I will try and provide my thought process here. Caveat, I am invested, hence biased.
There are few levers that I believe are likely to play out over next few years:
- The business is coming off from a low cycle. Last 3 years were tough for them. Hence the probability of next few years good for them is high.
- The destocking downcycle that played out in Nitrile latex because the raw material prices were coming down (basic human thought process) should reverse going forward because raw material prices have started to move up. Apart from that if we look at the results shown by some of the gloves manufacturers out of South East Asia, those results are showcasing that normalcy is finally returning to the business. Also here as the company is running at 100% utilization, they will start to prioritize better priced customers over lower priced customers.
- The very fact that despite ADD denial by GOI on import of nitrile rubber, company is going ahead with the proposed expansion suggest that they are aware of the limitations and are willing to take calculated risk.
- SB latex is likely to continue growing at it natural growth rate.
- NPD - I have been following Apcotex for last 15 years. Abhiraj is one such person who always under promises and over delivers. Within Nitrile latex, they hold ~5% of global capacity. Within nitrile rubber, they are just ~33% of the Indian market (I am not aware of the global market). So the capacity/ability to grow within existing chemistry is pretty high.
- Washing away dirty laundry - roof can only be repaired when the sun is shining. This qtr good profits provided them with them with the ammo, so they did that. I see no issues here.
- Capex - NBR rubber capex is on. Nitrile latex capex can be initiated in a very short period of time. Post both these capex’s, they need fresh piece of land. So I believe before they announce any new capex, we should see land buying announcement.
- Valuations - Always subjective, but I believe the current capacity is capable of doing ~1600-1700 crs sales and at that anything close to ~10% PAT margin is possible. With that, 30x PE, 5000 crs mcap is doable.
Disclaimer - Invested, hence biased.