About the Company

Apcotex Industries Limited is one of the leading producers of Synthetic Lattices (VP Latex, Acrylic Latex, Nitrile Latex) and Synthetic Rubber (HSR, SBR) in India.

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Q4FY20 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 117 155 -24.52% 111 5.41% 502 633 -20.70%
PBT 5.2 13.6 -61.76% -1.8 -388.89% 24.6 61.7 -60.13%
PAT 3.1 15.3 -79.74% -1.4 -321.43% 16.6 46.6 -64.38%

Detailed Results

    1. The revenues for the quarter were down a lot with a fall of 24.5% YoY.
    2. Similarly, the PBT fell even further at 62% YoY while PAT was down 80% YoY indicating a very difficult quarter for the company.
    3. The operating EBITDA margin declined 233 bps to 6.83% in Q4, but it was up significantly from Q3 which was at 0.55%. Overall operating EBITDA margin for FY20 was at 6.73% vs 10.8% in FY19.
    4. The company had its best-ever quarter in terms of exports but couldn’t fulfill all orders due to lockdown.
    5. Out of the Rs 100 Cr for Capex phase 1, Rs 95 Cr has been invested by 31st March 2020.
    6. The Taloja plant saw its best-ever quarter in terms of volumes but some orders remained unfulfilled due to the lockdown.
    7. The debottlenecking project is completed shortly which is expected to increase production capacity to 20,000 MTPA in the nitrile latex division and reduce operational costs per ton.
    8. The company has been designing and applying for consent applications for 2 major projects:
      • XNBR Latex (Rs 60 Cr)
      • 2ndPolymerization Line (Rs 180 Cr)
    9. The company is looking to add latex capacity in Taloja of 20% in FY21 at a cost of Rs 12-15 Cr.
    10. Post lockdown, both plants resumed operations from 20th
    11. The company is modifying both plants for manufacturing XNBR latex for gloves due to strong demand. This is expected to be completed in the next few weeks.

