The increased volumes more than offset the fall in prices of polystyrene and, consequently, the company saw its operating profit rise by over 40 per cent to Rs 14.27 crore for the first-three months of 1999-2000 as against Rs 10 crore in the corresponding period last year. Margins at the operating level also improved to 13 per cent from 11 per cent on account of the cost cutting exercise undertaken by the company.

On the bourses, the scrip, had been rising in anticipation of good results in the first quarter. And, the spurt in net profit from Rs 59 lakh to Rs 4.69 crore impressed marketmen. On Friday, the day the Q1 results were announced, the stock touched a new 52-week high of Rs 16.50.

The rise in price was accompanied by exceptionally large volumes of 1.8 lakh shares against the dailyaverage of few thousand shares. The rise in the stock price was despite an overall bearish sentiment in the market on July 16.

However, investment in the counter is not advisable at this juncture. On a very large equity base of Rs 90.62 crore, the earning per share is only 13 paise. Moreover, the company has a high gearing, which will go up further on account of the ongoing expansion programme. Besides, as the input prices of styrene(the main raw material) have risen over the past 1-2 months, it is expected that styrene producers will hike prices soon. Unless polystyrene prices go up (which seems less likely), Supreme Petrochem's margins will get squeezed further.

Supreme Petrochem is one the largest producer of polystyrene with a market share of 55 per cent in India. Polystyrene is used in the packaging of cassettes, radios and other electronic items. The company also trades in styrene, a key input for polystyrene.

At present, the company is hiking its polystyrene capacity to 2.04 lakh tonnes byrevamping the second line and setting up a third line. The expansion programme is expected to be completed by the first-half of the fiscal 2000 and should add substantially to the turnover.

With the demand for polystyrene in the traditional user industries growing by only 15 per cent per annum, Supreme Petrochem is now planning to increase its reach by accelerating the growth of polystyrene consumption in areas like one-time use food service products, houseware, etc. It is also planning to optimise production cost particularly in the areas of utilities and styrene handling cost. Purchase of styrene accounts for a substantial chunk of the company's expenses.