Apar Industries

Thoughts on the recent results and con call anyone?

While the Q4 numbers are very good I think the guidance indicates conductor margins may go down to 8% like Q3 in Q1 and down to 6% further on. This is why the market has reacted as it did today. These margins are not as bad as the 3-4% or so in the past

The cables business alone ought to be worth more than 10k Cr if you take the cables topline of 4500 Cr next year with a 10-12% margin (relative valuation like KEI at 2.5x sales). I do believe the competetion for cables and wires in exports is lesser and this must be sustainable.

However, the conductors clearly will go down as indicated since the biggest tailwind contributor was duty on Chinese products and looks like they have now found a way to circumvent tariffs by buying players in Vietnam and South Korea and exporting from China to them and doing minimal value-add and exporting to US. The roundabout logistics will make them less competetive no doubt but still what happened last quarter is clearly a one-off when it comes to conductors.

I believe 3000 is fair valuation here but will be the top here until market sees next 2 quarter numbers and develops confidence.

Disc: Exited most of my holdings but think this can be a good value buy for a trade if market continues to over-react in the next 3-6 months

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Hi, I have a rather basic question which may not be relevant to the topic but I don’t know where else to ask.
The management has been telling about abnormal margins in conductor business even in the previous concall, so I was expecting that market was somewhat aware of that. And the current concall, the company has guided on newer opportunities in renewables as well as for Indian railways (where I realise Apar already has the product ready and its more about when the government decides on the upgrade) (all in all from what I understood it was not all doom and gloom). Moreover, the shareholding pattern has also increased among FII/DII over the last quarter and public shareholding has gone down. And I assume institutions would have known this beforehand.
From the above points do you feel this sell off today was profit booking/panic selling and the stock is not likely to go below another 15-20% and can rather consolidate for a few quarters in this range?
My average buying price is Rs. 1,800 and I was looking to do SIP in this stock for at least 12 more months, with an outlook of 2-3 years in mind.

Do guide me if this would be the correct approach or the company is more cyclical in nature. (My reasoning for holding this stock was the growth in infra, railways, growth in cable business and lesser valuations compared to other cable companies like KEI)

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I am not qualified to guide so just giving my opinion. If fair value of something is 3000 it doesn’t need to trade close to it and can be at a 20-30% discount to it or trade in excess of it and something that’s cheap can also stay cheap for prolonged periods. So it’s hard to tell if the fall is profit booking and if it will recover from tomorrow or if there is another 10-15% downside. Nobody knows.

If fair value is 3000 and its available at 2000, its a great deal as it offers a 50% upside (this is the only truth). I believe that this is a good business with great tailwinds but has poor perception from the market (that was the whole thesis for my trade). People who don’t follow this business closely think it’s purely a commodity play - a lot of it still is but there are few premium products and few standard commodities like ACSR which have fetched outsized margins - management has made this quite clear in several calls

The management for its part is stellar when it comes to tempering near-term guidance even when going was great but also thumped up a lot on the tailwinds being decadal - it sends mixed messages but then that’s the precise truth. The participants needling the management on the conductor margins repeatedly were more hopeful of some rope being thrown but management stayed put on the guidance as any conservative one should. If anything I have grown to like and trust this management post yesterday call.

I don’t think the management expected the Chinese to be nimble with Vietnam and South Korea but that’s something capitalism ensures when RoCE is 50%. The energy transition is geopolitics and macroeconomics driven and so is the tariffs (one due to Russia and another due to China) - I don’t think the management or anyone on the planet currently who can predict how these will go and this unfortunately is what will decide the conductor EBITDA/ton - so nobody knows

I feel this business could compound well over time when bought at good discounts to fair value and if that’s your thing, profit booking or where its trading shouldn’t concern you and you should continue to focus on your strengths and your process

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Thanks for bringing this thread back to life @phreakv6, this is actually my first write-up here in VP so correct me if I am wrong.

