Apcotex Industries Initiating Coverage Research Report By Axis Securities

Apcotex Industries Ltd
Sector: Specialty Chemicals

Investment Rationale

Leading player in Emulsion Polymer segment a niche product segment

Chakri Lokapriya
AARTI INDUSTRIES:
See 40% growth in earnings in 2-3 yrs
APCOTEX INDUSTRIES
See 30% growth in earnings in next 1-2 yrs

— avanne dubash (@avannedubash) October 30, 2017

Apcotex Industries: 3 factors to drive re-rating in the counterhttps://t.co/z0f4hRgylP (via @anubhavsays)

— moneycontrol (@moneycontrolcom) May 8, 2018

– Formidable positioning in the emulsion polymer industry given that Apcotex Industries Ltd. (AIL) has +30 years of experience

– Numero uno position in paper (42% share), carpet (65% share), construction (35%) and tyre (25%) industry for Synthetic Latex products

– Healthy volume growth of 13.5% CAGR over the last decade (FY09-18). We expect total volumes to grow at 13% CAGR over FY18-20E

NBR Market a huge opportunity

– Single largest and only player in India manufacturing Nitrile Butadiene Rubber (NBR)

– Global market estimated to be ~5,00,000MT entailing huge opportunity to incrementally grow exports market

– NBR market in India stands at ~40,000MT growing at 6-8% CAGR, while 80% NBR is imported

– AIL a market leader with 20% market share an increase of 400bps over FY16-FY18 following acquisition of Omnova Solutions. Import substitution offers huge opportunity to grow market share in high margin NBR product

– To incur Rs. 70 crore (Phase I) efficiency improvement capex at Valia plant (NBR focused) to undertake de-bottlenecking of manufacturing process and improve asset turnover. Of this Rs. 30 crore to be spent in FY19

Significantly higher entry barriers

– Handling explosive, toxic and inflammable RMs is critical, AIL has experience and expertise which is difficult to replicate

– Elongated customer approval cycles between 6 months to 3 years

– Critical process technology developed in-house allows sustainable competitive edge

– Developing proprietary products ensures product customization and thus client stickiness and loyalty