Investor Conference Call Highlights

  1. The management has stated that the dumping from South Korea and Europe is still going on though it has improved since Q3. The management has also mentioned that the company has applied for anti-dumping duty applications in a few countries and the investigation for the application in India has been initiated.
  2. The management has stated that the long term Capex plans are now on hold and the company is focusing on immediate latex capacity expansion as it saw very good demand in Q4 where the plants were running at almost 100% utilization.
  3. The management has clarified that the 20% capacity expansion is for overall latex capacity in Taloja for existing products and the latex gloves project will be done in Valia. This expansion is expected to be completed in 6-8 months.
  4. The management has stated that the company now has a 20-25% market share in the NBR market in India with the rest being imported. Thus there is a big opportunity from import substitution for the company especially given that even China has instituted anti-dumping in this industry and the shift away from imports due to COVID-19.
  5. The management has stated that the major industries that the Taloja plant catered to pre-COVID were paper, paperboard, construction, carpet, tires and textiles. Pre-COVID, the company saw very strong demand from construction, paper, paperboard and carpets which also was responsible for the rise in volumes in Q4.
  6. In Q4, the utilization for latex was 100%, 90% and 95% in January, February and March respectively.
  7. The management has stated that some of the company’s footwear customers are bullish post-COVID as the company mainly caters to the cheap footwear segment which is expected to grow much faster than the premium segment in the short term.
  8. The utilization level in HSR is 60-70% in Q4.
  9. The management clarified that although demand from the tire industry is slowly coming back, it expects this demand to remain subdued for the next few quarters.
  10. The price arbitrage opportunity for European rivals has gone down and is expected to go away soon. The management has stated that this phenomenon is cyclical in nature and not sustainable and thus it shouldn’t be a big matter for concern going forward.
  11. The management has stated that Q4 volumes were almost flat YoY but were up a lot QoQ. Overall net realizable value of products has gone down YoY mainly due to a drop in raw material prices.
  12. Another reason for the fall in net realizable value is the shift in product mix sold towards latex which is generally sold at a cost price of 50-60% of rubber prices.
  13. The company is seeing prices of key raw materials like styrene, butadiene, etc at decade-low prices.
  14. The management has stated that the company will be investing Rs 60 Cr for the new NBR latex gloves project in Valia and is looking to make another Capex of Rs 90 Cr in the next 12 to 15 months.
  15. The company had planned to fund the Capex plans with internal accruals but due to the fall in internal accruals, it may raise debt in the future if required. The management has stated that the company can easily raise Rs 200-300 Cr to fund the Capex plans for the next 3 years if required.
  16. The effective tax rate for FY21 is expected to be around 22%.
  17. Exports were only 12-13% in terms of value in FY20. The export % for Q4 is much higher.
  18. The addition of 5000-ton capacity in the NBR line as part of the Capex phase 1 is almost 99% complete and just got delayed due to delay in shipment form out of state vendors in the time of lockdown.
  19. The realization for NBR is around Rs 100 per kg and the realization for latex gloves is expected to be better than this figure.
  20. The management has stated that the working capital days have gotten stretched due to logistical issues from the lockdown and it is expected to come down to normalized levels soon.
  21. The management has stated that the company will indeed be stuck with some stock losses due to high-cost inventory being stuck and not sold due to lockdown.
  22. The management has stated that around 40% of sales prices are based on a formula for customers while 60% is based on spot prices. NBR is mostly spot priced while latex is largely formula priced.
  23. The management has also stated that the margins in latex for gloves will not be very high as it is not a finished product and will mostly be spot priced.
  24. The company was expecting a good Q1 before COVID came in and now it expects to make sales of around 60% of January in the month of May. The company is also facing uncertainty on logistics, raw material supply and labour. But overall it is optimistic of the opportunity from the demand for latex for gloves.
  25. The net cash position for the company is at Rs 35-40 Cr at the moment.
  26. The power plant was commissioned before the lockdown but was shut down as the lockdown came into effect.
  27. The work on the gloves project is also expected to start post monsoons like the Taloja expansion.
  28. The management has stated that there are no XNBR latex makers in India and the primary destination for this product is expected to be Malaysia which makes for 70% of the global demand for gloves. There are few competitors for this product in Asia.
  29. The management has clarified that it tries to keep EBITDA per ton as stable as possible.
  30. The management has stated that it prefers for prices to stay low as with a stable EBITDA per ton, the EBITDA margin is higher and the working capital requirement is lower. So when prices go up, working capital requirement rises along with EBITDA per ton.
  31. The management has maintained that it is engaged with all of the top 5 glove makers in Malaysia.
  32. The management has stated that despite the fall in the auto industry in India, it does not expect the industry to go to 0. Even if the industry may remain subdued in India, the company can easily try and source other industry players in nearby geographies like South Asia, South East Asia, and the Middle East.
  33. The management has also stated that it is better positioned currently in the NBR market as only half of NBR for the company is used in the auto industry while for many rivals in the EU, this number is greater than 70%.

Analyst’s View

Apcotex is one of the very few synthetic rubber makers in India. The company has seen a good comeback in Q4 after suffering from its worst-ever quarter in years in Q3. Exports were particularly encouraging for the company before the COVID disruption brought everything to a halt. The company is now focussing on capitalizing on the strong demand for gloves and is concentrating on establishing a direct facility for making latex for gloves in its Valia plant. The company has done well to concentrate on volumes and preserving its EBITDA per ton while commodity price falls are pushing down prices for its products. It remains to be seen how the demand for the company’s products changes going forward and how the company will be navigating the issues brought up for the COVID-19 disruption. Nonetheless, given the company’s industry position, the prudent management of the company, and the company’s optimism going forward as deduced from its increased Capex plans, Apcotex seems to be a good chemical stock to watch out for.


