Buy Apcotex Industries, A niche player in synthetic latex & rubber products: Anand Rathi

Apcotex Industries Limited (APCOTEXIND)
A niche player in synthetic latex & rubber products

► Apcotex Industries Limited (AIL) is one of the leading producers of Synthetic Rubber (NBR & HSR) and Synthetic Latex (Nitrile, VP latex, XSB & Acrylic latex) in India. 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.

► Apcotex 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.

► 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. We initiate our coverage on Apcotex Industries Limited (APCOTEXIND)with a BUY rating and a target price of ₹772 per share.