As per con call they are not making even breakeven for Nitrile Rubber even for export market. This cycle ask us to consider Apcotex as pure commodity business without any pricing power! Does it reasonable to give such premium P/E for nature of the company!
I always respect management and its vision however unless they innovate some premium product, best jockey on seek hoarse will not do meracle for us
4 Likes
Apcotex(dec 2023, investor presentation)
• Quarterly volume growth of 21% YoY, 8% volume drop QoQ mainly due to NBR & HSR
• Highest Quarterly export volume growth of 98% YoY led by Nitrile Latex, Carpet and Construction
• Revenue growth of 10%, due to increased volumes in spite of challenging market conditions
• EBITDA: decreased 17% YoY due to lower margins in NBR, XNB and Paper, and there was no significant inventory loss/gain
in this quarter
• PBT and PAT lower YoY, because of increase in Depreciation and Interest Cost due to new expansion projects.
Disc…invested
2 Likes
Apcotex concall(feb 2024)
PERFORMANCE
A…Volume growth
=Our growth has been fantastic
in terms of volumes. We have grown at 26% for the first nine months in terms of volumes.
=This was in spite of challenging market condition
= The revenue has not grown. It’s flat. That’s because of raw material prices.
=Volume growth if you are asking for as most of the growth this year has come from our Latex business, which is
-carpet,
-VP Latex,
-Nitrile and
construction,
=So, the volume growth this year
first nine months or even for the quarter has all whatever growth you had is on the latex side.
B…Margin
=NBR, margins being low,
volumes are fine, and
=Nitrile latex, both volumes and margins being lower than what we
expected. So, Nitrile Latex is really what is pulling us down
C…Nitrile latex
=The Nitrile Latex has been a little bit of a downer, due to raw material and over supply
D…NBR
= NBR margins go up and down as we have mentioned many times in previous ConCalls. So, that continues to happen.
=Import and dumping is as usual problem in nbr
E…Other business
But the rest of the business is on track.
=======================
FUTURE GROWTH
1…Volume growth
A…Nitrile latex
=Our strategy this year has been
to push volumes, gain market share, increase the breadth of geographies and customers. And
at some point, Nitrile Latex will turn.
=And our focus this year has been to grow volumes and will continue to be for the next couple of quarters. And
then hopefully the margins will also correct itself and come back for most of them.And we can go back to about 14, 15, 16% margins
B… NBR
=We know quarter-on-quarter goes through ups and downs. That’s just the nature of the business and the commodity.
C…Other
= Styrene Butadiene Latex and VP Latex and the other businesses have been largely stable. So,
that’s where we are at in terms of strategy and execution.
2…Export
=This quarter, we had the highest quarterly export volume growth of 98% year-on-year, led by Nitrile Latex, Carpet and Construction.
=Two reasons for increase in export
Export increased
A=in Europe, manufacturing from every angle, whether it’s CAPEX, raw material costs, energy costs, labor costs have significantly changed after war.So export increased
B=in construction we have very specific niche products that we have developed for the export
industry or for the export market.
= So, I think there is something we have done internally which
is very sticky. And certainly, we have taken advantage of the external situation over the last
couple of years.
3…Well diversified company
A…Latex-65%
-Paper and construction@15-20%
-Carpet and textile@15-20%
-Nitrile latex@15%
-other speciality@10%
B…Rubber@35%
25%nbr
10%hsr
=We have seven or eight different ranges of products.
=One is Nitrile Latex.
=The other is NBR.
=The third is styrene butadiene latex for paper, carpet, construction, =styrene acrylics for paper, carpet, construction and textiles,
=vinyl pyridine latex for the tire industry,
=high styrene rubber for the footwear industry.
= So, that way, we are well-diversified. So, obviously, the profits are coming from the other segments.
=In fact, NBR and nitrile latex were challenging this year, this quarter, in terms of margins and volumes.
=Abhiraj Choksey: But very, I mean, very well diversified and split now, I would say. Not one industry or your area is more than 25%.
