Apcotex Industries (APCLAT)

CMP: | 95 Target: | 80 (16%) Target Period: 12 months SELL

May 26, 2020

Slowdown in auto to impact performance ahead…

Apcotex registered a revenue decline of 24% YoY to | 116 crore, largely
impacted by sluggish growth from NBR segment due to slowdown in the
auto sector along with a fall in realisation due to passing on of benefit of

Result Update
lower RMAT prices. Further, fall in tyre latex along with carpet latex revenue Particulars
also weighed on the overall performance. The company was struggling to Particular Amount
maintain its historic gross margins of 30-32% in the last few quarters due to Market Capitalization (| Crore) 493
increase in NBR imports from Europe at lower prices leading the company Total Debt (FY20P) (| Crore) 42.0
Cash and Investments (FY20) (| Crore)
37.1
to sell NBR at losses or breakeven level in the last few quarters. This was
EV (FY20) (| Crore) 498
curtailed during the quarter due to fall in spread of butadiene between South
52 week H/L 245 / 65
East Asia and Europe, resulting in gross margins of 31.8% vs. 24.3% in Equity capital (| Crore) 10.4
Q3FY20 and 29.4% in Q4FY19. This has helped overall operating margins to Face value (|) 2.0
remain at 6.8% vs. 0.5% in Q3FY20 and 9.2% in Q4FY19. Lower OPM YoY
is due to higher other cost of around 300 bps YoY. We expect that is largely
Price chart
due to MTM forex impact. EBITDA remained at | 7.9 crore (-43% YoY).
Higher taxes along with increase in the depreciation post commissioning of 300 12000
| 50 crore capex and increase in finance cost impacted bottomline, which 250 10000
was at | 3.1 crore (-80% YoY). 200 8000
150 6000
Capex in latex, NBR to support growth ahead 100 4000
The company has announced a capex of | 10-12 crore to increase latex 50 2000
capacity at Taloja by 20% to 66000 tonnes. We believe since this is a 0 0

ICICI Securities – Retail Equity Research

Sep-17

Sep-18

Sep-19
Jan-20
Jan-18

Jan-19
May-18

May-19
May-17

May-20
brownfield expansion and given the cost is around | 12000/tonne realisation
remains ~| 65000-70000/tonne. This expansion should provide incremental
revenues of | 50-60 crore in the next fiscal. Apart from this, the company is APCOTEX INDUSTRIES
also planning to install reactor to convert NBR into latex for nitrile gloves NSE500 Index

given that auto demand is subdued and thereby NBR consumptions. Since
gloves are in more demand currently due to Covid-19 and thus, this should Key Highlights
protect the downside performance, to a certain extent. We believe even  Slowdown in auto to impact
assuming | 70/kg realisation of latex for nitrile gloves, incremental revenue performance ahead
visibility should be around | 35 crore if the entire 5000 tonnes are converted
into latex. Further, we expect latex gloves to be more margin accretive than  Capacity expansion in latex and NBR
NBR. Thus, an improvement in OPM cannot be ruled out. to support growth ahead

Valuation & Outlook  Revise our rating on the stock from

REDUCE to SELL with a target price
We believe since Europe and SEA spread of key raw materials are narrowed, of | 80
one can expect stability in gross margins for coming quarters. However, we
believe Apcotex is largely a converter and less into specialty portfolio. Thus, Research Analyst
it can fetch around 6-7x EV/EBITDA. Further, it is also exposed to auto along
with carpet, construction sectors, which seem under pressure due to Chirag Shah
shah.chirag@icicisecurities.com
ongoing turbulent time. Thus, this can expose it to earnings vulnerability.
Further, it plans to do a capex of | 90-100 crore in the next 12-18 months, Dhavan Shah
which we believe can expose it to balance sheet risk due to poor FCF. Thus, dhavan.shah@icicisecurities.com
we value the company at 7x EV/EBITDA to arrive a target price of | 80. We
have a SELL rating on the stock.

