Apcotex Industries: Business Analysis

Summary

Apcotex Industries was started as a division of Asian Paints in 1991. The division was later spun off as a separate company, which was headed by Mr. Atul Choksey, former MD of Asian Paints. It is currently a leading producer of synthetic rubber and latex in the country.

Overview

Apcotex Industries Ltd is engaged in manufacturing synthetic latex (XSB latex, VP latex, styrene acrylics and nitrile latex) and synthetic rubber (nitrile rubber, high styrene rubber, nitrile polyblends and nitrile powder). Synthetic rubber finds application in footwear, automobile and rice roll industries, while synthetic latex finds application in gloves, paper and paperboards, textiles, carpets, construction and tyre cord industries. The company manufactures these products out of its two manufacturing facilities located in Valia in Gujarat and Taloja in Maharashtra.

Products Offering

Synthetic Latex

Synthetic Latex is manufactured from downstream petrochemicals. There are several types of synthetic latex which are manufactured. The latexes manufactured by Apcotex include Styrene Butadiene latex, VP latex, Styrene Acrylic latex and Nitrile latex. These latexes cater to various industries like Paper/ Paperboard, Carpet, Tyre and Construction. The performance of each synthetic latex differs from industry to industry based on their characteristic, application, and polymer type.

Industry Wise Application:

Paper - Provides excellent wet and dry binding strength, high gloss and strength to coated paper.

Carpet - Used in backing of various types of carpets to provide excellent binding strength.

Construction - Provides excellent water impermeability and enhances bonding between new and old concrete.

Tyre Cord - High performance latex for dipping of tyre cords used in bias tyres.

Gloves - For manufacturing of various range of gloves – examination, surgical and industrial.

Speciality - Used in a range of specialty applications such as gaskets, nonwoven fabrics, abrasive paper, textile finishing, cork sheets, etc.

Synthetic Rubber

Synthetic Rubber is an artificial elastomer which are mainly polymers synthesized from petroleum by-products. Apcotex produces various kinds of Synthetic rubber from cold NBR to hot NBR with different distinctions.

Product Wise Application:

Nitrile Rubber (NBR) - NBR is used in the automotive industry as well as several other industrial applications to make fuel and oil handling hoses, seals and various rubber products where ordinary rubbers cannot be used.

NBR Polyblend - Cost effective medium ACN blend used for general purpose automotive and industrial moulded and extruded products, footwear products etc. for general purpose automotive and industrial goods as well as Fire Hoses.

High Styrene Rubber - Provides various degrees of hardness and excellent processibility for Hawaii slippers and Micro-cellular sheets.

NBR Powder - Used in joining sheets, PVC modification, brake pads, friction materials, adhesives and other rubber applications.

Sales Mix

Synthetic Latex is ~57% of sales currently while Nitrile Rubber (solid polymers) is at ~43%. The company expects that as additional capacities for latex come in, the latex contribution will further rise to 70-75% in the next 2 years, which will be brought down to 50-55% as the NBR capacity is doubled.

Building Own Brand in Construction Chemicals Space

The company is building its own brand “ApcoBuild” to service the construction chemical space. It has a significant presence in Mumbai with large waterproofing contractors and through a network of distributors. The products under ApcoBuild include waterproofing polymer products and coatings, binding agents, repair products, grouts and tile fixing products. 

ApcoBuild has expanded its presence in Madhya Pradesh and has been adding more towns and villages in Maharashtra, Goa and Gujarat during FY22. The business has grown >100% in FY22 on a small base. The management expects ApcoBuild to contribute 10-15% to the top line in the next 2-3 years. The key focus here is product quality and placement which will yield the best results for the business in the long run.

Natural vs Synthetic Rubber

Natural rubber is sourced from rubber trees. It is an elastomer and the most common commercial use of natural rubber is in tyres, spanning various industries.

Synthetic rubber is produced artificially via the polymerization of monomers into polymers. Due to the polymers being artificially produced, synthetic rubber can have different properties and have many applications.

Synthetic rubber is better than natural rubber in terms of temperature resistance, ageing resistance and resistance to abrasion. Synthetic rubber also tends to be cheaper to produce. Natural rubber is known for its properties as a strong, flexible and heat-resistant material used to create latex products.

Clientele

The company serves a number of marquee clients across its two divisions of synthetic rubber and latex. Some of the clients of the company are ITC, Century Enka, Ultratech Cement, SRF, JK Paper, Paragon Footwear, Pidilite, Armacell, Supreme Industries etc. Apcotex has presence across different industries with no significant contribution from a single industry. Paper and allied industry is the largest source of revenue accounting for ~20% of sales. Further, no single customer accounts for more than 10% of the company’s sales and to 10 customers account for 30-40% of revenues.

Manufacturing Facilities and Capex

The manufacturing facilities of Apcotex are located in Taloja and Valia. The Taloja facility has an installed capacity of 65,000 MTPA for synthetic latex and 7,000 MTPA for synthetic rubber. The Valia facility has an installed capacity of 21,000 MTPA for Nitrile Rubber and allied products. Apcotex is currently operating at near 100% utilisation and is witnessing robust demand.

The company is currently undergoing a major capex aiming to double its Synthetic Latex capacity from 65,000 MT in FY22 to 1,30,000 Mt by FY24 which includes a brownfield expansion plant for Nitrile latex for an additional capacity of 60,000 MT at its Taloja facility which is expected to be fully commissioned by the end of FY23. The company also plans to increase capacities for Nitrile Rubber to cater to domestic and export market.

The total project cost is ~200 crores out of which ~40% has been spent as of Q4FY22. The expansion at the Valia plant will be done in 2 phases and a decision for the second phase will be made later thinking judiciously as the cost of capital expenditure is increasing.

Apcotex aims to fully ramp up the increased capacity by the end of FY24. The company has plans to avail total debt of 125 crores for the project which will peak by the end of FY23.

Key Raw Materials

The key raw materials used by the company include styrene, butadiene and acrylonitrile. These products are mainly crude derivatives and thus witness high fluctuations in prices. Over the past few quarters, the company has been able to pass on the rise in raw material prices which is a rare occurance these days. 

Outlook

The company developed a new emulsion polymer - Nitrile latex for gloves during FY21 and currently it is the only manufacturer of this product in India. Apcotex has experienced robust demand for this product since its launch and plans to make this product range one of the future growth drivers. The Company is also looking for opportunities in new adjacent products as well as opportunities for inorganic growth.

Financials

Apcotex has grown its Sales/EBITDA/PAT at a CAGR of 20%/36%/23% respectively for the last 5 years. EBITDA margin has been on an increasing trend from single digits during the start of last decade to mid teens currently. 

The company has minimal debt with Debt/Equity < 0.1x. RoE/ROCE stands at 25%/28% as of FY22. Receivable days has been between 60-70 days in majority of the years. A fact to note here is that Apcotex deals with clients that are several times larger than the company hence, it might not always be able to get the best of terms with them. 

Valuation

Apcotex is currently trading at 28x its TTM earnings which is a tad bit above its 5 year median P/E of 26x. The reason can be attributed to the superior business performance of the company over the years.