Apcotex Industries - monopoly in Synthetic Rubber?

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Concall Summary (source:capital market)

Ebidta margin generally have been under pressure in Dec 18 and in Mar 19 quarter due to inventory adjustments. High inventory of raw materials on one hand, falling raw material prices on other hand and slowdown in automotive segment, issues with domestic carpet industry due to removal of export incentives etc were some of the challenges seen in H2 FY 19.

Large impact in margins in Mar 19 quarter due to higher inventory of raw material. Margins should improve going forward as such high cost inventories are no more.

Construction side and NBR side demand remained strong and stronger volumes were seen throughout the year. NRB segment margins were lower due to raw material issues and slowdown in auto industry affecting some product mix. Other user industry segments performed on expected line.

Carpet would be around 10% of total revenues. Roughly around 35% of sales is towards auto including tyres.

In FY 19, the company incurred a capex of around Rs 50 crore and remaining Rs 40 crore will be spent in FY 20. This includes power plant commissioning by June 19. The capex will increase latex capacity by around 20%. Efficiency and maintenance costs capex also is included in the capex of Rs 90 crore.

Exports account for around 13% of total FY 19 sales. The export customer who got fire in his premises has still not started off-takes from the company. Expects the export off takes from this customer from H2 FY 20 onwards. This customer account for around 4% of total exports. Excluding the customer, exports have grown at around 20%. Exports should continue to grow at around 15-18% going forward as well.

Tax rates normally are around 30-31%. There is deferred tax credit which was fully utilized in the quarter and hence overall tax was at lower rate.

By mid of FY 20, the company has plans to invest around Rs 250 crore for increasing capacity of latex by 40000 tons and NRB by around 25000 tons. This will take around 18 months time from the start of the project and can generate more than Rs 500 crore of additional turnover. NBR is a high margin product.

Debtors are well under control.

The margins should improve. The endeavour is to reach to around 13.5-14% in next 24 months and to take it forward from there.

NBR would account for around 35% of total sales, Synthetic Latex would contribute around 50% of total revenues and Synthetic Rubber would be around 15% for FY 19. Exports mostly are from sale of Latex.

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Apcotex Industries AR 2019 Notes
Companies annual report was a good read. They are the market leaders in India in their product segment. Company has been giving good numbers and has a strong balance sheet. Company has 35% of sales from Auto sector and 8-12% of sales from Carpet sector and both these industries are going though a tough time domestically which is reflecting in the company’s recent numbers. Company has big capex plans, majority of which will materialise in next two years. In the short to medium term Management guided for 10% volume growth for FY20 and FY21 in March 2019 qtr concall.

Key points in AR 2019

  • Apcotex is one of the leading producers of Synthetic Rubber (NBR & HSR) and Synthetic Latex (Nitrile, VP latex, XSB & Acrylic latex) in India.
  • The company has one of the broadest range of Emulsion Polymers available in the market today.
  • The various grades of Synthetic Rubber find application in products such as Automotive Components, Hoses, Gaskets, Rice Dehusking Rollers, Printing and Industrial Rollers, Friction Materials, Belting and Footwear.
  • Apcotex’s range of Latexes are used for Paper / Paper Board Coating, Carpet Backing, Tyre Cord Dipping, Construction etc.
  • Taloja Plant
    Synthetic Latex: 55000 MT
    High Styrene Rubber: 7000 MT
  • Valia Plant (Gujarat)
    Nitrile Rubber and Allied Products: 16000 MT
  • 30 employees in R&D. R&D Spend was Rs. 3.59 cr (Rs. 3.49 cr in FY 18) at 0.56% of sales.
  • Globally, the carpet industry, tyre cords and construction industries drive the growth for synthetic latex. In India, the major driver for development of the synthetic latex polymers industry is the high growth of end-use industries like paper & paper board, paints & coatings, adhesives, water proofing/construction, etc.
  • There are no major substitutes to replace synthetic latex polymers in their functional aspects across various application segments.
  • In India, 80% of Nitrile Butadiene Rubber (NBR) is imported, which creates good potential for Indian manufacturers of Nitrile Rubber. The rapid growth of this segment can be attributed to the growing demand for NBR across the automotive and industrial applications in the short and medium term.
  • The Company’s major raw materials are petrochemical products and its business could be vulnerable to high volatility in the prices of crude oil as well as its downstream products.
  • During the last financial year, a speciality latex viz. XNBR was introduced mainly for the export market, which will help to reduce the dependency on the domestic market significantly.
  • Your company is also exploring an overseas acquisition.
  • Growth Initiatives
    • The Company expects Financial Year 2019-20 to be an exciting year in spite of new challenges. Sales from the new product range of Carboxylated Nitrile Latex for the hand gloves industry has started in FY 2019-20, and the Company aims to make it one of the future growth drivers for the Company in the future.
    • The Company is also working on the feasibility to expand the capacity of its NBR business.
    • The Company will continue to look for opportunities in new adjacent businesses as well as opportunities for inorganic growth.
    • In FY 2019-20, the Company will commission the Co-gen Power Plant at its Valia unit as well as complete several other capex projects to bring in more productivity and efficiencies.
  • The Wind Turbine Generator installed at Sadawaghapur, Taluka – Patan, District Satara, Maharashtra, has generated gross revenue of about 133 lacs during the financial year (previous year113 lacs), and same is nettedoff against the power cost.
  • The Company achieved Gross Value Sales of Rs.633.36Crores during the financial year, compared to Rs.545.38 Crores in the preceding financial year on standalone basis. The company exported its products worth about Rs. 72 Crores during the financial year.
  • Profits before tax were up by 7.80% to Rs. 61.67 Crores as compared to Rs. 55.78 Cr on standalone basis during the previous year.
  • Operating EBITDA increased by about 6% to Rs…67.58Crores from Rs.63.79 Cr in the previous year during the financial year 2018-19.
  • Profit after tax stood at about Rs. 46.60 Crores as compared to about Rs. 38.64 Crores on standalone basis, in the previous year.
  • The Balance Sheet of the Company is also quite healthy with almost no debt, reasonable working capital cycle and cash/liquid investments valued at about Rs. 74 Crores based on NAV as on 31st March 2019.

