Apcotex Industries 230817 PDF

Apcotex Industries Ltd.
Result Update August 21, 2017

India Equity Institutional Research II Result Update - Q1FY18 II 21st Aug, 2017 Page 2
Apcotex Industries Ltd. Increasing share of NBR going to boost financial performance
CMP Target Potential Upside Market Cap (INR mn) Recommendation Sector
INR 402 INR 447 11% 8,326 ACCUMULATE Chemicals
Result highlights
• Apcotex reported revenues of INR 1321 mn (+13% YoY) against our estimates of INR 1296 mn. The growth was supported by decent growth in
volumes.
• OPM contracted by 269bps YoY to 6.5%, which led EBITDA to fall by 20% YoY to INR 85.7mn. The subdued operational performance was owing to
higher RM cost (+439bps YoY).
• Sluggish operational performance along with lower other income (-37% YoY) and higher tax rate (27% v/s 22% in Q1FY17) impacted bottom-line
performance, which stood at INR 52.4mn (-37% YoY).
MARKET DATA KEY FINANCIALS
Shares outs (mn) 21 Particulars (INR mn) FY15 FY16 FY17 FY18E FY19E
EquityCap (INR mn) 104 Net Revenues 3,551 2,684 3,901 4,802 5,580
Mkt Cap (INR mn) 8326 EBITDA 415 374 289 491 691
52 Wk H/L (INR) 442/282 PAT 247 247 191 349 517
EPS 11.8 11.9 9.2 16.8 24.8
Volume Avg (3m K) 29.2
OPM 11.7% 14.0% 7.4% 10.2% 12.4%
Face Value (INR) 5
NPM 7.0% 9.2% 4.9% 7.3% 9.3%
Bloomberg Code APCO IN
Source: Company data, KRChoksey Research
Top line in line with estimates:
SHARE PRICE PERFORMANCE Apcotex reported revenue growth of 13% YoY to INR 1.32bn against our estimates of INR
1.3bn. The growth was largely supported by exports. Management highlighted that
115 international business could register decent growth during FY18. The revenue from
exports remained at INR 450mn in FY17, we expect the same could grow at least 50%
during this fiscal. The growth will be supported by Carboxylated latex. Further, other
latex business can also fuel export revenue growth during the year.
95
Margins below expected lines:

OPM contracted by 268bps YoY to 6.5%, which led overall EBITDA to down by 20% YoY to
75
INR 85.7mn. The subdued operational performance was on account of higher RM cost
Aug-17
Oct-16
Aug-16
Apr-17
Jun-17
Dec-16
Feb-17
(+439bps YoY). Management highlighted that there was some high cost inventory
(Butadiene) in Q4FY17, which led such increase in the cost during the qtr. We expect
company to report gross margins of around 35% going ahead as against 32% gross
Sensex Apcotex Inds. margins in Q1FY18.
In terms of bottom-line, PAT fell by 37% YoY to INR 52.4mn largely owing to subdued
operating profit, lower other income (-37% YoY) & higher tax rate (27% against 22% in
Q1FY17).
MARKET INFO
SENSEX 31525 Valuation & View:

NIFTY 9837 At CMP of INR 402, the stock has been trading at 16.2x on FY19E of our earnings
estimates. We believe valuations are reasonable given the strong outlook of NBR
segment. The management has been working on improvising the quality of NBR, which
could improve plant utilization to certain extent over next 2yrs.
SHARE HOLDING PATTERN (%)
Particulars Jun 17 Mar 17 Dec 16

Promoters 57.91 57.9 57.9
FIIs
DIIs 0.19
0
0.07
0 0
0.07
20% 65%
Others 41.9 42.03 42.04
Revenue CAGR between FY 17 PAT CAGR between FY 17 and
Total 100 100 100 and FY 19E FY 19E
ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

Dhavan Shah, dhavan.shah@krchoksey.com, 91-22-6696 5574 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Bhavik Shah, bhavik.shah@krchoksey.com, 91-22-6696-5568 Thomson Reuters, Factset and Capital IQ

