, 2021 and it further improved to 0.16
times as on March 31, 2022 on the back of substantial repayment of its term loan and decline in its working capital borrowings
aided by healthy cash flow from operations during FY21 and FY22. Its debt coverage indicators also stood comfortable during
FY21 and FY22.

Liquidity: Strong
SIL’s liquidity is strong marked by expected healthy cash accruals vis-a-vis very minimal debt repayment obligations in FY23
along-with comfortable utilization of its non-fund based working capital limits as at June 2022. With an overall gearing of 0.16
times as on March 31, 2022, SIL has sufficient gearing headroom to raise additional debt. On the back of its strong liquidity, SIL
declared significant dividend of ₹355.23 crore in FY22. SIL had healthy cash and bank balance of ₹178 crore as on March 31,
2022 which was, however, largely utilized for payment of interim dividend of around ₹185 crore in May 2022.

Key rating weaknesses

Significant volatility in profitability: Significant volatility has been observed in the operating profitability of SIL over the last
five years. SIL’s operating profitability marked by PBILDT margin has ranged between less than 1% to more than 25% during
the last five years period ended FY22 with even net losses incurred during FY19 and FY20.

Volatility associated with prices of crude-linked raw materials and foreign exchange rate fluctuations: Acrylonitrile
and styrene are the major raw materials used in the manufacturing of ABS, SAN and polystyrene. These raw materials are
derivatives of crude oil and thereby prone to the risk of inherent volatility in global crude oil prices. Raw material import has
generally constituted 70%-80% of its total raw material requirement. Since SIL has negligible export earnings, it is also exposed
to foreign exchange rate fluctuations on its imports.
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However, formula-based pricing mechanism (mainly in contractual sales arrangement) wherein sales prices are revised on periodic
basis depending upon movement in raw material prices and foreign exchange rates helps to protect the profitability of SIL.
Further, SIL has an active hedging policy whereby it hedges its foreign currency exposure through forward contract. Also, upon
rupee depreciation, prices of substitutes of SIL’s product, which are largely imported products, also rise which help the company
to pass on increased cost to its customers.

Threat of competitive imports from South-East Asian countries: With predominantly only two domestic players in ABS
and SAN industry, SIL is a market leader in India. Nevertheless, majority of the increased demand has been catered through
imports from South Korea, Thailand, Malaysia and Taiwan which together account for large share of imports of ABS in India.
Imports from Saudi Arabia and UAE are also increasing from last few years. However, proportion of specialty grade ABS is around
75-80% in aggregate sales of ABS and SAN by SIL which provides some competitive edge to it over largely commodity grade
imports.
In polystyrene segment, supply shortage since May 2020, due to an accident-induced shutdown of manufacturing facility of one
of the major domestic manufacturers of polystyrene, has improved the demand prospects of the other domestic polystyrene
manufacturers as witnessed in H2FY21 and FY22.

Compliance with stringent pollution control and fire safety norms, and susceptibility to regulatory risks: Being
present in the chemical industry, the operations of SIL are subject to various environment-related regulatory compliances in a
stringent manner. Also, pollution-related norms are evolving day-by-day in India. Accordingly, continuous adherence to defined
pollution control norms are mandatory for seamless operations. SIL is regularly incurring capex for compliance with defined
pollution control norms and has not encountered any adverse observations/closure notice from pollution control departments for
a long period of time.
Also, over the last many years, SIL had not encountered any incidence of fire at its plants except the accidental fire reported in
March 2022 in a section of SIL’s plant located at Nandesari, Gujarat. The fire was extinguished internally, and the plant was
brought to safe mode. One worker was injured and was treated at a local hospital. All operations had been discontinued at
Nandesari plant till further assessment of the cause and implementation of corrective actions. After completion of repairs and
receipt of all statutory and regulatory clearances, the plant operations commenced from May 12, 2022. Due to this, SIL suffered
production loss of HRG rubber for over a month. During this period, SIL could cater to its customer’s requirement through sourcing
from the group’s other Asian facilities and imports.