 

Q3FY20 Updates

Financial Results & Highlights

Consolidated Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 109.6 164.1 -33.21% 124.1 -11.68% 380.4 473.9 -19.73%
PBT -1.8 15.8 -111.39% 5.4 -133.33% 19.4 48 -59.58%
PAT -1.4 10 -114.00% 3.6 -138.89% 13.6 31.3 -56.55%

Detailed Results

    1. The revenues for the quarter were down a lot with a fall of 33% YoY.
    2. Similarly, the PBT fell even further 111% YoY while PAT was down 114% YoY indicating a very difficult quarter for the company.
    3. The operating EBITDA margin declined 975 bps to 0.55% in Q3, mainly due to a drastic fall in finished good prices globally while RM prices remained firm during the period.
    4. Exports were adversely affected due to low key raw material prices in Europe compared to Asia. This is expected to get correct in Q4.
    5. The Capex spend for the first phase post-acquisition was planned for Rs 100 Cr (for FY18, FY19 and FY20) out of which is Rs 85 Cr has been invested till December 2019. The remaining amount will be spent in Q4.
    6. The captive power plant will be commissioned soon with savings in the Valia plant coming in from Q1FY20 onwards.
    7. The debottlenecking project will be completed in Q1 which is expected to increase production capacity to 20,000 MTPA in the nitrile latex division and reduce operational costs per ton.
    8. The company has been designing and applying for consent applications for 2 major projects:
      • XNBR Latex (Rs 60 Cr)
      • 2nd Polymerization Line (Rs 180 Cr)

Investor Conference Call Highlights

  1. The slowdown in the auto industry has been hard for the company. The overall slowdown in the Indian economy has also affected the company’s performance in the Paper, Carpet, and Construction industries.
  2. The company was looking to fund the XNBR project using internal accruals and debt and the company may have to delay this project due to slowdown in internal accruals in recent quarters.
  3. The net cash position of the company is around Rs 50 Cr.
  4. The company expects a good recovery in exports due to the normalization of the price differences between monomer prices in the EU and India.
  5. The management stated that the company shut down its plant for some time in Q3 as variable costs had risen so high that the company was making less loss by shutting down the plant. The company has seen this situation recover.
  6. The company still faces some issues regarding the NBR margins in Q4.
  7. The management is confident of good performance in Q4 vs Q3 with significant growth in volumes.
  8. The company has seen a reduction in volumes of 10-15% YoY and the rest of the revenue fall is due to the fall in market prices.
  9. The management does not expect the customer it lost 2 years ago due to fire to return back as the customer has still not recovered from that incident.
  10. The management expects the margins from all businesses except NBR to come back to normal levels of 11-12%. It still sees some challenges with the margins in the NBR segment.
  11. The major Capex in FY21 is going to be into XNBR of Rs 60 Cr and maintenance Capex of Rs 10-15 Cr.
  12. The company has seen good growth in its Apcobuild business. This business forms a small part of overall earnings. The company has expanded its operating region into parts of Gujarat. It was operating in and around Mumbai and Pune only previously.
  13. The management has mentioned that this business is good in margins and the company will mainly be looking into territorial expansion in this business. The company has enough capacity to meet the demands of this business already.
  14. The company has filed an anti-dumping petition in January to slow down the dumping of products by Korean manufacturers.
  15. The revenue mix is still leaning towards latex as the NBR volumes have stayed depressed. The revenue shares in Q3 is almost the same as in Q2.
  16. The raw material prices were down 20% in Q3 and it rose in Jan but it has been coming down in Feb due to coronavirus.
  17. The company has seen no direct or indirect impact from the coronavirus disruption.
  18. The major concern for the company is on some of the supply chains for the company at a global level.
  19. The management does not expect Capex for FY21 to be greater than Rs 70-75 Cr assuming the company finishes its XNBR project as it still needs environmental consent for its polymerization plant.
  20. The company is looking at exclusive products and value-added products in the Apcobuild business. The company is not looking for large revenues from this business but to harness various synergies (like backward integration) from its existing production capacity in this business.
  21. The company is not looking to compete with big players in this segment but is looking to carve its own niche with its differentiated product offerings in this business.
  22. The management has stated that the growth in this business is going to be slower than the other products business as the expansion of this business requires setting up of a distribution network, establishing a brand presence and expanding sales force, all of which take a lot of time and effort to set up.
  23. The EBITDA margins in the Apcobuild business is around 20-25%.

