What makes me Buy Supreme Petrochem Ltd ?

My thoughts for Investing in Supreme Petrochem Ltd.

Management:

• Very Strong promoters and management team with strong track record in Indian markets. M.P.Taparia
• If you look at the Balance Sheet and check historical records, I observed that the management is good at asset allocation and not stretching its balance sheet with high debts or recoveries left over. (Similar trend could be spotted in the other promoted company Supreme Industries.
• Buy back is on at Rs.70/- per share for close to 60 lakhs shares. That itself talks about managements confidence in the Business.

Business:

• The company has been converting styrene monomer into Polystrene (PS)  which is basically used in plastic industry like refrigerator, air conditioning body, television etc.  Company holds 50% market share of the PS market in India.
• PS is more or less a commodity and sold as a commodity. There is no great technology or barriers which can stop others to make it.
• The company is now making a more value added product from its PS i.e. EPS and XPS. This requires a bit of technology, again no big rocket science here also. But the Difference would come from the way the product would be sold. EPS and XPS are likely to be sold as a Product under a brand rather than a commodity.
• Secondly, This new materials would be having applications into much larger industries like Real Estate, Construction, Infrastructure, Cold Warehouses. This Industry are here to grow in India in coming decade.
• Globally majority countries are using this advanced materials and I believe that in India too the trend would pick it up.
• The company is trying to increase the presence and awareness about this product in the Country.
• There is high scalability in this new products and I believe selling product would also lead to marginal improvement in the margins from the current levels.
• The Property of this product EPS and XPS is that it reduces the temperature of the inner wall by 4-5 degrees and speeds up the construction activity, giving a green house effect.
• 60% of China, 80% of Europe and US are using EPS as material for construction. Developing countries like Brazil, Kenya etc are also started using this material.

Quantitative Analysis:

• The Debt is very less i.e. 65 cr.
• Capex is not much required as capacity are ready and under utilized.
• Inspite of the nature of business being a commodity, the company is still generating high ROCE% >20% in last couple of years. In 2013 it was at 30%. I feel this is more due to management and its ability to compete even with low margins. ROA% are high and Margins are low, but High ROCE% attracts more competitors, but ROCE% is just not factor of  good business but management decisions also. 
• With this new product I feel that the company would be able to maintain high ROCE% and generate returns higher than the cost of capital for a sustainable period of time, given the scenario of Infrastructure improves in coming future under the new government. 
• Sales cagr of 18% between 2008-2013, PAT Cagr 19-20% between 2008-13. This was the weak period of the economy which came down from 9% to 4.5% gdp growth. Rest you could expect for future.

RISK:

• The most important risk is the acceptance of the new Products in the Indian market. Failure of the same would just change the Investment case.
• The volatility in the Oil prices and Rupee Dollar movement, as majority raw materials is imported.

Please do your analysis for investing your hard earned money. This are just thoughts not recommendation to Buy. View, thoughts, doubts are most welcome. Please write back to me.