Key Financial Summary

(| Crore) FY17 FY18 FY19 FY20 FY21E FY22E CAGR (FY20-22E)
Net Sales 389 526 626 496 483 623 12%
EBITDA 29 64 68 33 27 60 34%
EBITDA Margins (%) 7.4 12.1 10.8 6.7 5.5 9.6
Net Profit 19 39 47 17 11 33 40%
EPS (|) 3.7 7.6 9.0 3.2 2.1 6.3
P/E 25.8 12.4 10.6 29.6 44.4 15.0
RoNW (%) 8.6 16.1 16.8 6.6 4.8 13.5

s
RoCE (%) 10.0 20.8 20.5 7.9 5.7 14.0
Source: Company, ICICI Direct Research
 Result Update | Apcotex Industries ICICI Direct Research

Conference Call Highlights

 There was a loss in sales of | 17 crore and | 4 crore in bottomline due
to lockdown in the last week of March

 An anti-dumping duty has been filed against Korea while investigation

has been initiated. However, it will take at least another two quarters for
any anti-dumping to materialise

 Taloja incremental capacity would take six to eight months. The

incremental capacity would be for sectors like paper board,
construction, tyre, carpet

 HSR plant has been operating at 60-70% utilisation currently. NBR

business contribution to revenue is around 30%

 It is changing reactor to make nitrile latex so it can be converted from

NBR to NBR latex

 The export contribution for the last full year was around 12-13%

ICICI Securities | Retail Research 2

 Result Update | Apcotex Industries ICICI Direct Research

Financial story in charts

Exhibit 1: Debottlenecking NBR capacity to drive FY21E revenues

700 625.7 622.5

600 526.2 496.0 483.0
500
390.1
400
296.5
| crore

300
200
100
0
FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Revenues

Source: Company, ICICI Direct Research

Exhibit 2: Power plant at Valia to improve operational performance

13.3
80 12.1 14.0
67.6
70 63.8 10.8 12.0
59.8
9.6
60 10.0
50 7.4
39.4 6.7 8.0
| crore

40 28.9 33.4 26.6 6.0

30
20 5.5 4.0
10 2.0
0 0.0
FY16 FY17 FY18 FY19 FY20 FY21E FY22E

EBITDA EBITDA margin (%)

Source: Company, ICICI Direct Research

Exhibit 3: Better operational performance to drive bottomline

50 46.6
38.5 38.6
40 32.8
30
| crore

19.1
20 16.6
11.1
10

0
FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Net Proft

Source: Company, ICICI Direct Research

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 Result Update | Apcotex Industries ICICI Direct Research

Financial summary

Exhibit 4: Profit and loss statement | crore Exhibit 5: Cash flow statement | crore
| crore FY19 FY20 FY21E FY22E | crore FY19 FY20 FY21E FY22E
Net Sales 625. 7 496. 0 483. 0 622. 5 Profit/(Loss) after taxation 46.6 16.6 11.1 32.8
Other Operating Income - - - - Add: Depreciation & Amortization 11.8 13.4 14.0 15.4
Total Revenue 625.7 496.0 483.0 622.5 Add: Interest Paid 1.8 1.3 2.2 2.5
Growth YoY (%) 18.9% -20.7% -2.6% 28.9% Cash Flow before WC changes 60.2 31.3 27.3 50.7
Raw Material Expenses 443.0 347.2 338.1 429.5 Net Increase in Current Assets (26.5) 16.0 26.0 (42.6)
Employee Expenses 38.3 39.4 41.1 44.8 Net Increase in Current Liabilities 12.2 4.0 (10.2) 27.0
Other Expenses 76.8 76.0 77.3 88.4 Net cash flow from operations 46. 0 51. 4 43. 1 35. 1
Total Operating Expenditure 558.1 462.6 456.4 562.7 (Purchase)/Sale of Fixed Assets (15.0) (50.7) (20.0) (35.0)
EBITDA 67. 6 33. 4 26. 6 59. 8 Net CF from Investing Activities (11. 9) (23. 4) (23. 1) (37. 3)
Growth YoY (%) 5.9% -50.6% -20.4% 125.0% Proceeds/(Repayment) Loans 1.0 21.6 (4.6) 12.0
Interest 1.8 1.3 2.2 2.5 Dividend and Dividend Tax (18.7) (18.7) (18.7) (18.7)
Other Income 7.7 5.9 5.5 5.0 Interest Paid (1.8) (1.3) (2.2) (2.5)
PBDT 73.5 38.0 29.8 62.3 Net CF from Financing Activities (30. 4) (7. 0) (40. 9) (8. 2)
Depreciation 11.8 13.4 14.0 15.4 Net Cash flow 3.6 21.0 (20.9) (10.4)
Total Tax 15.1 8.0 4.8 14.1 Cash at the beginning 13.0 16.6 37.7 16.8
PAT 46. 6 16. 6 11. 1 32. 8 Cash at the end 16.6 37.7 16.8 6.3
Growth YoY (%) 20.6% -64.3% -33.3% 195.6%
EPS 9.0 3.2 2.1 6.3
Source: Company, ICICI Direct Research