Sharing my thoughts in short for what you said @Akashdeep, well, you’re right it was known that the conductor margins weren’t here to stay and this has been factored in ever since it was made public is what I believe as a company trading at a considerably lower than Industry PE has to have something anchoring it down.

Now coming to the present, I believe the promoters are brutally honest and conservative as it is better to over deliver than to under deliver which is why the con-call overall is a little underwhelming but when seen in an unfiltered way is confidence inspiring which will eventually lead to the stock to hit new highs in a few days or a couple of months, why? Because when the promoters said Chinese competition is increasing the first thing that came to my mind was opportunity because fishermen go where the fishes are. So they are at the right place and probably doing the right things.

What I understand from the available information is that future growth will be purely based on industrial tailwinds that should be strong and long-lasting. Also, note the promoters have always underplayed their growth forecast and margin guidance, they wouldn’t increase their holding if it was as pale as things have started to look all of a sudden and they wouldn’t have a CWIP of 100cr, and announcing another capex of 450 odd crores.

Some growth triggers according to me -
Domestic - It’s like betting on India’s growth. From Railways to Infra to transportation to Households. Higher power consumption needs higher transmission needs higher load-bearing cables. Many outdated cables will soon be replaced without which utilities can not be used to their fullest.

International - Volumes and guarding clients will drive growth here
Amongst very few suppliers with UL approvals without which you can’t supply cables to the US, Conductor replacements, Subway works, and many other such opportunities. Some that even the company will discover as opportunities open up.

Finally, the valuations have drastically improved after the guidance of roughly 15-20% overall growth consistently with good capex plans and today’s fall which bought us all together here. This fall combined with the jump in EPS has led to a PE drop to a level I would call SALE.
I too believe the right valuation of the stock currently lies between the 3000-3350 range. It might very well go above it and that’s when we need to point our ears up.

Thank you for reading so far I hope I didn’t bore you, I didn’t get into a lot of numbers as all of that is already available everywhere, I think what most of us including me need is conviction and a lot of different viewing angles.

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Company’s presentation for Q4 states that “Exports’ revenue was up by 85% YoY driven by 164% increase in cable division and 81% increase in conductor division. Export mix was at 52.7% versus 39% in Q4FY22” There is no country wise exports breakup. IMO, time has come for Indian companies to take head-on with Chinese companies.
Are the export contracts long term? Management stated that they don’t go for turnkey projects but did not mention the average duration of the export contract. Assuming that some company wins a contract on turnkey basis and places order for import of material from Apar, any idea which are the top customers. Did not see anybody mentioning about the business model in the above chain.
Disc: Evaluating, will wait for couple of quarters to see China’s impact on Apar Industries

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So here we are at the valuations we were anticipating, factoring in everything if the rally continues the stock should taste the 3800 range which will undoubtedly make the stock overvalued but as they say, the market is either euphoric or fearful.

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Some institutions might be interested, they appeared on TV also a few days back.
Results are expected to be muted compared to previous quarters if price sustains then, it might mean Apar is getting a PE re-rating. Glad I didn’t sale off on that fateful day :smile: But I did reduce a little bit of allocation on Monday and added that to my other stocks.

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I was trying to add this under my tracking position. I got an alert from icicidirect platform that “Apar Industries Ltd. is currently on Long-term stage - 1 under Additional Surveillance Measure (ASM)” by SEBI. So please check before you place an order.

Can any one advice what is its implication? This information is also available in many other websites.

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Stocks which go up or down fast are put under automatic surveillance by the exchanges.

You can read more about ASM here: https://www.nseindia.com/regulations/additional-surveillance-measure