Management expects NBR plant could reach optimum utilization by FY19 from 70-80% utilization presently. Further, power & fuel
cost is also expected to reduce in valia plant post commissioning of power plant by Dec’17, which could improve operational
performance considerably over the next few years. The management has also been planning to double NBR capacity over the next
4-5yrs. We believe NBR product with superior realization could assist company to report stellar financial performance in medium to
long term, which could improve financial ratios and thereby valuations going ahead. We have maintained our estimates and valued
the company on FY19E by providing p/e multiple of 18x. We have arrived a target price of INR 447, an upside potential of 11%. We
have ‘ACCUMULATE’ rating on the stock.
Q1FY18 Result Snapshot
Q1 Q4 Q1 Q-o-Q Y-o-Y
Particulars
FY18 FY17 FY17 change % change %
Net Sales & Other Operating Income 1,321.4 870.5 1,169.3 51.8% 13.0%
Total Expenditure 1,235.7 796.1 1,062.1 55.2% 16.3%
Cost of Raw Materials 836.0 776.2 656.8 7.7% 27.3%
(Increase) / Decrease In Stocks 56.2 -213.8 81.4 -126.3% -31.0%
Employee Cost 79.6 78.6 75.8 1.4% 5.0%
Other Expenses 263.9 155.3 248.1 70.0% 6.4%
EBIDTA 85.7 74.4 107.2 15.2% -20.1%
EBITDA Margins (%) 6.5% 8.5% 9.2% -206bps -269bps
Depreciation 31.2 30.2 29.7 3.2% 5.1%
EBIT 54.5 44.2 77.6 23.4% -29.7%
Other Income 22.2 11.2 35.3 98.5% -37.2%
Interest 5.1 6.8 6.4 -25.5% -21.2%
PBT 71.6 48.5 106.5 47.5% -32.7%
Tax -0.4 -0.6 0.4 -37.1% -202.4%
PAT before Exceptional 52.4 35.3 83.1 48.4% -37.0%
PAT Margin (%) 4.0% 4.1% 7.1% -9bps -315bps
EPS 2.52 1.70 3.99 48.4% -37.0%
Source: Company, KRChoksey Research


Key takeaways from Conference call:
• Volumes were impacted due to strike (last qtr) which had some impact in April month. Further implementation of GST has also
resulted lower demand in domestic market. However robust growth from exports supported revenues during the qtr.
• Although key raw material prices mainly Butadiene declined during this qtr, the company reported high raw material costs. This
was due to the earlier purchase of some raw materials at higher prices which led to depressed margins. Going ahead, we expect
improvement in gross margins to some extent.
• One of the largest paper customer, who was contributing ~5% to the overall revenues still remain uncertain.
• The management expects implementation of GST could be positive for the company.
• The company has initiated first phase of capex worth INR 30 crores for debottlenecking which will reduce operating cost and will
improve the quality of valia plant. The phase 1 capex plan will be completed by Mar’18. The company is also setting up power plant
at Valia to reduce power & fuel cost, which is expected to commission at the end of Dec’17.
• The company is also considering Phase 2 capex of INR 30cr, under which, it will increase NBR plant capacity by 5000 MT to 21000
MT. The increased capacity could add revenue from FY20 onwards, which is expected to the tune of INR 70-80cr.
• In the long term, the management is looking forward to double the NBR capacity (present 16000MT to 35000-36000 MT).
• The management is expecting better margins this year as compared to previous year and targeting 13-14% OPM in 2-3 years.
• The company is targeting gross revenues of around INR 6bn this fiscal.


Key Financials
Consolidated Profit & Loss (INR mn) FY15 FY16 FY17 FY18E FY19E
Net Revenues 3551 2684 3901 4802 5580
Cost Of Revenues (incl Stock Adj) 2502 1755 2692 3255 3718
Gross Profit 1049 928 1209 1547 1863
Employee Cost 141 152 293 336 379
Other Operating Expenses 493 402 626 720 792
EBITDA 415 374 289 491 691
Other Income 56 74 83 98 114
EBITDA, including OI 470 448 372 589 805
Depreciation 90 89 121 138 159
Net Interest Exp. 32 24 29 24 15
EBT 348 334 222 426 630
Taxes 101 88 31 77 113
Tax Rate 29.1% 26.2% 14.1% 18.0% 18.0%
Net Income 247 247 191 349 517
NI Excl Extra Items 247 247 191 349 517
NI Incl Extra Items 247 247 191 349 517
Basic EPS (INR) 11.8 11.9 9.2 16.8 24.8
Shares Outstanding 10.4 20.8 20.8 20.8 20.8
Consolidated Balance Sheet (INR mn) FY15 FY16 FY17 FY18E FY19E
Share Capital 52 104 104 104 104
Reserves 945 1768 1959 2308 2825
Total Shareholders Funds 998 1872 2063 2412 2929
Long Term Borrowings 84 0 0 0 0
Net Deferred Tax liability 56 0 34 34 34
Other long term liabilities 13 14 31 39 30
Long term provisions 18 20 26 26 46
Current Liabilities and Provisions
Short term borrowings 144 171 222 192 122
Trade Payables 203 341 222 262 320
Other Current Liabilities 199 318 220 288 305
Short Term Provisions 93 144 3 3 4
Total Liabilities 1807 2881 2822 3258 3790
Net Block 633 947 937 1049 1190
Capital Work in Progress 19 0 0 0 0
Non-current investments 308 178 236 236 236
Deferred tax assets 0 67 0 0 0
Long term loans and advances 63 106 86 105 107
Other Non Current Assets 3 61 21 26 30
Current Assets, Loans & Advances
Inventories 152 433 445 498 549
Sundry Debtors 487 838 782 905 991
Cash and Bank 44 98 62 151 353
Loans and Advances 56 74 191 197 229
Other Current assets 43 77 61 92 107
Total Assets 1807 2881 2822 3258 3790


