Apar Industries

CONFERENCE CALL - from Capital Markets

Conductor volume to grow flat in FY17 but oil volume to grow 9-9.5%

Apar Industries held a conference call on May 26, 2016. In the conference call the company was represented by Kushal Desai – Managing Director; Chaitanya Desai – Managing Director and V C Diwadkar – CFO.

Key takeaways of the conference call

  • Conductor order book at Rs 1751 crore as on Mar 31, 2016 compared to Rs 1809 crore as on Dec 31, 2015. Export orders comprised 29% of order book. Cables Order book as on March 31, 2016 was up by 8% to reach Rs 199 crore as against Rs 184 crore in the corresponding previous year.

  • For FY17 expects Conductor volume close to last year volume of about 170000 tonnes and the EBITDA of Rs 8000-8500/tonne. Expects oil volume growth of 9-9.5% in FY17 and EBITDA of Rs 4000-4500/KL.

  • Target is 15% growth in cable business a shade less than Rs 800 crore is internal sales target for FY17 in cables business. A margin of 7.5-8.5% is expected for FY17 in case of cables business.

  • Conductor volumes for FY16 grew by 13% to reach 170,070 tonnes (compared to 150,557 tonnes in FY15).

  • The EBITDA (post forex adjustment) was Rs 9705/MT from Rs 4696/MT in Q4FY15. But the EBITDA (post forex adjustment) of conductors for FY16 was down by 1% to Rs 7606/MT from Rs 7698/MT in FY15. Lower EBITDA per MT in FY16 can be attributed to execution of low margin orders (picked up at a time of aggressive pricing) in H1FY16.

  • Of the FY16 conductor revenue, the share of PGCIL is 20%, 40% is accounted by exports and balance is accounted by EPC players as well as state Transcos.

  • HEC revenue up at 6.2% of overall Conductors’ revenue in FY16, from 1.1% in FY15, as the company grew its presence in the segment.

  • Conductor capacity utilization is 100% for FY16.

  • Specialty oils volumes for FY16, was up by 2.6% to 336526 KL from 328123 KL in FY15. Specialty oil volume for the quarter ended March 2016 was up by 3.4% at 89004 KL up from 86063 KL in Q4FY15, driven by rubber processing oil, auto lubricants and white oils.

  • Revenue of specialty oil for quarter and fiscal ended March 2016 was impacted on account of falling crude oil prices (lowering realizations) and sluggish market conditions. Export market impacted by delayed T&D orders from cash strapped commodity driven emerging economies. Domestic market depicting positive signs, however lacks consistency.

  • EBITDA (after forex adjustment) of specialty oils for the quarter ended March 2016, increased by 50% to reach Rs 4561/KL up from Rs 3048/KL in Q4FY15. Similarly EBITDA (after forex adjustment) for the year increased significantly to Rs 5407/KL (up from Rs 2722/KL in FY15), driven by lower base oil costs, sale of richer product mix, disciplined pricing and good client mix.

  • Specialty Oils: Setting up a port-based 100000 KL capacity plant at Hamriyah (Sharjah) at an investment of Rs 100 crore. This will add new opportunities like bulk exports and is strategically located in terms of proximity to customers.

  • Demand for transformer oil has to be good from distribution segment which sees strong funding from Deendayal Upadyay Grameen Vidyutikaran Yojna.

  • Of the total transformer oil sales about 25% is accounted by 400kv and special transformer types. About 35% is from products going to 220kv transformers and above.

  • The revenue of Elastomeric & power cables grew 68% and 24% respectively in FY16.

  • Optical Fibre cable segment has subdued demand as the off take from BSNL, BBNL and private telcos remains low. This is expected to continue in FY17 as well.

  • However the demand growth for Elastomeric and power cables will be driven by Railways, defence and renewable (wind and solar). The power sector with funding from uday, IDPS is expected to boost the demand for power cables.

  • Of the FY16 cables business sales of Rs 675 crore the share of Elastomeric & power cables is Rs 350 crore or 55%.

  • So given the expected muted OFC segment demand in FY17 and strong growth drivers for power/elastometric cables the mix is expected to change in current fiscal.

  • Apar with improving demand in power cables, is operating at full capacity and is planning a capex investment to cater to the increasing demand and further increase the profitability.

  • One time provisions/write-off of bad debts during the quarter and fiscal ended March 2016 was Rs 5 crore and that is towards legacy residual contracts execution issues. EBITDA margin excluding onetime write-off is at 7%.

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