Analyst’s View

Apcotex is one of the very few synthetic rubber makers in India. The company has faced its worst quarter in recent years. The company saw a revenue decline of 33% YoY with losses of around Rs 1 Cr in Q3. This was due to a variety of factors including the current auto sector slowdown, decline in the carpet industry and the prevailing price difference in monomers in the EU and India. The management believes the worst is over for the company and the damaging price difference has started to normalize. The carpet industry has also seen good demand in Q4 so far. It remains to be seen how long the auto sector slowdown goes on for and whether the company will be able to mitigate some of its adverse effects with its cost savings and operational efficiency initiatives. Nonetheless, given the company’s strong position in the synthetic rubber segment in India and the company’s past performance record, Apcotex remains a good stock to watch for, particularly at the current attractive valuation.


 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 126.17 159.71 -21.00% 147.88 -14.68% 274.05 311.98 -12.16%
PBT 5.43 15.86 -65.76% 15.8 -65.63% 21.23 32.28 -34.23%
PAT 3.62 10.1 -64.16% 11.35 -68.11% 14.98 21.35 -29.84%

 

Detailed Results

    1. The revenues for the quarter were down a lot with a fall of 21% YoY.
    2. Similarly, the PBT fell even further 66% YoY while PAT was down 64% YoY indicating a very difficult quarter for the company.
    3. The fall in revenues was due to softening finished goods prices even though there was volume growth in the current quarter.
    4. The operating EBITDA margin declined 682 bps to 5.48% in Q2, mainly due to a drastic fall in finished good prices globally while RM prices remained firm during the period.
    5. Exports were adversely affected due to significantly lower prices of key raw material in Europe compared to Asia.
    6. The Capex spent for the first phase post-acquisition was planned for Rs 100 Cr (for FY18, FY19 and FY20) out of which is Rs 74 Cr has been invested till September 2019. The remaining amount will be spent in the next 6 months.

Investor Conference Call Highlights

  1. The company reported its highest-ever quarterly VP Latex sale in the tire cord industry.
  2. Due to the extended monsoons, the company saw a delay in the commissioning of its new power plant. It still requires a last environmental consent before the commissioning.
  3. The company saw marginal growth in volume terms but the drop in revenues was mainly due to a drastic drop in realizations. In terms of product mix, the company saw NBR volumes go down slightly while latex volumes grew in the quarter.
  4. The management states that the company maintains an overall market share of 25%-27% in India.
  5. The biggest issue for the company in exports is water logistics and transport costs.
  6. On the latex side, most of the company’s competition is domestic and on the synthetic rubber side, most of the competition is either from Korea or Europe.
  7. The company has also seen exports decline in the year mainly due to increased competition from European rivals who have seen their raw material prices go down significantly.
  8. The company had also developed Pakistan as a good export destination for itself but because of political reasons stemming from the Kashmir issue, this revenue source has been completely shut down for the company.
  9. The company has not faced any big problems from the tire industry due to the auto sector slowdown mainly because, in tires, the replacement market is bigger than the OEM market. Thus the company has only seen a mild decline in overall volumes and not margin degradation.
  10. The total sales of the company to automobiles is only 15% but the main product supplied to this sector is Acrylonitrile Butadiene Rubber which has seen significant price crash globally and thus the company has suffered on margins.
  11. The company is expecting something on the lines of the recent anti-dumping duty put in China to happen here in India to prevent Korean and Japanese exporters from flooding the domestic market with cheap goods which should help the combat competition from these exporters in the domestic market.
  12. The company has guided that they will need 12-month lead time for their nitrile latex facility once they start breaking ground. Thus they expect to commission this plant by FY21.
  13. The company expects to add Rs 250-300 Cr to their top line from their new nitrile latex
  14. The paper and carpet segment has done well for the company and it has increased its market share in these categories.
  15. The management is optimistic in their prospects in the NBR segment since they are the sole manufacturer in the country and there are many wide applications for this product in other industries like textile machinery, etc.
  16. In NBR, the company has a capacity of around 20000 tons which they expect to expand to 35000 tons after their NBR expansion project. Additionally, in the nitrile latex segment, they expect the capacity to be around 25000 tons in the first phase and 40000 tons by the end of the second phase. The expansion should add around 250-300 Cr for Nitrile Latex and another 250 Cr for NBR.
  17. The Capex plans for NBR expansion is expected to be around Rs 180 Cr. The CAPEX for the initial 25000 tons of nitrile latex capacity is around Rs 60 Cr.
  18. The management believes that the raw material price difference between local and European sources is not sustainable and it should normalize in the near future.
  19. The company will be sticking to their current tax regime as they still have substantial MAT reserves which would result in them paying lower taxes overall under the old regime as compared to the new regime.
  20. The company has also taken out a loan of Rs 20 Cr to cover the shortfall in their Capex plans of Rs 100 Cr.
  21. The management believes that the current slowdown is not sustainable and it should get better in a few quarters.
  22. The management feels that they should get back to EBITDA margins of 13-14% by Q4 this year.
  23. The capacity utilization for the NBR was almost 100% and they have increased inventory levels significantly in anticipation of plant shutdowns to hook up the CPP and the debottlenecking projects.
  24. The global NBR prices have been down mainly due to lower demand from the global automobile industry which is the biggest user of this product. The management has also mentioned that the situation is so dire that one major Korean rival had instituted plant shutdown for a month because of the lower demand.
  25. The management remains positive despite the current headwinds as they believe that these headwinds should not persist for more than a few quarters and the industry will come back to its normalized state soon. This is also the reason that they are still on board with their NBR expansion plans despite the drop in this product segment.