Consolidated Cash Flow (INR mn) FY15 FY16 FY17 FY18E FY19E
PBT & Extraordinary 348 359 222 426 630
Depreciation 90 94 121 138 159
(Inc) / Dec in Working Capital (6) (512) (332) (119) (104)
Taxes (98) (70) (31) (77) (113)
Others (14) (53) 72 24 15
Cash from Ops. 320 (183) 52 393 587
Purchase of Fixed Assets (76) (400) (111) (250) (300)
Others 0 755 0 0 0
Cash from Investing (76) 355 (111) (250) (300)
Borrowings (Net) (167) (57) 52 (30) (70)
Others (93) (112) (29) (24) (15)
Cash from Financing (260) (168) 23 (54) (85)
Net Change in Cash (16) 4 (36) 89 202
BF Cash 61 44 98 62 151
END Cash 44 98 62 151 353
Ratio Analysis FY15 FY16 FY17 FY18E FY19E

Profitability
Return on Assets (%) 13.7 8.6 6.8 10.7 13.6
Return on Capital (%) 32.6 18.8 11.6 17.9 21.2
Return on Equity (%) 24.7 13.2 9.3 14.5 17.6
Margin Trend
Gross Margin (%) 29.5 34.6 31.0 32.2 33.4
EBITDA Margin (%) 11.7 14.0 7.4 10.2 12.4
Net Margin (%) 7.0 9.2 4.9 7.3 9.3
Liquidity
Current Ratio 1.2 1.6 2.3 2.5 3.0
Quick Ratio 1.0 1.1 1.6 1.8 2.2
Debtor Days 50 115 73 69 65
Inventory Days 16 59 42 38 36
Creditor Days 21 47 21 20 21
Cash conversion cycle 45 127 94 87 80
Solvency
Total Debt / Equity 0.2 0.1 0.1 0.1 0.0
Interest Coverage 11.7 14.8 8.8 18.4 42.2
Valuation Ratios
EV/EBITDA 10.6 22.5 29.4 17.1 11.8
P/E 34.0 33.9 43.8 23.9 16.2
P/B 4.2 4.5 4.1 3.5 2.9


Apcotex Industries Ltd. Rating Legend
Date CMP (INR) TP (INR) Recommendation Our Rating Upside
21-Aug-17 402 447 ACCUMULATE Buy More than 15%
19-June-17 373 447 BUY Accumulate 5% – 15%

Hold 0 – 5%
Reduce -5% – 0
Sell Less than – 5%
ANALYST CERTIFICATION:
We, Dhavan Shah [B.Com, MS(Finance)], research analyst, & Bhavik Shah [MMS(Finance), CFA (level 3 passed)], research associate, author and the name subscribed to this report, hereby certify that
all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or
indirectly related to the specific recommendation(s) or view(s) in this report.
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Apcotex Industries Ltd.

Result Update August 21, 2017

MARKET DATA KEY FINANCIALS

Margins below expected lines:

SENSEX 31525 Valuation & View:

SHARE HOLDING PATTERN (%)

Particulars Jun 17 Mar 17 Dec 16

ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

Apcotex Industries Ltd.

Q1FY18 Result Snapshot

ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

Apcotex Industries Ltd.

ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

Apcotex Industries Ltd.

ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

Apcotex Industries Ltd.

Ratio Analysis FY15 FY16 FY17 FY18E FY19E

ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

Apcotex Industries Ltd.

19-June-17 373 447 BUY Accumulate 5% – 15%

Sell Less than – 5%

Terms & Conditions and other disclosures:

Please send your feedback to research.insti@krchoksey.com

ANALYST KRChoksey Research 91-22-6696 5555 / 91-22-6691 9569

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