Apcotex Industries : Making A Mark

The Company is definitely an outperformer as the stock is up by 53.30 per cent whereas benchmark indicator Nifty Small-Cap 100 has been up only by 0.34 per cent in the last one month 

Established in 1980, Apcotex Industries was a division of Asian Paints, which was later spun off as a separate entity. The decision was taken under the leadership of Atul Choksey, former Managing Director of Asian Paints Ltd. and the current Chairman of Apcotex Industries Ltd. The company pioneered the manufacturing of vinyl pyridine latex and carboxylated styrene-butadiene latex. Nowadays, it is one of the leading producers of VP latex, acrylic latexes, nitrile latex, carboxylated SBR, high styrene resin and synthetic rubber in India. It operates in various segments such as paper and paper products, tyre cord dipping, carpets, paints, construction, textiles, footwear, conveyer belts and automotive components.

The company’s manufacturing plants are located at Taloja in Maharastra and Valia in Gujarat. Its research and development laboratory is recognised by the Department of Scientific and Industrial Research (DSIR), Ministry of Science and Technology, Government of India. Apcotex Industries is on the mission to develop and adopt innovative solutions which will add superior value to its customers. It also tries to promote sustainable use of resources and materials through environmentally friendly and best safety standards. The management believes that industrial hazards are preventable and in order to prove this belief, the company has acquired a new effluent treatment plant. It has also employed adequate facilities for monitoring and control of various solid, liquid and gaseous wastes. In addition to that, it tries its best to reduce power and fuel consumption.

Sector Overview
India is the second-largest two-wheeler manufacturer and largest three-wheeler manufacturer in the world. It is also one of the leading producers of commercial and passenger vehicles. And, the largest end-user of rubber is the automobile industry. Hence, it ultimately results in the growth of the rubber and latex industry in India. Thailand is the largest producer of natural rubber in the world. It produced 4.37 million metric tons in the year 2021, accounting for a 35 per cent share of the total global production of rubber. Thailand, Malaysia, Indonesia and Vietnam, all together, export nearly 70 per cent natural rubber each year. China is the world’s biggest consumer of natural rubber. On an average, it consumes nearly 40-45 per cent of the total production.

India is the fourth-largest producer whereas it is the secondlargest consumer of natural rubber. The global market size was nearly USD 29.8 billion in 2018 and USD 34.49 billion in 2021 and is expected to reach USD 45 billion by the year 2026. The industry is growing at a compound annual growth rate (CAGR) of nearly 5 per cent. The increased portion to the rubber industry in the last financial budget has encouraged the Indian rubber and latex industry. Stakeholders and investors are assured that this government assistance will help the sector to boost up in the near future. These financial resources can be used for various activities under planned schemes such as subsidies for planting and replanting, providing assistance to rubber-producing societies and women self-help groups, etc.

Financial Overview
Considering the financial performance of the company, on a consolidated basis for the fourth quarter of FY22 it recorded net sales and other operating income of ₹ 277.46 crore, thus posting growth of 48.44 per cent from ₹ 186.92 crore reported in Q4FY21. On the other hand, the operating profit was recorded at ₹ 46.79 crore in Q4FY22 as compared to an operating profit of ₹ 32.08 crore in Q4FY21. Q4FY22 recorded a net profit of ₹ 30.90 crore in comparison with net profit of ₹ 22.60 crore in the same quarter in the previous year, giving a strong rise of 36.74 per cent. Considering the yearly performance, net profit of Apcotex Industries rose by 123.75 per cent to ₹ 98.81 crore as against ₹ 44.16 crore during the previous year ending March 2021. Also, net sales rose by 76.99 per cent to ₹ 956.89 crore as against ₹ 540.64 crore during the previous year ending March 2021.

Also, net sales rose by 76.99 per cent to `956.89 crore as against `540.64 crore during the previous year ending March 2021.On the ratios front, the company’s earning per share (EPS) has surged to ₹ 8.52 from ₹ 3.21. This huge increase of nearly 265 per cent indicates that the company has room for increasing its existing dividend. It recently declared dividend of ₹ 3 per equity share in its annual general meeting. In case of margin ratios, EBIT margin and PAT margin have increased from 5.44 per cent to 11.37 per cent and 3.35 per cent to 8.15 per cent, respectively.

These two ratios indicate that the company successfully has been able to increase its sales income while creating new demand for its products. It has also managed its interest and tax expenses quite well. The company has a low debt-equity ratio of 0.05 times. It was 0.20 times for the quarter ended March 2020, which clearly states that Apcotex Industries is getting more of its finance by funding through equity rather than by debt. It is not only getting finance from equity holders but is also able to pay them in good numbers as the return on equity ratio has surged from 6.29 per cent to 15.87 per cent.

Hence, by comparing these pillars of profitability, asset management and financial leverage, the ROE tells about effectiveness and overall strength of the business. Apcotex Industries is definitely an outperformer as the stock is up by 53.30 per cent whereas benchmark indicator Nifty Small-Cap 100 has been up only by 0.34 per cent in the last one month. On the other hand, the company’s share appears to be cheaper as it is trading with a lower price as compared to its peers. Also, the PE ratio has declined from 24.68 times to 21.04 times which is quite good for the company.

Outlook
In India, commercialisation of rubber began in 1902 when Indian farmers recognised the possibility of rubber as a crop. Since then, the rubber industry has played a significant role in developing India’s economy. A lot of events are happening in India which will help the rubber industry to grow in the near future. Union Commerce and Industry Minister Piyush Goyal explained how Northeast India will be the hub of natural rubber production. He said four major tyre companies represented by Automotive Tyre Manufacturers Association (ATMA) have come together to invest ₹ 1,000 crore for rubber plantation on 2,00,000 hectares of land in seven states over a period of five years.

Also, the commerce ministry of India is trying to repeal old laws. It is trying hard to introduce new rules and regulations to promote ease of doing business and the growth of the sector. For that, the Rubber Bill has been introduced. It proposes replacement of periodic licensing and allows one-time registration. It also removes permission requirements for possession of natural rubber.

On the other hand, local authorities are encouraging to improve the quality of natural rubber so that export activities and new innovations will be welcomed. Considering the financial performance of the overall sector, net profit rose by 133.33 per cent to ₹ 216.44 crore as against ₹ 162.33 crore during the previous year ending in March 2021. Also, net sales rose by 127.16 per cent to ₹ 2,960.77 crore as against ₹ 2,328.33 crore during the previous year ending in March 2021.

Apcotex Industries has developed unique, high-quality and cost-effective grades of nitrile latex which it has been manufacturing from their current plants for the last couple of years. The company has recently announced a nitrile latex capacity expansion of 60,000 MT per annum at their existing plant locations in India. This capacity will be further expanded to 90,000 MT per annum as the global demand for nitrile gloves is expected to grow rapidly over the next few years. It has expanded its product range to nitrile rubber, nitrile powder and polyblends and is trying its best to adopt new technologies in emulsion polymerisation.

The company is also adopting new technologies which will make it simpler to handle raw material which are toxic and explosive. It is focusing more on automation as it is the only way to scale operations. Technical service and product customisation will provide some good opportunities in the future. Apcotex Industries has a strong global presence in South East Asia, the Middle East and Africa because of its export activities. Now, the company is planning to tap new Asian markets. Hence, considering the positive long-term outlook for the rubber and latex industry as well as very good opportunities lined up for Apcotex Industries, we recommend BUY.