4…Change in business scenerio of latex/rubber
=Previously, our rubber business or solid polymer business was about 45% and latex or liquid polymer was 55%.
=That’s significantly
changed this year because all the growth has happened on the liquid side, on the latex side.
=So, now we are at about 65, 35.
65%@latex
35%@rubber
5…Capex
=====Past capex
=We had investments of over 200 crores by March-April ‘23.
.Expansion in Taloja has gone exceedingly well. And for the new plant there, we are at 40%
capacity utilization within the first nine months, which was better than what we expected,
frankly. And over the next one year, we hope to be closer to 70, 80% capacity utilization.
=====Future capex
-We have already started thinking about, we actually initially thought we would be okay for three years, but the way it is going, we may be by the end of financial year 25, we
will hit max capacity there. So, maybe a year before we thought we would. Of course, we still
have to see how it plays out, but that’s our current initial estimate. So, we will see how it plays
out.
= But yes, one option is, look, if the Nitrile Latex business doesn’t improve when we want to
kind of convert some of that capacity by investing some more money in Valia, we have the EC
in place and we have all the permissions in place. All we need to do is invest a little bit and
convert some of our capacity there into SB Latex.
=A little early to say we do not want to do that because we are committed to the Nitrile Latex business and perhaps growing it as well. So, we
don’t want a knee jerk reaction, but yes, I mean, that’s certainly an option to do more capacities
in Valia.
=We also have the option of de-bottlenecking a little bit and trying to increase capacity
to some extent in Taloja, which we are working on as well, and I think over the next six to nine
months we will have some clarity on those projects.
6 …Nitrile latex @ Growth industry
= We are not making any money on Nitrile Latex at this moment.
=30% capacity utilization.
=Management anticipates it will increase to around 30-40% by Q4.
=Two problems
A…Raw material prices declining
B…Over supply after covid
Nitrile market, of course, a lot of capacity has been created over through COVID, obviously excess capacity, which is causing both gloves and Nitrile Latex margins to be quite
suppressed. some of these capacities are being rationalized. Some of these capacities are now no longer viable. So, they have shut down. Some of the old players have shut down some of the old capacities. Some new players that came in have not been able to be financially viable. So, they are shut down or postponing the projects or volumes.
=We believe that it’s a growth industry. The industry is still growing at double digits. And So I think in the long run, we still believe it’s a great business.
= There are a few companies in the
world that manufacture Nitrile Latex. The same companies have expanded over the last few, over the last couple of years, including us.
=So, it will correct itself very, it’s been hard to predict when it will happen. We are seeing some early signs now, finally, after a year-and-a-half, as I
mentioned to the previous caller, of some uptick in margins and pull from the market, which was not there for the last year-and-a-half. So, we will have to wait and watch whether it’s just a short-term phenomenon, but hopefully we will know in the next three to six months.
=So, we are hoping to go back
to pre-COVID margin levels, in which case our returns and IRRs will be pretty good.
=Nitrile latex utilization
-Typically, we see that once any industry that, at least in B2B chemicals I can speak for, goes to about 80-85% capacity utilization, anywhere beyond 75 to 80 also sort of margins
become fair and viable.
-Clearly, we are not at that with Nitrile Latex is probably under 70%, but
certainly better than where we were six months ago.
7… Apcobuild
=It’s much smaller, as we have always talked about it, it’s a much
smaller part of our business in terms of revenue, but we have seen double digit growth for the
last four, three, four, five years now.
=And even for the first nine months of this year, overall, I
think growth has been about 18 to 20%, if I am not mistaken.
=So, yes, we continue to expand
geographies and increase product range as well.
=We have also expanded the team, adding a
few more people. So, that is going as per plan, yes.
8…Threats
1…China
-It has started manufacturing after covid
2…EV auto
-In long run, it will definately affect.
However, we are well diversified
3…Nbr- Dumping risk
=Dumping risk in India which we faced in 2019? (For nbr)
=That risk is always there because NBR is store product. China is really the main consumer of NBR. Anytime we see China demand slowing
down, we see dumping.
