Buy Apcotex, a niche player with strong technology & major entry barriers: Anand Rathi

One of the best way to screen stocks is to identify those which have been strong despite the bearish tendencies in the stock market. Apcotex Industries, a small-cap company with a market capitalization of Rs 3270 crore, is one of them. The stock is up 97% YoY and 320% over 5 years.



Anand Rathi has issued an initiating coverage report in which it has recommended a buy of the stock for a target price of Rs. 772, which is an upside of 22% from the CMP of Rs. 629.

It is pointed out that Apcotex Industries is one of the leading producers of Synthetic Rubber (NBR & HSR) and Synthetic Latex (Nitrile, VP latex, XSB & Acrylic latex) in India. It started as a division of Asian Paints in 1980 for producing Vinyl Pyridine latex and Carboxylated Styrene-Butadiene latex in India. It has transformed itself into a niche synthetic latex & rubber producer and as of today the company is one of the few companies to produce broadest range of emulsion polymers.

The company’s Synthetic Rubber finds application in broad range of products such as Automotive Components, Hoses, Gaskets, Rice De-husking Rollers, Printing and Industrial Rollers, Friction Materials, Belting and Footwear. Apcotex’s range of Latexes are used for Paper / Paperboard Coating, Carpet Backing, Tyre Cord Dipping, Construction, Glovesexamination, surgical and industrial use etc. Apart from having a diversified clientele Apcotex is present across diversified industries which protects Apcotex from any slowdowns in a single industry. As of FY21 no single industry contributed above 20% of its revenues.

The Company has a strong global presence in South East Asia, Middle East & Africa and intends to tap the Asian Markets. Asia Pacific leads production of the global synthetic rubber industry with the automobile sector leading the growth. With the rise in population, large manufacturing base of the automobile industry and the availability of competitive labour, India offers great opportunities for synthetic rubber product manufacturers. With increasing R&D investments backed by strong infrastructure, the country is poised to become a leader in rubber products manufacturing in the years ahead. It manufactures specialty synthetic rubbers i.e. Nitrile Butadiene Rubber (NBR) and High Styrene Rubber (HSR) etc.

In India, around 70% of Nitrile Butadiene Rubber (NBR) is imported, which creates good potential for Indian manufacturers of Nitrile Rubber. Notwithstanding the recent slowdown due to Covid-19 and other reasons, the long-term growth of this segment can be attributed to the growing demand for NBR across automotive, industrial and agricultural applications.

It is emphasized that Apcotex's strong technology & management, extensive experience , and high-profile clientele have aided it in building major entry barriers for potential competitors and new entrants. As a result, it has a significant market share in each of the industrial verticals in which it operates. Moreover, upcoming and ongoing new capacity additions, growing export demand for NBR related products (Nitrile & XNBR latex etc.) and improving domestic demand in underlying industries like paper, carpets, construction etc, is expected to drive further growth for the company. We expect Apcotex’s Revenue/EBITDA/PAT to grow at a CAGR of 18%/21%/16% respectively by FY24 with margins being relatively stable.

Click here to download Anand Rathi's research report on Apcotex Industries