Regards
Harshit Goel

Disclosure: Tracking. Not Invested.

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Q2 FY20 Results

  • Total Revenue fell ~ 15% QoQ, 21% YoY.
  • PAT fell ~ 68% QoQ, 64% YoY.
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Q2FY20 Concall Summary

Business Updates

NBR margins were affected because finished goods prices had fallen sharply

Participants

Emkay Global

SMC Global

Kedia Securities

Nippon India Mutual Fund

HDFC Securities

Financial Research

Axis Securities

AMSEC

QnA

  • The power plant would be commissioned in the next 3-4 weeks and is awaiting a clearance
  • On a company level there was marginal growth in volumes and the main reason for reduction in revenue has been due to a fall in realization
  • The company is catering to anything between 42-70% of the market in the latex category
  • In high styrene rubber the company is the only manufacturer in India
  • In NBR the company is the only domestic player but there are large amounts of imports coming in
  • The latex industry is very regional because of the involvement of water and high logistics and storage costs
  • The company is looking at doubling capacity of NBR which will make it one of the largest plant in the world and will be able to supply to global markets as well
  • China is currently not a competition in the domestic market
  • The two main reasons for a dip in exports are:
    • Raw material prices in Europe have been lower than Asia so competitiveness has reduced
    • The company was exporting to Pakistan and because of political reasons that market now stands closed
  • In tyres the replacement market is bigger than OEM market and thus the company has not faced trouble in this segment
  • There has been no margin fall in VP latex segment even with the tyre customers
  • The bigger concern in the NBR market is realizations and not volume de growth
  • The company has been focusing more on non auto applications for NBR segment
  • There is dumping happening in NBR in the domestic market and the company has taken the case with the government
  • Waiting for some environmental clearances on the NBR capex and also the expansion in latex
  • The tyre cord, paper and carpet industry have done well for the company in the domestic market
  • The NBR prices have been lower because of a global slowdown in automobiles in China
  • The capex required for the NBR project expansion is around Rs 180 crores and this will add another 15000-16000 tons and the current capacity is around 22000 tons
  • Over the last 15 years there is always a differential in raw material prices between Europe and Asia. This difference has magnified to a very high level during last 3 months which has earlier never happened
  • Will be in the current tax regime only because of MAT credit entitlement
  • The fall in realizations is continuing in the current quarter as well
  • There are only two players in Europe who manufacture NBR
  • The company was working at almost 100% capacity utilizations in Q2 and is thus high on inventory as well
  • The company was expecting a plant shutdown in Q3 so it was producing more in Q3 to compensate for the planned shutdowns
  • The company has taken a term loan for the current projects under completion
8 Likes
25

Bad set of numbers. Breakeven at EBITDA level!

