Thread by @ValueEducator

Key highlights from #ApcotexIndustries Q4FY23 concall

CMP - ₹485

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•The capex of the company at the Taloja and Valia facility has come online. The original capacity planned for Taloja was 10,000 MTPA however, the company did some investments and increased the capacity to 35,000 MTPA. This capacity expansion was done taking into account

the slowdown in the nitrile latex industry for which the company has brought a 50,000 MTPA of nitrile latex capacity onstream at Valia.

•The plant at Taloja will be an MPP which will be used to manufacture products like styrene acrylic latex, styrene butadiene latex

and others. The company had applied for an EC of only 10,000 tons however, as they have increased their capacities in Taloja, they have applied for an EC for the additional capacity. They plan to get the EC within the next 6 months post which, they could be able to

attain full capacity utilization in Taloja.

•The company funded almost 60% of their capex with debt in the form of long-term loans. Hence, the company expects a short-term hit on their PBT numbers due to the depreciation and interest numbers which will kick in.

•The company plans to get ₹200 - 250 crores of additional revenues from this capex in the first year of operation. The company plans to attain peak revenues of ₹600 - 700 crores when they have achieved peak utilization of their capex which will require a minimum of 2 years.

•Therefore, probably by FY26 the company could be able to achieve a topline of around ₹1800 crores considering the fact that they have clocked revenues of ₹1080 crores in FY23. The company expects to maintain its baseline EBITDA margin of 14-15% which may increase

to 17-18% once the margin situation for nitrile latex normalizes.

•Nitrile latex is used in products such as gloves. The glove industry is going through a deep downturn in the last few months due to the huge inventory buildup in 2020 and 2021, new capacities added in 2020 and

2021 along with the reduction in demand due to the Omicron variant which was spread all over the world. Thus, due to the oversupply, there has been a reduction in price which has led to reduction in margins for players in the glove industry like Top Gloves.

•The majority of the latex made by the company is sold in India which is more than 75%. The remaining is exported to regions such as South East Asia, Middle East, Europe, China, South America and others. The major export markets for the latex are South East Asia and Middle East

•The company before making any investment in any space considers factors such as barriers to entry, competitive intensity, potential for growth of the end-use industry and others. These factors form part of the company’s checklist for investment.

•The company looks at projects where it can earn at least 20-25% return on capital(ROC). The company expects to earn similar returns over the long term despite the downturns in the gloves industry.

•The company plans to achieve its growth by doing the following:

1)Grow the emulsion polymer business
2)Enter new spaces
3)Evaluate opportunities for organic and inorganic growth
4)Developing new products

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