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Yearly
Particulars FY23 FY22 FY21 FY20
Revenue 14352 9317 6388 7425
Exports 49% 38% 41% 34%
EBITDA 1269 578 440 495
Margin 9% 6% 7% 7%
PAT 638 257 160 135
Conductor
Revenue 7013 4200 2908 3600
Volume 160,131 107357 128460 158104
EBITDA 716 195 102 183.6
EBITDA per metric tonne 44114 17095 7926 10790
EBITDA margin 10.10% 4.40% 3.53% 5.10%
Order Book 5152 5409 1649 2617
Export% 60% 38% 52% 40%
Premium products 40% 49% 33% 18%
PAT 370
Oil Business
Revenues 4656 3544 2364 2311
Exports 45% 44% 41% 37%
Volume growth 5% 16% -1.10% -6%
Volume 486582 461589 399214 403626
EBITDA 233 292
EBITDA margin 5% 8.20%
EBITDA per KL 4781 6347 7032 2990
PAT 85
Cable Division
Revenues 3263 1944 1270 1600
Exports 52% 20% 17.20%
EBITDA 348 106 60 178
EBITDA margin 10.20% 5.30% 4.71% 11.10%
Order Book 1200
PAT 178
Quarterly
Particulars Q1FY24 Q4FY24 Q3FY23 Q2FY23 Q1FY23 Q4FY22 Q3FY22 Q2FY22
Revenue 3773 4089 3942 3235 3093 3012 2229 2269
Exports 53% 53% 49% 47% 42% 40% 35% 36%
EBITDA 346 424 347 226 237 174 117 128
Margin 9.00% 10.00% 9% 7% 8.00% 6% 5% 6%
PAT 197 243 170 103 122 83 55 57
Conductor Business
Revenues 1775 2121 1908 1439 1548 1503 940 1081
Volume 45565 49489 44538 30227 35877 33849 22415 29191
Volume growth (YoY) 27% 46% 99% 4% 64% 9% -29% -14%
Premium product basket 746 976 839.52 633.16 19% 25% 19% 14%
Exports 57% 58% 54% 46% 41.80% 44.30% 29% 32%
EBITDA 177 287 222 118 85 60 43 50
Margin 9.90% 13.50% 11.60% 8.20% 5.10% 4.00% 4.50% 4.70%
EBITDA per tonne (forex adjusted) 38740 58000 49942 39108 21933 17599 18987 17199
PAT 101 170
Order Book 5356 5124 4885 4065 3647 5409 4314 2428
Capital Employed 1111 1058 1092 688 690 720 294 510
Oil Divison
Revenues 1198 1179 1241 1176 1068 921 905 895
Volume (in KL) 130654 131132 126731 113360 115359 117021 116109 113981
Volume growth 13% 12% 9% -0.50% 0.80% 13% 0 0
Exports 50% 45% 43% 47% 44% 42% 46%
EBITDA 78 48 21 52 112 70 78 60
EBITDA margin(post forex) 6.50% 4.10% 1.70% 4.40% 10.50% 7.60% 8.60% 6.70%
EBITDA per KL (forex adjusted 6035 3679 1646 4550 9713 5979 6743 5285
PAT 34 7
Capital Employed 792 750 566 694 798 751 654 649
Lubricants
Revenues 241 231 238 207 217 211 199 211
Volume (in KL) 17500 18370 17063 16595 17618 17098 15390 16822
Transformer Oil 40% market share
Cable Business
Revenues 967 943 921 762 638 683 486 425
Exports 52% 52% 49% 50% 43% 27.30% 35% 29%
EBITDA 110 117 109 70 49 48 15 17
EBITDA margin(post forex) 11.40% 12.40% 11.80% 9.20% 7.60% 7% 3.10% 4.10%
PAT 60 148
Order book 930 1221
25-28% is US
Capital Employed 596 611 702 688 487 581 520 540

I was doing some number crunching on Apar. Hope this helps.

Disclosure: Studying. Not invested

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A very positive sign, reinforcing an already solid track record.

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Raising of Funds

A small sign that expansion work has begun…I also happened to speak to a transformer manufacturing company (Indotech) and got to know that they are using Apar’s transformer oil…as most transformer companies are anticipating 25-30% growth apar is bound to benefit.

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Notes of February 2024 concall -

(View : Bullish)

Cables: Elastomeric products and exports increased.
US and EU enquiries increased.

Increasing interest in HTLS lines:
Tenders are lined up.
Trend is positive but awarding of tenders may get delayed due to election.

