Apcotex Industries Ltd- Initiating Coverage (BUY)

We recommend ?BUY? on APCOTEX INDUSTRIES LTD for a target of INR 657 – valuing the company at P/E 23x of FY20E Earning.

CMP:? ? ? ? ? ? ? ? ?INR 585

Target Price:? ? ?INR 657

Investment Rationale:

- Apcotex is a leading producer of emulsion polymers.
- Higher utilisation, newer capacity, increased market share.
- New products, client stickiness to help maintain margins.
- The company has one of the broadest ranges of products in the industrial segment and caters to a wide range of industries.
- AIL keeps introducing newer products in the emulsion polymer segments, which helps it to command better margins.
- The company intends to partly offset this impact via efficient raw material purchase and increase the contribution of high margins exports.
- AIL witnessed a continued demand revival (volume & value driven) across all industries in the domestic market.
- Sturdy performance continues for another quarter.
- Capacity expansion to help drive topline growth.

Valuations And View:

Apcotex is one of the leading producers of Synthetic Rubber (NBR & HSR) and Synthetic Latex (Nitrile, VP latex, XSB & Acrylic latex) in India. Apcotex Industries has one of the broadest range of Emulsion Polymers available in the market today. Apcotex has significant global presence and for last few years has done business in all continents and several countries. We value the business at 23x FY20E EPS and recommend a BUY rating on the stock with a target price of INR 657 per share.

Risk & Concerns

- Procurement Risks: Major risks arise from a few main raw materials like Styrene, Acrylonitrile and Butadiene that are used in several products. There is an availability risk associated with all since Styrene and Acrylonitrile are not manufactured in the country and have to be completely imported.
- Environment, Health and Safety (EHS): The Company is committed to protecting the environment and ensuring the health and safety of its employees, customers, neighbours and public. Some of major raw materials are hazardous and flammable and some safety risks are inherent in the manufacturing processes.
- Dependence on Single Manufacturing facility: While company has two manufacturing facilities, some of its 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.

Company Background

Apcotex Industries Incorporated in 1986 as a division of Asian Paints India, Apcotex Lattices (ALL) was separated from the former in 1991 to enable closer management focus. 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 De-husking Rollers, Printing and Industrial Rollers, Friction Materials, Belting and Footwear.

Apcotex state-of-the-art manufacturing plants are strategically located on the western coast of India. Over the past several years, it developed a strong Research & Development base, which has enabled it to develop, manufacture and export products and compete effectively against global players. Through its technical service team and well-equipped application laboratory, it believe in providing value added services to enable customers to constantly improve the quality of their final product. Apcotex has significant global presence and for last few years has done business in all continents and several countries.

Apcotex has been awarded the prestigious ?TPM Excellence Award, Category A? and ?TPM Consistency Award? by the Japan Institute of Plant Maintenance (JIPM), Japan. Apcotex, an ISO 9001:2015 certified company, is also certified for ISO 14001:2015 (Environmental Management Systems) and OHSAS 18001:2007 (Occupational Health and Safety Management Systems). Apcotex is a Responsible Care certified company.

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