Exhibit 6: Balance sheet | crore Exhibit 7: Key ratios

| crore FY19 FY20 FY21E FY22E FY19 FY20 FY21E FY22E
Equity Capital 10.4 10.4 10.4 10.4 Per Share Data
Reserve and Surplus 267.4 240.9 221.8 231.9 Reported EPS 9.0 3.2 2.1 6.3
Total Shareholders funds 277.8 251.3 232.1 242.2 Cash EPS 11.3 5.8 4.8 9.3
Secured Loan 1.0 22.6 18.0 30.0 BV per share 53.6 48.5 44.8 46.7
Unsecured Loan 3.0 18.9 15.0 20.0 Dividend per share 3.0 3.0 3.0 3.0
Others 7.6 12.4 12.4 12.4 Operating Ratios
Total L iabilities 289 305 278 305 EBITDA / Net Sales 10.8 6.7 5.5 9.6
PAT / Net Sales 7.4 3.4 2.3 5.3
Gross Block 210.0 260.7 279.7 308.7 Return Ratios
Accumulated Depreciation 122.4 135.8 149.8 165.2 RoE 16.8 6.6 4.8 13.5
Net Block 76.4 124.9 129.9 143.5 RoCE 20.5 7.9 5.7 14.0
Capital WIP 21.2 19.3 16.0 16.0 RoIC 22.2 7.3 4.8 14.6
Total Fixed Assets 97.6 144.2 145.9 159.5 Valuation Ratios
Non-current Investments 42.8 33.4 33.4 33.4 EV / EBITDA 6.8 14.9 18.3 8.5
Inventory 48.2 59.7 47.6 61.4 P/E (Adjusted) 10.6 29.6 44.4 15.0
Debtors 111.2 89.1 83.4 110.9 EV / Net Sales 0.7 1.0 1.0 0.8
Loans and Advances - - - - Market Cap / Sales 0.8 1.0 1.0 0.8
Cash 10.1 16.0 16.8 6.3 Price to Book Value 1.8 2.0 2.1 2.0
Total Current Assets 194.3 184.2 158.9 191.1 Turnov er Ratios
Creditors 52.6 45.9 37.1 51.2 Asset turnover 2.4 1.6 1.8 1.9
Provisions 0.4 0.5 0.4 0.5 Solv ency Ratios
Total Current Liabilities 87.7 91.7 81.6 108.6 Debt / Equity 0.0 0.2 0.1 0.2
Net Current Assets 106.6 92.4 77.4 82.6 Current Ratio 3.3 3.5 3.6 3.5
Total As s ets 289 305 278 305 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

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 Result Update | Apcotex Industries ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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 Result Update | Apcotex Industries ICICI Direct Research

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