Normally, when a stock is described as being on a “game changer” path, we have to be on red alert because it implies that something revolutionary is happening which will alter the fortunes of the Company in a significant manner and create untold wealth for its shareholders.
In the past, Daljeet has conferred the “game changer” title to stocks like SQS BFSI India, OnMobile Global, Majesco, Meghmani Organics etc, all of which have delighted shareholders with humongous gains.
Apcotex Industries, a micro-cap with a market capitalisation of only Rs. 600 crore, is the latest stock said to be seen to be on a “game changing” path.
Daljeet points out in his initiating coverage report that Apcotex is engaged in the manufacture of a specialty chemical called “Performance Emulsion Polymers” which have wide application in footwear, automotive components, v-belts, conveyer belts, hoses etc. He explains that the Company’s technology, experience and clientele have emerged as a significant entry barrier and that this has led it to capture a lion’s share of the market.
Daljeet claims that Apcotex’s acquisition of OMNOVA solutions has led to a monopoly position in Synthetic Rubber and brought it access to unique technology to manufacture Nitrile Latex.
He also states that the management’s new five year vision and track record of executing as per the plan will lead to the next level of revenue growth and margin expansion.
Daljeet has projected a target price of Rs. 444 (20.0x FY18E) which works out to an upside of about 61% from the CMP.
|Apcotex Industries Ltd – Key Fundamentals|
|Market Cap||(Rs. cr)||600|
|EPS – TTM||(Rs.)||[*S]||11.90|
|Latest Dividend Date||22 Jul 2015|
|Book Value / Share||(Rs.)||[*S]||90.26|
[*C] Consolidated [*S] Standalone
|Apcotex Industries Ltd – Financial Results|
|Particulars (Rs. cr)||Mar 2016||Mar 2015||% Chg|
(Source: Business Standard)
An indication that there is merit in Daljeet’s theory comes from the fact that Vijay Kedia, one of our favourite stock wizards, has parked himself firmly in the stock.
Kedia bought his first tranche of 61,456 shares on 6th August 2014 at Rs. 135 each (adjusted for 1:1 Bonus). By 31st March 2015, his holding had swelled to 115,907 shares. As of 31st March 2016, Kedia holds 231,814 shares. The investment is worth Rs. 6.70 crore at the CMP of Rs. 289.
Apcotex delivered robust Q4FY16 results with the sales spurting 24.54% YoY and the operating profit surging 46.33%. The net profit was up a whopping 288.56%.
Daljeet has issued an update report in which he claims that the fact that Omnova turned profitable at the EBITDA level as opposed to a loss on a YoY basis shows the effect of the new management. Daljeet has identified several other “triggers” and argued that rebalancing of inventory and receivable days to the overall Apcotex level could lead to huge free cash flow generation. He has also emphasized that despite the business acquisition the overall balance sheet looks stable with further decline in the debt level. He has confidently asserted that “OMNOVA business reaching to the steady state margin level of Apcotex will create significant shareholder value”.
Apcotex has issued an investors’ presentation in which it has highlighted its impressive performance in the past. The plans for the future, with particular reference to the OMNOVA acquisition, are also laid bare.
ICICI-Direct is also gung-ho about Apcotex’s prospects. It explains that Apcotex’s debt free status post-acquisition, sound operating cash flow generation from the standalone business of ~Rs. 50 crore over the next two years (FY17E & FY18E) will provide adequate cushion to the business model. The successful turnaround of this acquisition holds the key for any future re-rating of the company, it adds.
It is worth noting that Apcotex is promoted by the Choksey family which also owns Asian Paints, the blue chip powerhouse behemoth. Asian Paints has created incalculable wealth for its shareholders over the decades. Whether Apcotex will be able to walk in its illustrious footsteps requires to be keenly watched!