Strong margin rebound, Growth in sight, Maintain BUY
Apcotex Industries reported better operational performance than estimates because of better volumes supported by uptick in SBR & Nitrile latex. Realizations remained weak, spreads per ton improved led by better product mix & operating leverage benefits. Lower cost of raw materials averted grave issues like overcapacity & weak demand. Revenue de-grew by ~7% YoY & ~2% QoQ largely led by lower realizations, despite robust volume support of ~10% YoY from nitrile & SBR latex businesses. During the quarter, demand from paper & carpet segment remained largely muted & we expect normalization in the coming fiscal. The excitement around recent Anti-dumping duty (ADD) in NBR is waning as finance ministry has still not notified to impose despite DGTR confirming for the imposition. We believe NBR margins will remain muted in the medium term unless demand itself picks up materially in absence of ADD. To maintain its volume momentum, the company last quarter announced new brownfield expansion plan to commission 37KT plant of synthetic latex & 14.6KT plant of NBR. The combined investment will be Rs2.1bn & peak utilization would contribute revenues of Rs5.5-6bn (2.5-3x asset turns). Nitrile latex oversupply situation is still persistent, thereby, impacting realizations & margins. Nitrile latex is operating at ~95% utilization as on Q3FY26 & 70-75% YTD thereby contributing significantly to topline. As demand in gloves segment normalizes, we expect substantial EBITDA contribution from nitrile latex business in the coming years. Considering two years down the line, we see higher contribution from synthetic & Nitrile latex backed by expansion, higher export & improvement in demand. The recent expansion will start by early FY28E & we are factoring modest uptick in spreads of nitrile latex for the next 2 years. The stock price has remained range bound compared to last quarter. Considering strong growth in sight, demand challenges behind, bottoming out cycle & volume momentum in sight, we maintain our target multiple of 25x & roll forward our valuations to March 28E& arrive at target price of Rs 655 per share, upside of ~72%, maintaining our BUY rating on the stock. Margins better than expectations led by better product mix, new capex to support volume momentum
Apcotex Industries Ltd – Q3FY26 Result Update – SMIFS Institutional Research