Disc…invested
2 Likes
#Summary
1) Utilization at Nitrile Latex Plan at 50% in one month, the year avg is about 30% capacity, for the quarter 40-45%
2) There is demand for the product, but the realization are not worth it thus the plant utilization remains at low level. (MGMT doesn’t want to pursue low margin volume)
3) Synthetic Latex ; Taloja, expansion has gone well. Utilization there for the month was 65%; for the year it was 45%.
4) Nitrile Butadiene Rubber: plant are running at full capacity and also has seen significant imports. The margins still remain a challenge due to dumping from China.
5) If the mgmt does not see things changing in Nitrile Latex space, they will decide to move the capacity into production of other material.
6) The cost for swtching will not be significant. In the range of $1-$2 Mn Dollar.
7) Net Debt is around 70 crores – working capital + debt – cash with investments around 14 crore
8) In Nitrile Latex, destocking is still going at the user level.
9) Current Revenue Distribution : Latex- 66% and Rubber - 34% - From the previous revenue break up a few year ago of 50:50, the company now has higher revenue coming from latex.
10) Apcobuild: Still a small Portion and still good growth; growth around 18-20%. Still Insignificant in terms of contribution to revenue. The strategy is to go deeper in the same state, Gujurat, Nagpur, Maharashtra, Rajasthan
11) The space is very competitive, but also misunderstood. We are only focusing on polymers and products we are strong at like tile water proofing.
Overall, the situation in Nitrile Latex still remains dire with no relief in near term. The company has done good in term of increasing their volume in such a scenario. If the Demand Supply mismatch tapers down in the coming quarters, the realization should be much better.
1 Like
Apcotex concall(May 2024)
I have made attempt to make summary simple and point wise
==============================
DIVERSIFIED PRODUCTS
==============================
=We are well-diversified. .
No single industry is more than 25%.
A…Latex-65% revenue
-Paper and construction@15-20%
-Carpet and textile@15-20%
-Nitrile latex@15%
-other speciality@10%
B…Rubber@35%
25%nbr
10%hsr
Products
=We have seven or eight different ranges of products.
1…Synthetic Latex
A…Styrene butadiene latex
=for paper, carpet, construction,
B…Styrene acrylics
=for paper, carpet, construction and textiles
C…Vinyl pyridine latex
=for the tire industry
D…Nitrile latex
=for gloves
2…Synthetic Rubber
A…NBR(Nitrile Butadiene Rubber)
B…HSR(High styrene rubber)
=For the footwear industry.
=============================
POSITIVES
==============================
1… VOLUME GROWTH
=We achieved an impressive 34%
year-on-year volume growth.
=Increased volumes in spite of challenging market conditions.
=For FY24 our company achieved remarkable growth with a 28% year-on-year increase
in overall volume and an extraordinary 95% year-on-year surge in volumes
=With these figures, while these figures showcase our robust market presence, it is essential to
note that our revenue increased by 4% compared to the volume increase of 28% due to project
product mix, falling raw material price and lower realization.
=Volume growth is largely because of the capacity expansion which we did.In previous two years if ,we had not significant volume growth because we had almost 100% capacity utilization for FY23 and FY22
2…EXPORT GROWTH
= On the international front we celebrated our highest quarterly
export volumes growth 71% year-on-year.
3…DIVERSIFIED INDUSTRY- GROWTH
A…Nitrile latex
=We started from a very low base, it’s easy to increase volumes by giving, by proving that your product is as good or in some cases better,
=We have grown 100% in the Nitrile Latex business between last year and this year because the extra volume
but it’s been at very low margins.
=I’m not sure if this 30%, 35% growth we can do without Nitrile Latex growth.
B…Carpet and Construction
=Nitrile Latex, carpet and construction
These three have been the main contributor, which is not to say the other businesses have not grown, or the other industries have not grown.