Analyst’s View

Apcotex is one of the few synthetic rubber makers in India. They have been going through times of stagnating revenues while volumes have been growing consistently. The company has had a difficult quarter where despite volumes growth, they have suffered a decline in revenues and overall margins. This is mainly due to the lower demand for NBR (Apcotex’s higher-margin product) in global markets which has resulted in a fall in prices of this product. The management firmly believes that this situation will not last long and thus they are still on track with their proposed NBR capacity expansion despite the current headwinds in this product segment. The company also anticipates anti-dumping measures from the Government of India to help ease competitive pressure from foreign exporters in the domestic market. It remains to be seen how long these import restrictions will take to be implemented. Also, whether the demand for NBR will revive as fast as the management expects is to be seen. The reason behind this segment’s decline is the global auto industry decline which is very difficult to predict. Nonetheless, given the company’s past track record and its positioning as the only NBR maker in India, Apcotex remains a good stock to watch out for.


 

 

Notes from Annual Report FY18-19

  • Apcotex is one of the leading producers of Synthetic Rubber (NBR & HSR) and Synthetic Latex (Nitrile, VP latex, XSB & Acrylic latex) in India. The company has one of the broadest range of Emulsion Polymers available in the market today.
  • The various grades of Synthetic Rubber find application in products such as Automotive Components, Hoses, Gaskets, Rice Dehusking Rollers, Printing and Industrial Rollers, Friction Materials, Belting and Footwear. Apcotex’s range of Latexes is used for Paper / Paper Board Coating, Carpet Backing, Tyre Cord Dipping, Construction etc.
  • Financial Highlights

  • Marquee Clients

  • Manufacturing Facilities
Taloja Plant Maharashtra Valia Plant Gujarat
(55,000 MT) Synthetic Latex (16,000MT) Nitrile Rubber and Allied Products
(7,000 MT) High Styrene Rubber
  • Product Mix