High Temperature Low Sag Conductors (HTLS) can withstand operating temperatures of up to 210 °C, thus carrying higher power compared to conventional conductors.

Standardisation of conductors:
A transition is happening from ACSR to AL-59 alloys.
The upgrade in the specifications ACSR to AL-59 alloy has actually created a win-win situation for manufacturers like APAR as well as for transmission line owners. This results in a reduction in the total cost of ownership of the transmission lines. So, this effect may play out over the next few years. Few players are there in AL 59 products.
Higher technonolgy is involved in providing those products, the competitive intensity is lower. This product has lower weight and less corrosive properties. It’s already become now the default product.

EBIDTA could be 28500 Rs. Per metric ton for longer term.

Conductor division : Management expects 15% Volume growth next year.

Transformer oil:
Management is expecting double digit growth from domestic and export point of view.
APAR has higher market share in power transformer oils than distribution oils. It is prefered oil in higher capacity transformers. 800 kV HVDC which is the highest voltage type of transformer, APAR has more than 90% market share.

Cable business:
Management is expecting more orders from medium volatage cables ( high value product) than building wire / simple type of cable.
25-30% out of total sales come from elastomeric cables. Used in solar, wind, railway, defence, mining etc.
10% from OFC cables and remaining from power cables.

In FY 2023, cable exports contributed for 16% of total revenue. Cable business is expected to grow 25% for next few years.

There’s a big revival happening in the wind sector. And also, the government has recently come up with a new scheme where you can upgrade your old wind farms. Windmills of smaller capacity will be replaced by big capacity windmills.

Current capacity is 2,05,000 metric tons. Capacity will be added as per expected volume growth. Acquired properties/ cable manufacturers in Silvassa for scaling up business.

Red Sea crisis:
Exports to USA is less affected. Exports to west Africa and EU are taking 15-16 extra sailing days.
Deinventorization: APAR’s customers and distributors held inventory to avoid supply chain issues existed before.

APAR has kept almost 9 to 10 months of inventory, whereas the law has normally been holding 2 to 3 months. Customers are increasingly giving DDP dates. APAR is exporting that product 15-20 days early.

The DDP Incoterm, or “Delivery Duty Paid” Incoterm, states that the seller must make the goods available to the buyer at a prearranged location (buyer’s factory, warehouse etc.) and cover all associated expenses including unloading the goods from the carrier and any customs procedure costs and tariffs that may apply.

Under the DDP Incoterm, the seller bears full responsibility for all costs and risks until the goods have been unloaded at the agreed-upon location.

US Exports:
Management has confidence that US will be strategic market for them as they have received positive feedback from servicing customers. In EU still they are developing.
US imports cables worth of $19 billion. It is huge opportunity. APAR can cater to real estate sector and low voltage segment. Also approval is received for medium voltage cables upto 40,000 volts.

APAR is largest exporter to US, Polycab is close second. KEI caters to Australia.

Going forward company plans do capex of 300 Cr on annual basis. It will be Combination of brownfield expansion and debottlenecking. QIP money raised 1000 Cr will be utilised.

In Europe, APAR is focused more around the renewable energy side. In the US, there more sectors that are covering. APAR has contract with Enel (Italian utility)

Outlook for the year ahead would be conductors 15% plus, cables-20-25%.
In oils – transformer oils double digit.

Transformer oil : Guidance of EBIDTA of 5500 Rs per KL already achieved. Current EBIDTA is 6125 Rs per KL.

Lubricant: Volume are always under pressure because of drain intervals of oil products. Volume growth could be in the range 2-3%.

Chinese competition:
In certain simple construction conductors the US market is still not flooded with Chinese products. It will not be that easy for them to sell in large quantities there.
Chinese are trying to route products through Vietnam and some of these other geographies. Moment the Chinese try to route it through another geography it adds significantly to the supply chain costs. They no longer can be as competitive as they are from China.

In January, February the profitability and the margin will come down.

Disclaimer: Invested

Apar Industries Feb 2024 concall notes.docx (352.6 KB)

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