Abhiraj Choksey – MD of the company addressed the call.

Highlights of the call:

Apcotex Industries (Apcotex) is a leading producer of Synthetic Rubber (Nitrile Rubber, High Styrene Rubber, Nitrile Polyblends and Nitrile Powder) and Synthetic Latex (XSB Latex, VP Latex, Styrene Acrylics and Nitrile 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 De-husking Rollers, Printing and Industrial Rollers, Friction Materials, Belting and Footwear.

For the quarter ended June 2019, Apcotex Industries registered 2% fall in sales to Rs 146.73 crore. OPM improved 90 basis points to 12.3% which saw OP rise 6% to Rs 18.10 crore.

PBT fell 4% to Rs 15.80 crore. PAT grew 1% to Rs 11.36 crore.

Sales fell due to softening finished goods prices.

The company saw reasonable volume growth across most industry verticals in Q1 FY 2019-20.

As raw material prices also fell, margins improved.

It has 450 fulltime employees.

Exports have been growing generally over the past few years. It has no ready information on Q1, 2020 export sales.

Apcotex is the only manufacturer of Nitrile Rubber and High Styrene Rubber in India. It has a high market share in HSR but a low market share in NBR due to capacity constraints.

Presence in the stable growth industries like Paper, Construction, Carpet, Tyre and Rubber provides stable growth & is a strong base for the company.

Apart from the existing product portfolio, the next generation product pipeline is strong to propel growth.

It recently launched new product XNBR Latex for gloves mainly catering to exports.

It has a strong global presence in South East Asia, Middle East & Africa and intends to tap the Asian Markets.

The company has spent Rs 60 crore till June 2019 against planned 3 year capex of Rs 90 crore. Remaining will be invested by March 2020.

The company planned debottlenecking to increase capacity from 15000 tons to 21000 tons. 80% of the work is over. The rest will be over by January 2020.

30% of sales come from Auto industry. Out of the auto industry 60% comes from auto components and rest comes from the tyre industry.

Construction industry accounts for 12-14% of sales.

Slowdown in both auto and construction industry is a cause for concern. Till Q1 the company did not face any problem in these sectors but will likely face impact of slowdown from Q2 onwards.

The company has had decent volume growth so far in Q2 but going forward margins will be a concern as slowdown impacts margins as all the companies try to increase volumes.

Realization fell in Q1.

It does not give details of volume growth as a policy but it grew by double digits in Q2.

It does not give sales guidance but will be happy to grow in low teens in FY 2020.

Other expenses are up mainly because volumes are up.

Since over the last few months raw material prices have been lower, the working capital requirement has also been lower to that extent.

The company is planning Rs 250-300 crore capex for Nitrile Latex project.

The Nitrile Latex project is in the design phase. The board has approved the project. Currently the company is waiting for some bigger customer approvals. It has already started manufacturing this product from its Taloja facility. But it has limited capacities due to the kind of reactors it has there. So the company is planning new reactors in Valia. Prime facie the board has approved the project and that can bring Rs 300 crores of revenue.

Initially the project will generate revenue of Rs 200 crores and it will add one more reactor which should only take about 8, 9 months. So it will start with Rs 200 crore, but it is creating all the capacity to make it Rs 300 crore revenue project.

The management is still sticking to the timeline of starting the phase I by Dec 2020 or early Jan 2021.

This project is facing few environmental clearance delays.

It follows FIFO as accounting standards for raw materials.

The company always tries to debottleneck and create more capacity with the assets that it currently has. This should be enough for the next year or two for growth.

The company has very less share in carpet latex for export market. But this business grew well in Q1.

The power plant was supposed to come on steam in July 2019 however it got delayed due to environment clearance issues and delay in civil construction. The management hopes that it will come up in October 2019. This power plant will help in improving margins by 1%.

Shares were split to improve liquidity and participation of small investors.

The company looks at new products and new sub application all the time.