Notes from Management Discussion & Analysis

Synthetic Latex and Rubber Industry

  • The global synthetic latex polymers market is highly fragmented with the presence of many regional and global players.
  • The market has witnessed some consolidation as well as a move towards customization of products to cater to the changing consumer requirements in APAC and EMEA regions.
  • Globally, the carpet industry, tire cords and construction industries drive the growth for synthetic latex.
  • In India, it is mainly paper & paper board, paints & coatings, adhesives, waterproofing/construction, etc.
  • There are no major substitutes to replace synthetic latex polymers in their functional aspects across various application segments.
  • Asia Pacific leads the production of the global synthetic rubber industry with the automobile sector leading the growth.
  • With increasing R&D investments backed by strong infrastructure, India is poised to become a leader in rubber pros manufacturing in years ahead.
  • In India, 80% of Nitrile Butadiene Rubber (NBR) is imported, which creates a good potential for Indian manufacturers of Nitrile Rubber.
  • Company’s major raw materials are petrochemical products and its business could be vulnerable to high volatility in the prices of crude oil as well as its downstream products.

FY19 Performance

  • Sales for FY19 were Rs.633.36Crores compared to Rs.545.38 Crores in FY19. Exports for FY19 was 72 Cr.
  • Profits before tax were up by 7.80% to Rs. 61.67 Crores as compared to Rs. 55.78 Cr on a standalone basis during the previous year. Operating EBITDA increased by about 6% to Rs 67.58 Crores from Rs.63.79 Cr in the previous year during the financial year 2018-19.
  • Profit after tax stood at about Rs. 46.60 Crores as compared to about Rs. 38.64 Crores on a standalone basis, in the previous year.
  • The Balance Sheet of the Company is also quite healthy with almost no debt, reasonable working capital cycle and cash/liquid investments valued at about Rs. 74 Crores based on NAV as on 31st March 2019.
  • The return on Networth for the financial year 2018-19 has gone up by about 8% to 17.78% as compared to preceding financial year return of 16.47 on account of increase in the net profit of the Company.

Risk Highlighted by the Management

  • Procurement Risks:
    • There is an availability risk associated with a few key raw materials like Styrene, Acrylonitrile, and Butadiene that are used in making their products.
    • Styrene and Acrylonitrile are not manufactured in the country and have to be completely imported.
    • Butadiene is currently available from only two manufacturers in the country and the company is exploring import arrangements.
    • If there is an issue with the supply of any of these materials, the production of several products would be affected.
    • To mitigate this risk they have relationships with multiple suppliers and keep an adequate inventory and pipeline of these raw materials.
  • Environment Health & Safety:
    • Some of the major raw materials are hazardous and flammable and some safety risks are inherent in the manufacturing processes.
    • The Company has ensured that required process controls, safety equipment’s and infrastructure are in place as per statutes and global safety standards.
    • In addition, all the safety measures like safety committee’s constant supervision, identification, and correction of unsafe acts, periodical drills, risks awareness programs, appropriate treatment of effluents generated, are regularly taken with constant attention from senior levels of management.
    • The Company is working towards Zero Liquid Discharge (ZLD) for both the manufacturing plants.
  • Dependency on Single Manufacturing Facilities:
    • While the company has two manufacturing facilities, some of their products can be manufactured only at a single location.
    • Due to incidents such as strikes, political instability, terrorist attacks or natural calamities the operations of the Company may be materially affected.
    • The Company has taken appropriate available insurance covers for some of these eventualities.
  • High Styrene Rubber (HSR) Obsolescence
    • The HSR market has shrunk over a period of time and more or less stagnant since the last couple of years which may result in underutilization of the production capacity.
    • Company is looking into export of more HSR products in the overseas market as many of the manufacturing facilities have been shut down and also exploring the alternate use of the production facility for other products.
  • Monomer Transportation
    • Monomers, particularly Butadiene, which is combustible, hazardous, toxic, flammable is transported through insulated, refrigerated tankers. In case the tankers meet with an accident, while in transit, it may lead to huge fire or explosion resulting in damage of property or human beings in the surrounding area.
    • To overcome this risk, the tankers are inspected/checked on regular basis and transportation is handled by people who have basic knowledge about the hazardous nature of the material and how to handle the same in case of any emergencies.
    • Company is planning to enroll for Nicer Global initiatives during the financial year 2019-20.
  • Investment Risks
    • The company had an investment of about Rs. 74 crores, based on Net Assets Value (NAV) as on 31st March 2019. Out of this investment, about 46% is invested in the Debt Funds and rest in Direct Equity or Equity funds. The volatility in the market may adversely affect the Company as the Mark to Market loss/gain, if any, needs to be recognized in the books of accounts under IndAS.
    • To overcome this risk, the Managing Director along with GM – Finance reviews the investments on a regular basis and verify the returns etc and present the same before the Board for their consideration every quarter.
  • Business Concentration Risks
    • About 87% of the Company’s business depends on the domestic industry and highly dependent on the domestic market.
    • To overcome this risk, the company had put in place a dedicated team for exports of the Company’s products to various countries in the world.
    • Company is also exploring an overseas acquisition. During the last financial year, a specialty latex viz. XNBR was introduced mainly for the export market, which will help to reduce the dependency on the domestic market significantly.

