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
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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
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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
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#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.
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