Apcotex Industries - Synthetic Rubber & Latex Mfr, diversified & growing end user industries
2x Revenue visibility over 4-5 years, most of capex done maintaining strong BS
For comprehensive 1-pager research & forecasts - Link
Company was a division of Asian Paints, that got spun off in 1991, which was headed by ex-Asian Paints MD, Mr. Atul Choksey. Currently, Abhiraj Choksey is the MD.
Apcotex Industries is a leading manufacturer of synthetic rubber & synthetic latex in India, with current overall capacity of 65,000 MT in Synthetic latex and 28,000 MT in Synthetic rubber (o/w 7,000 is High Styrene Rubber (HSR) & 21,000 is Nitrile Rubber (NBR) & Allied products).
There is a diverse end user industry, end user company mix (more details in 1-pager). Top 10 customers ~35% of revenue. Approx. mix currently - 20% paper, 15% construction, 10% carpet & textiles, 10% tyre, 7-8% nitrile latex, balance automobile, footwear, agri, etc.
Due to proprietary product and process technology, large capex, long sales lead times and difficult-to-handle RMs, competition is limited in India.
In Synthetic Latex, Apcotex is No.2 player in India (40% market share), largest being BASF. Most of the end user segments are seeing good growth.
In Nitrile Rubber (NBR) and HSR, Apcotex is the only manufacturer in India. (1) NBR - It has ~25-30% market share due to capacity constraints. Segment 5-10% growth. (2) HSR - It has a high market share but a flattish volume trend.
Currently, the capacity is running at full utilizations, yielding annualized revenue of Rs 1,000 crore, Apcotex has been able to maintain ~13-16% margins. Margins remain volatile across quarter basis the inventory gain/loss on raw materials, however, sustainable margin guidance is ~15%.
Apcotex over the past 2 years has invested Rs 200 crores in building ~60,000 ton of XNBR latex (formed by adding carboxyl group to NBR), commonly known as nitrile latex, 95% of end use being medical gloves. With all the capex done getting commissioned in FY23 end, visibility of doubling revenue to Rs 2000 crore over 4 years (by FY27E) with limited incremental capex. Risk - While the XNBR latex capacity for Apcotex is expected to do well over medium term driven by end use being medical consumable, the industry is facing a cyclical downturn currently. Excess capacities of nitrile gloves built globally during the COVID is suddenly facing high underutilization & excess inventory, impact of which can be seen in fact that largest player Top Gloves had to report loss. It is in turn impacting XBNR latex manufacturers, though impact is lesser as it is not as fragmented. Management is guiding for 6 months before things normalize, it will be a key monitorable in near term. Impact can be in form of lower margins in H1FY24 in segment.
Management has mostly ensured operating at healthy 15-20% ROCE levels. Thy have maintained 35-40% div payout and funded the expansion mostly through internal accruals. Debt on books (incl W/capital will be Rs 150-200 cr at peak, <0.5x D/E).
On a FY23E basis, Apcotex trades at 25x PE (Rs 100 cr PAT), 17x EV/EBIDTA (Rs 150 cr EBIDTA). With capacity expansion done getting utilized, there is a good potential of earnings doubling over next 4 years by FY27E (Rs 200 crores). Earnings will be key driver for returns, stock holds 15-20% 4-year CAGR potential.