Concall Summary: Apcotex Industries Q4FY20

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Business Update

  • Export business would have had its best ever year in terms of volume growth but due to loss of business in lockdown the same could not be achieved
  • Have spent Rs 95 crores on capex out of the outlined capex of Rs 100 crores
  • Increasing production capacity at Valia plant to over 20000 MT
  • Two major projects coming on latex and polymerisation capacity coming up
  • Demand for XBNR latex for hand gloves is extremely strong

Participants

  • Marshmallow Capital
  • SMC Global
  • ICICI Securities
  • Anand rathi
  • EMKAY Global

QnA

  • On the NBR issue with anti dumping it will take a further two quarters to understand how the situation is currently and what will be happening with the anti dumping duty
  • Actively looking at growing through the inorganic route and also if there is opportunity of brownfield expansion
  • Exploring a buyback but because of the illiquid stock that seems technically difficult
  • There are only a handful of NBR manufacturers in the world and because China has imposed an anti dumping duty on Japan & Korea the goods from those countries are being dumped in India
  • The market share in NBR segment the company has in India is just 20-25% and also there are opportunities to export the productand hence the management is confident
  • Pre covid in latex segment the company was operating at 95-100% capacity utilisation levels but things have changed post covid
  • Post covid outlook for the footwear industry has improved as the company supplies to the mass segment footwear where customers are expecting better demand
  • The NBR segment is 30% of the entire revenue and of that 50% is supplied to the automotive industry
  • The volumes of the company are intact but due to the fall in crude price and also due to product mix chamges and selling more latex and less rubber the topline has fallen
  • Over the next 12-15 months looking at around Rs 90-100 crore of capex
  • The management will first go ahead with the capacity expansion of latex first
  • The revenue mix was as under for FY20:
    1. Exports: 12-13%
    1. Domestic: 87-88%
  • The orders that couldn’t be despatched in Q4FY20 have been despatched in April
  • The new expansion should be ready in 6-9 months post starting work and expecting work to start post monsoon as approvals are also taking time due to regulatory bodies working below capacities
  • Currently the margin for gloves is slightly on the higher side but when the market reverses the margins in NBR is much better
  • The cash collection suffered in March because customers were not picking up orders and money was not coming in but now the situation has normalised in April-May period
  • The pricing model is a mix of bith spot prices and formula based approach with individual customers. The NBR marketr is largely spot product
  • Both plants had opened in Apr 20thand 26threspectively
  • Sales in the coming quarter should be at 60% levels of January & February
  • In the short term raw material availabiity is not an issue and have adapted quickly to modify reactors to manufacture more latex for gloves industry
  • The net cash position on the balance sheet is currently at Rs 35-40 crores
  • The price realisation of latex is typically half of the price relaisation of rubber due to the water content in the latex
  • Going for the capacity expansion to look at the situation in large and post covid situation normalising in 1-2 years there should be very good demand for the product going forward
  • The biggest exporter of XNBR gloves is in Malaysia and thus the company has setup the capacity because only one country Malaysia caters to 70% of the global demand for gloves of the world
  • The operating margins in NBR currently was very low and alongwith prices in European market were much lower than Asian markets which led to pressure on margins
  • In the XBNR market there should not be problems of volume offtake post starting of the new facility
  • The total market size of NBR in India is around 50000 tons and the company has a capacity of 20000 tons in this segment
  • Also there is an export market which the company caters to which has a demand of 40000 tons
  • Have applied for anti dumping duty for NPR against a few countries and investigation from regulatory authorities is ongoing
  • The review of Apcobuild as a product has been good so far
Also Read on FinMedium:  Concall Summary: United Breweries Ltd Q4FY20

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Karan Sharma
The Concall Summary Guy | CFA | Investor
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