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Apcotex Industries Limited Q3FY20 Concall Summary

Business Update

Recovery is being witnessed from Q4 onwards

Participants

  • EMKAY Global
  • ICICI Securities
  • Asian Market Securities
  • Excel Group Investments
  • Perpetual Wealth Management
  • Marshmallow Capital

QnA

  • The last 3-4 months have been extremely challenging
  • Since accruals have been lower due to current business environment the cash flow situation has delayed the timeline of capex
  • The net cash position as of now is Rs 50 crores
  • The pricing situation in NBR business was so bad that finished goods prices were lower than the variable cost of the company
  • The recovery in this business has started happening from December but some challenges will still remain
  • The customer that the company had lost two years ago due to fire is now not expected to come back because they are going through a legal issue
  • The margin situation in NBR is extremely challenging and doing normalised EBITDA margins of 11% looks difficult in Q4
  • Slowly expanding the business regions for the waterproofing product “Apcobuild”
  • Have filed an application for anti dumping of NBR from Korea
  • The supply chain is managed till mid of March and if ships from China don’t move due to the Corona virus situations could go out of hand for global supply chain
  • Most of the B2C companies in waterproofing segment purchase latex from the company
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Recent Credit Agency report put ‘Negative’

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The management mentioned in concall that they have been affected by dumping in Indian market that’s happening from South Korea and few other countries. And as pointed out by @karu_lamborghi_, the company is seeking government support on this. Could someone with knowledge on this please tell as to what could be the post Covid-19 scenario? Would these countries resume their dumping or there might be some better market for Apcotex?

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Q4 Results: https://www.bseindia.com/xml-data/corpfiling/AttachLive/de933a11-4dfc-40f1-a976-c2daa5964276.pdf

Interim dividend is considered as final - No final dividend declared.

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image457×543 8.17 KB

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Worst result. Auto and Europe - their main customers are still have to face pain. Hence, Apcotex will also suffer for few qtrs!!!

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Due to covid,demand of gloves has increased
I think,that will help to company

(As per Q42020…investor presentation)
Modifying a few reactors at both plants for manufacturing XNBR Latex for Gloves, where the demand is extremely strong. The
modified reactors will be ready in a few weeks for production.

Disc…invested

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Is the news of duty on import is confirm? can anyone share the link?

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Apcotex Industries AR 2020 notes

Company is directly affected by the growth in the auto sector and construction sector. Dumping of NBR in the past year has made things worse for them and it’s unlikely to reverse without the antidumping duty. Covid has reversed any momentum they gained at the end of year. Good thing is the company has a strong balance sheet to get it through these tough times.

  • Manufacturing Facilities
    • Taloja Plant, Maharashtra
      Synthetic Latex: 55000 MT
      HSR: 7000 MT
    • Valia Plant, Gujarat
      Nitrile Rubber: 20000 MT
  • The Company has achieved a total revenue of Rs. 501.92 Crores during the financial year 2019-20, compared to Rs. 633.36 Crores in the preceding financial year. While volumes were flat compared to the previous financial year, the drop in revenues was due to a combination of product mix and reduced net realization due to decrease in oil/petrochemical prices.
  • Profit before tax was down by 60% to Rs. 24.60 Crores as compared to Rs. 61.67 Crores during the previous financial year, on account of intense competition from overseas suppliers, who dumped products like NBR in the country and to some extent due to slowdown in a few industries such as construction and auto, which forced the Company to reduce pricing and therefore impacted margins. During FY 2019-20, Operating EBITDA came down by 49% to Rs. 35.83 Crores from Rs. 69.77 Crores in the previous financial year.
  • The company exported its products worth Rs.61.30 Crores during the financial year compared to Rs. 71.7 cr in FY19.
  • Currently around 30 employees are dedicated for R&D and technical support.
  • The nitrile latex for hand gloves industry is only manufactured by the Company in the Country. The market size for nitrile latex is about 1400 KT p.a. and valued at an estimated USD 1.32 billion during 2019. It is projected to grow at about 8% CAGR by 2026. This market had grown by 5.5% CAGR during the period from 2010 till 2018. The Covid-19 pandemic has further boosted the demand for nitrile gloves and thus nitrile latex.
  • The Company’s major raw materials are Styrene, Acrylonitrile and Butadiene. Styrene and Acrylonitrile are not manufactured in the country and have to be imported. Butadiene is currently available from only two manufacturers in the country and the company is exploring import arrangements.
  • Your Company’s plant at Taloja is recipient of Total Productive Maintenance (TPM) Excellence in Consistent TPM Commitment Award - Category A by the Japan Institute of Plant Maintenance (JIPM). TPM has helped the company significantly in improving efficiencies in the plant and in operations and rationalizing costs. We are in the process of implementing TPM in the Valia plant as well.
  • During the financial year the Company had commissioned the Co-gen Power Plant at the Valia unit, which will reduce cost of production in Valia.
  • Company has adopted a change in the classification during the year of the long term investments from Fair Value Through Profit & Loss (FVTPL) to Fair value Through Other Comprehensive Income (FVTOCI). Profit of Rs. 2 cr credited in P&L in FY19 and Loss of Rs. 1.55 cr charged in Reserves in FY20.
  • Outlook
    • The Company expects financial year 2020-21 to be a challenging year in view of Covid-19 which has caused a significant slowdown in demand coupled with an intense dumping of one of our products (i.e. NBR) in the country at very low prices, until an effective antidumping duty is imposed.
    • Sales from the new product range of Carboxylated Nitrile Latex for the hand gloves industry has started in FY 2019-20, and the Company aims to make it one of the future growth drivers.
    • The Company intends to install new capacity and is also working on the feasibility to expand the capacity of its NBR business.
  • Covid19 Impact
    • The plant operations were under complete lockdown from 25th March 2020 till 19th April 2020, except for a few team members who were monitoring the plants to ensure safety.
    • Although there are significant uncertainties due to the pandemic and reversal of the positive momentum gained in the last quarter of FY 2020, with its strong balance sheet position, the Company is confident of navigating the challenges ahead.
  • Synthetic Latex and Rubber Industry
    • Globally, the carpet, gloves and construction industries drive the growth for synthetic latex. In India, the major driver for development of the synthetic latex polymers industry is the high growth of end-use industries like paper & paper board, paints & coatings, adhesives, water proofing/construction,
    • Another impetus comes from the fact that there are no major substitutes to replace synthetic latex polymers in their functional aspects across various application segments.
    • In India, around 80% of Nitrile Butadiene Rubber (NBR) is imported, which creates good potential for Indian manufacturers of Nitrile Rubber. Notwithstanding the recent slowdown due to Covid-19 and other reasons, the long-term growth of this segment can be attributed to the growing demand for NBR across the automotive and industrial applications in the medium to long term.