C…Tyre cord
=The other one that’s been good as well has been the Tyre Cord
business, we have been able to get lot of export approvals for the Tyre Cord business, so we have grown that business and we have done some debottlenecking as well
D…Synthetic Latex(SB Latex and Styrene Acrylic Latex)
=They are fairly stable by and large, no major ups and downs.
=In fact, those have gone quite
well, there has been significant growth as well.
= We have 24% volume growth.
E…Paper
=Compared to last year there has been, there has been some pressure on margins.
= But as I said, that these kinds of cycles happen in our kind of
business we can’t linearly expand capacities. So, capacity is a step jump so when that does happen for a year or two margins would fall and then once good capacity utilization levels are reached, then again margins are healthy for a few years since the cycle starts again.
=The good thing is, largely there are two players in this market so those kind of cycles will happen.
4…INCREASING REVENUE FROM LATEX SEGMENT
=Synthetic latex we are 66% and rubber is 34%.
=Large chunk of the growth has come from the latex business this year given that both are expansion, major expansion projects or latex.
=At some point a year or two ago we were closer to 50:50 or 55:45. And obviously that has changed now, two third is latex and one third is rubber.
5…NEW PRODUCTS
=We are always adding more products and that’s how the growth has come as well, it is by adding new products and new customers.
=But it within styrene butadiene, styrene acrylics, even Nitrile Latex we have added another new grade for a
different type of gloves.
=All this helps in sort of growth. In addition to that if there is any
significant, other completely new business, area business line or business chemistry that we
are looking to get into we will announce at the right time
High grade latex
=There are different types of gloves like examination gloves, surgical gloves, industrial gloves, industrial gloves, also used for different applications. So depending on the
application, there are different tweaks required to our latex is
=Obviously the large volume is
examination gloves, it’s what mostly doctors or dentists and all wear that’s the largest segment and that’s where the most of the volume comes from.
= So when I say new grades, it’s for other types of gloves, which obviously are higher value addition, fewer companies making those
kinds of gloves.
6…Apcobuild
=It is still a small Portion and still good growth; growth around 18-20%.
=It is still Insignificant in terms of contribution to revenue.
=The strategy is to go deeper in the same state, Gujurat, Nagpur, Maharashtra, Rajasthan
==============================
NEGATIVES
==============================
1…NITRILE LATEX
=Revenue contribution from our Nitrile Latex segment is sub10%
=We have grown 100% in the Nitrile Latex business between last year and this year but it’s been at very low margins.
=We were not making profits on Nitrile Latex.
…
=WHY PROBMEM IN N.L BUSINESS?
Due to Demand-supply mismatch
A…Huge Nitrile latex supply
=In covid time, lot of people who put up gloves facilities very quickly, because those are easier to put up glove lines than the latex plants.
=But at the same time, a few players in China back in 2021 started building
latex plants as well. They built
very large plants, most of it is still with China and of course, the rest of the current players in the market that are out of Korea, Japan and Malaysia. They also, announced many capacity
expansions.
=So, overall capacity did expand for the glove industry, for glove making as well as for Nitrile Latex.
B…Demand
=Demand is not the issue ,the problem is overcapacity in nitrile latex
=For N.L. and all the other products, the demand is pretty good, at least from where we are looking at and that’s how we have been able to achieve a 34% volume growth in Q4,
compared to Q4 of last year. So we are not too concerned about the demand
…
=OUR FUTURE STRATEGY IN N.L.
Plan (a)…Continue in N.L
=We still think this is Nitrile Latex is a good business to be in in the long run.
=In terms of the market cycle now it’s been almost a year and a half to two where it’s been really down, a year and a half or so. So, if the cycle turns and margins improved then it’s certainly
something that we will focus on and ensure that we get to 100% capacity utilization very quickly .
=So, the whole issue there is, of course we can scale up immediately. But the issue is about margins. So right now the focus is just increasing the breadth of customers making sure we
approved everywhere and doing business where contribution margins are at least positive,
= In the last couple of months,
there are some signs of some turn, but there is still a lot of overcapacity in the market and inventory is still have gloves that is still being depleted.