Analytical approach: Standalone

Applicable criteria
Criteria on assigning Outlook and Credit Watch to Credit Ratings
CARE's Policy of Default Recognition
Rating Methodology – Manufacturing Companies
Financial Ratios – Non-Financial Sector
Criteria for Short Term Instruments
Liquidity Analysis of Non-Financial Sector Entities

About the company

INEOS Styrolution India Limited (SIL), a Gujarat-based ABS, SAN and polystyrene manufacturer was originally incorporated as
‘ABS Plastics Ltd’ on December 7, 1973. Subsequently, there have been several changes of hands in the ownership of the company
amongst various international chemical groups. Currently, INEOS Group through its step-down subsidiary viz. ISAPL holds 61.19%
equity stake in SIL with balance stake being held by the public. ABS, SAN and Polystyrene have diversified end applications.

Brief Financials of SIL – Standalone (₹ crore) FY21 (A) FY22 (A) Q1FY23 (Prov.)
TOI 1632.06 2179.02 NA
PBILDT 410.25 502.80 NA
PAT 280.22 322.54 NA
Overall gearing (times) 0.22 0.16 NA
Interest coverage (times) 28.02 61.09 NA
A: Audited; Prov.: Provisional; NA: Not available; Financials are classified as per CARE Ratings’ standards.

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not applicable

Rating history for last three years: Annexure-2

Covenants of rated instrument/facility: Not applicable

Complexity level of various instruments rated for this company: Annexure-3

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 Press Release

Annexure-1: Details of facilities

Size of the
Name of the Date of Coupon Maturity Rating Assigned along with
ISIN Issue
Instrument Issuance Rate Date Rating Outlook
(₹ crore)

Fund-based/Non-fund-
- - - 256.00 CARE A+ / CARE A1+ (CWD)
based-LT/ST

Annexure-2: Rating history (Last three years)

Current Ratings Rating History
Date(s) Date(s) Date(s) Date(s)
Name of the
Sr. and and and and
Instrument/Bank Amount
No. Rating(s) Rating(s) Rating(s) Rating(s)
Facilities Type Outstanding Rating
assigned assigned assigned assigned
(₹ crore)
in 2022- in 2021- in 2020- in 2019-
2023 2022 2021 2020
1)CARE A+;
Stable /
CARE A1+
CARE 1)CARE A+; 1)CARE A+; (11-Dec-
A+ / Stable / Stable / 19)
Fund-based/Non-
1 LT/ST* 256.00 CARE - CARE A1+ CARE A1+
fund-based-LT/ST
A1+ (17-Dec- (23-Dec- 2)CARE AA-
(CWD) 21) 20) ; Stable /
CARE A1+
(24-May-
19)

Annexure-3: Complexity level of various instruments rated for this company

Sr. No. Name of Instrument Complexity Level
1 Fund-based/Non-fund-based-LT/ST Simple

Annexure-4: Bank Lender Details for this Company

To view the lender wise details of bank facilities please click here

Note on complexity levels of the rated instrument: CARE Ratings Ltd. has classified instruments rated by it on the basis of
complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

4 CARE Ratings Limited

 Press Release

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E-mail: [email protected]

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Name: Deepak Prajapati
Phone: +91-79-4026 5602
E-mail: [email protected]

About us:
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Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
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Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument
and are not recommendations to sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any
security. These ratings do not convey suitability or price for the investor. The agency does not constitute an audit on the rated
entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible sources. CARE Ratings
does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors
or omissions and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated
by CARE Ratings have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE Ratings or its
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concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the partners/proprietors
and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured
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not responsible for any errors and states that it has no financial liability whatsoever to the users of the ratings of CARE Ratings.
The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the terms of the facilities/instruments, which
may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and triggered,
the ratings may see volatility and sharp downgrades.

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