Outlook for FY20

  • The Company expects Financial Year 2019-20 to be an exciting year in spite of new challenges.
  • Sales from the new product range of Carboxylated Nitrile Latex for the hand gloves industry has started in FY 2019-20, and the Company aims to make it one of the future growth drivers for the Company in the future.
  • The Company is also working on the feasibility to expand the capacity of its NBR business.
  • The Company will continue to look for opportunities in new adjacent businesses as well as opportunities for inorganic growth.
  • In FY 2019-20, the Company will commission the Co-gen Power Plant at its Valia unit as well as complete several other Capex projects to bring in more productivity and efficiencies.

 

Analyst’s View

Apcotex is one of the leading Synthetic Lattices and Synthetic Rubber makers in India. Even during the slowdown in auto and construction industry, Apcotex has managed to improve its operating margins with the help of better product mix and raw material price correction. Due to a slowdown in the auto sector, near term revenues may face pressures, however, the long term growth prospect remains intact. Valuations at the current level at 20 times earnings are not cheap, however, given the growth prospects, it doesn’t look very expensive as well.


 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 147.88 152.26 -2.88% 154.79 -4.46%
PBT 15.8 16.42 -3.78% 13.62 16.01%
PAT 11.36 11.24 1.07% 15.28 -25.65%

Detailed Results

    1. The revenues for the quarter were down a little with a fall of 2.88% YoY.
    2. Similarly, the PBT also fell 3.8% YoY while PAT was up 1% YoY indicating mostly flat performance for the quarter.
    3. The fall in revenues was due to softening finished goods prices even though there was volumes growth in the current quarter.
    4. Operating margins improved to 12.34% from 11.42% last year, mainly due to softening of raw material prices.
    5. The company has already invested Rs 60 Cr from their Rs 90 Cr capex plan. They plan to complete this capex by the end of the current financial year.

Investor Conference Call Highlights

  1. 80% of the work for capacity expansion is done and the remaining should be over by January 2020 where capacity is expected to rise to 21,000 tons.
  2. The company has grown more than 10% in volumes in the current quarter.
  3. Around 30% of revenues come from the auto and tire sector. The auto sector slowdown has not hit the company numbers yet and the revenue fall is mainly from the softening finished goods prices.
  4. The company is targeting increasing volumes for their carpet export segment despite the slowdown in this sector.
  5. The company has passed on the whole of the raw material price drop which has caused the revenues to drop despite volume growth in the current quarter.
  6. The company is looking at Rs 200-250 Cr long term capex and they are waiting on environmental consent for the setup of the new planned facilities for nitrile latex and 2nd line for NBR.
  7. The power plant at their facility has not been commissioned yet and is expected to be operational in around 2-3 months. The benefits of this plant are expected to be reflected as a margin improvement of 1-2%.
  8. The company is staying away from providing revenue guidance given that revenues are dependent on raw material prices and the demand slowdown in the auto and construction sectors.
  9. The company is expecting around 2.5 to 3 times asset turnover on average.
  10. The company is adding new products in its NBR line.
  11. The company sees the revenues to be hit from the auto and construction slowdown from the next quarter onwards. In this period, the company is ensuring that they maintain volume growth while giving away some margins.
  12. The company is expecting to stay at current levels of EBITDA margins and they expect to reach their guided target of 13-14% once the slowdown gets resolved by the end of the financial year.
  13. Exports contributed only 15%-16% of total revenues and the company is targeting 20% for this figure in the long term.
  14. The company is optimistic about the governmental push for EVs. The company is looking to capture market share from this push in the long term and establish themselves as the dominant player in their segment in the country.
  15. The company is currently at 25-27% market share in the NBR industry.
  16. The butadiene raw materials procurement is entirely done domestically. The company also has agreement with other suppliers in place in case one of the principal ones fails.
  17. The company is open for any possible acquisitions.
  18. The company expects raw material prices to remain around current levels in the medium to long term.