Regards
Harshit Goel

11 Likes
36

Seems like the dumping has stopped. The decline in March in raw material was far higher than finished goods. Realizations for NBR have moved up significantly in this quarter. Up from 1500-1600USD/Tonne in September to Almost 2200-2300 USD/Tonne in December. Demand for nitrile latex was robust pre-covid (due to higher preference for nitrile gloves vs. vinyl/natural rubber gloves due to allergies) and has only accelerated post COVID and will witness higher growth for the next decade. Nitrile gloves suppliers are not able to cope up with the demand. https://www.bloomberg.com/news/articles/2020-03-26/the-world-could-run-out-of-gloves-as-plants-curbed-in-lockdown

The ADD against Korea has reduced by 10 USD to 47USD/Tonne, while it has kicked out LG Chem from the market (~330USD ADD). Decision on ADD against Russia/Japan/China/Europe should come anytime this month. Certainly the company seems to have weathered the storm well.

Last quarters result could already see the turnaround. Volume growth up 18% but lower realizations vs. last year resulted in lower net revenue growth to 4%. This quarter should be better on the realizations front too.

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Kindly provide the source of information about ADD

“The ADD against Korea has reduced by 10 USD to 47USD/Tonne, while it has kicked out LG Chem from the market (~330USD ADD). Decision on ADD against Russia/Japan/China/Europe should come anytime this month. Certainly the company seems to have weathered the storm well.”

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NCV NBR Final Finding-1 (1).pdf (2.7 MB)

You can refer the last two pages to see the final ADD.

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I think,Apcotex has now become dependant on ADD for NBR.
Whenever ADD will be levied off,margins will be affected.

Disc…invested since 2 years

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In my opinion the dumping was a affect of a down cycle in auto sector globally. Now that things look better (vs. 2018 & 2019) for global auto the prices of NBR has moved up significantly (also due to higher demand for RM - Butadiene and Acrylonitrile). So ADD is kind of irrelevant now. It helps protect only in a down cycle. As per my channel checks - prices of NBR (standard grade) has moved up from Rs 115 Rs/Kg (prices were below this in 2019 peak dumping period) in August to 190 Rs/Kg in December. Over the long term prices generally tend to stay between 150 - 220 Rs / Kg. What i have observed is these companies lose profits during down cycles and making abnormal profits in upcycles - so over the course of the entire cycle the profitability remains in line.

In 2019 the cost structure was inverted. The prices of raw material was higher than finished goods (due to excess supply due to low auto demand). The crash in March - reset the cost structure back to normal. With above normal demand for nitrile latex, which will last atleast for the next 1-2 years, the prices for NBR are expected to remain higher before coming back to normalcy.

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As per latest credit rating by ICRA ,

1…ADD is expired in dec 2020 which is not renewed till today .

2…The imposition and the quantum of anti-dumping duties is crucial for sustaining
the profitability of the company and would remain a key monitorable.

Disc…invested

1 Like
42

Also, you can refer to the results of Bhansali Engineering polymer as a cross read for Apcotex. Both the companies use the same exact raw material - Butadiene, Acrylonitrile and Styrene. Also, finished goods prices for both move in tandem. Auto demand coming back is a major driver for the higher realizations.

2 Likes