Plan (b)…Switch to other latex
=If condition in nitrile latex does not improve, then other option is to use the Nitrile Latex plant to make styrene butadiene latex, styrene acrylic latex and then so on other latex
is in our Valia XNB latex plant.
=The cost for swtching will not be significant. In the range of $1-$2 Mn Dollar.
2…NBR
=NBR, we have seen significant imports.NBR has been a more challenging year than the previous two years for sure in terms of margins.
=NBR margins were a little lower than what we think
= China being the largest consumer
of NBR in the world. And at present, demand in china is low.So all other suppliers from korea, japan etc dump NBR in india.That is the reason for lower margin in NBR
3…LOW EBIDTA
=Present Margin@10%
=It is lowest since last few yrs
=So, it is sustainable in worst conditions
=Low margun is due to
A…Nitrile latex
Nitrile Latex, certainly has put significant pressure on the overall company margins.
=Margins currently are not at pre-COVID levels, they are
the lowest that they have ever been in history, or as far as we have been tracking it for the last six, seven years as far as Nitrile Latex is concerned
B…NBR
=NBR margins have been lower as well. China, as I said has been also not doing well, so a lot of NBR gets dumped into India, when that happens.
4…PAT declined
=PAT was reported at Rs.54 crore which declined by 50% on year-on-year partially because of increase in depreciation and interest cost due to commissioning of major expansion
projects
==============================
CAPEX
==============================
CAPEX COMPLETED
=In FY23, we finished the majority of our new expansion projects, the
A…Nitrile Latex in Valia and
B…Synthetic latex in Taloja.
=And most of the projects were capitalized and the plant was commissioned.
FUTURE NBR CAPEX
=Everything is read for NBR capex. We have finished the detail engineering for this project. But for any major
future capacity expansion, the Board is taking the call management and Board of course, that stabilize our current operations and cash flow. And let’s see how the first three, four months
of this year go and then take a call on further major CAPEX decisions.
=We are yet to freeze the NBR CAPEX, so in a quarter or so we will be able to get some concrete update over there
==============================
CAPACITY UTILIZATION
==============================
A…Taloja plant
=Taloja expansion that is going
exceedingly well.
=Capacity utilization average for the year is around 45%.
=So, here it will exceeded our expectations and we expect that in the next one to two years this will be fully utilized
B…Nitrile latex(valia plant)
= Nitrile Latex plant at valia ,the average capacity utilization is 30% and for the quarter probably around 45%.
C…NBR
=We are running at full capacity for NBR.
D…Styrene rubber
=The styrene rubber plant , our capacity is quite high but we have been running at 50%, 60% because the market is not there it’s kind
of flat for the last three, four years and we are the only player in India. So we are running at the maximum level that the demand is there for the market
===============================
SUMMARY
===============================
=We have finished the year with
good volume growth (28%)and impressive export growth in spite of challenging market conditions.
=And we exceeded our expectations on all fronts, except Nitrile Latex, I would say in terms of volumes. So we are very, very happy with where we are.
=We have also done it in a healthy way where we are almost net debt free or net long term debt free anyway.
=For the year we expect margins this has been a challenging year and when the market turns when we also reached good capacity utilization levels, things will only look better, this is our overall outlook at least.
=As far as the other products (other than nitrile latex)are concerned, we are growing with the market and better and that’s how we have been able to get 34% growth Q4 over Q4 of last year. The combination of both these diversified products .
=In FY25, we will be focusing on increasing the volume capacity utilization and improving margins.
=The rest of the business will grow at mid teen growth rate but the high double digit that we are calling it will be dependent on Nitrile Latex.
Disc…invested since 5 yrs and added more in last one year
2 Likes
Very well explained, i want to know if demand will become moderate and company is saying that there is overcapacity across nitrile latex then there can be chance company start debottlenecking?
As per concall, company will take decision in next 6-8 months on nitrile latex depending on profitability, wether continue with nitrile latex or switch that capacity to other latex