Analyst’s View

Apcotex is one of the leading Synthetic Lattices and Synthetic Rubber makers in India. They have been going through times of stagnating revenues while volumes have been growing consistently. But the company is yet to suffer any material impact from the auto and construction sector slowdown which is expected to be reflected from the next quarter onwards. Thus given the management’s aim to maintain volume growth, it seems like the company is preparing to for revenue stagnation in the next couple of quarters. It remains to be seen how the company can compensate for this domestic situation and how they plan to increase their exports which have not grown as much as expected. Nonetheless, given the track record of the management and the market presence of the company in their industry, Apcotex still remains a stock to keep an eye out for.

 


 

Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Crs)

Q3FY19 Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18 9M% Change
Sales 166.58 142.78 16.67% 159.71 4.30% 478.56 408.09 17.27%
PBT 15.76 18.25 -13.64% 15.86 -0.63% 48.04 38.45 24.94%
PAT 9.98 12.98 -23.11% 10.1 -1.19% 31.33 26.57 17.91%

Detailed Results

    1. The Q3 and 9M revenues for the company were up 16.67% and 17.27% YoY.
    2. The PBT and PAT for the current quarter have fallen 14% and 23% YoY.
    3. The EBITDA margins for current quarter has fallen to 10.3% from 12.54% last year.
    4. The margins for the 9M performance has improved YoY. This is evident from the greater increase in PBT of 25% to the corresponding growth in revenues of 17%.
    5. The company also reports their highest ever quarterly sales of Rs 164 Cr.
    6. The company sees raw material prices coming down in the near future.
    7. The capex from Phase I as of 31st Dec ’18 is Rs 31 Cr. The rest of the pledged amount will be spent in the next 6-9 months.

Investor Conference Call Highlights

  1. There have been no significant changes in working capital for the company.
  2. The company is also staying away from any long term debt.
  3. Despite the slowdown in rubber and automotive client segments, other segments have had good enough growth to balance the former out.
  4. It was also a good quarter for the latex segments of the company.
  5. The company has seen drop in raw material prices and the company should be able to use up their high costing inventory by January.
  6. The capex plan of Rs 60-65 Cr for their Valia facility will be done in the next 5-6 months.
  7. In addition, the company is looking forward to do a capex of Rs 250 Cr. This investment will be to expand their nitrile butadiene business and nitrile latex for gloves business.
  8. The capacity expansion due to the current capex plan is expected to be around 20%-25% to 20,000 tons per annum.
  9. Exports counted for only 15% of revenues this year. This was mainly due to loss of a key customer.
  10. Of the Rs 250 Cr capex mentioned above, 50-60 Cr is to be used for nitrile latex and the rest 200 Cr is to be used for nitrile rubber. The nitrile latex project is expected to be completed by 18 months since the start of the project while the nitrile rubber project is expected to take at least 2 years.
  11. The company is yet to finalise how to structure and raise enough cash for the 250 Cr capex mentioned above.
  12. The company is looking for the automotive industry to pick up in the coming quarters.

Analyst’s View

Apcotex have been one of the market leaders in the synthetic rubber industry in India. They have showed good performance in this year with highest ever quarterly sales in this quarter. The company has been aggressive in their plans to expand capacity and ramp up revenues. Considering the growth prospects, the valuation appears reasonable. Raw material prices, capacity expansion and volume growth would dictate the future performance for the company.

Disclaimer

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