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Rating:BUY
Target:Rs.444

STOCKINFO
Co.Name
ApcotexIndustries
Bse
523694
Nse
APCOTEXIND
Bloomberg
APCO.BO
Reuters
APCO.IN
Sector
Chemical
FaceValue(Re)
5
EquityCapital(RsMn)
52
MktCap(RsMn)
5,682
52wH/L(Rs)
361/181.5
AvgDailyVol(BSE+NSE)
16,751

SHAREHOLDINGPATTERN
(asonMarch2016)

Institutions
Others
Promoters

0.03
42.1
57.87

Source:BSE

STOCKPER.(%)

Apcotex
Sensex

1m

3m

12m

21%
3%

41%
6%

24%
4%

Source:Capitaline,IndiaNiveshResearch

Apcotexv/sSENSEX

Source:Capitaline,IndiaNiveshResearch

DaljeetS.Kohli
HeadofResearch
Tel:+912266188826
daljeet.kohli@indianivesh.in

AmarMourya
ResearchAnalyst
Tel:+912266188836
amar.mourya@indianivesh.in

IndiaNiveshResearch

18/Apr/16

16/May/16

04/Apr/16

21/Mar/16

Sensex

02/May/16

25/Jan/16

07/Mar/16

11/Jan/16

22/Feb/16

08/Feb/16

28/Dec/15

14/Dec/15

19/Oct/15

Apcotex

30/Nov/15

05/Oct/15

16/Nov/15

21/Sep/15

02/Nov/15

07/Sep/15

27/Jul/15

13/Jul/15

24/Aug/15

29/Jun/15

10/Aug/15

140
130
120
110
100
90
80
70
60
50

15/Jun/15

Current
CMP:Rs.299
Rating:BUY
Target:Rs.444

01/Jun/15

OMNOVAturnedprofitable;ConsolidatedEBITDAMargin
down:MaintainBUYwithTPofRs.444
Q4FY16ResultUpdates

May17,2016

18/May/15

ApcotexIndustriesLtd(Apcotex)

Apcotex posted consolidated revenue growth of 24.6% Y/Y to Rs.956 mn driven

by OMNOVA consolidation. However, on the standalone basis its revenue de
grew by 11.9% Y/Y largely impacted by crude oil price decline. OMNOVAs two
monthrevenuestoodatRs.276mn,indicatingRs.414mnofquarterlyrunrate.

ConsolidatedEBITDAmarginscontracted290bpsY/Yto10.8%ledbyconsolidation
of low margin OMNOVA business. In our view, margin contraction was expected,
butgoodnewsisOMNOVAbusinesshasalreadyshownaturnaroundfromlossto
profitatEBITDAlevel(~+5.6%EBITDAmargin).
During the quarter, depreciation/other income (Incl finance cost) stood at Rs.27
mn/Rs.59 mn [v/s Rs.22 mn / Rs5 mn in Q4FY15]. The other income looks
significantlyhighduetotheprofitaccruedfrombookingofliquidinvestments.In
Q4FY16, the company reported tax benefit of +Rs.88 mn as compared to tax
expenditure of Rs.30 mn in Q4FY15. The tax benefit was primarily due to
accumulatedlossesatOMNOVAlevel.Asaresult,Netprofitgrewby287.9%Y/Yto
Rs.224 mn [v/s Rs.58 mn in Q4FY15]. Adjusting the oneoff (other income + Tax
benefit),netprofitstoodatRs.77mn(v/sRs.83mninQ4FY15).
The overall investment theme largely remains on the track. Rebalancing of
inventoryandreceivabledaystotheoverallApcotexlevelcouldleadtohugefree
cash flow generation. Despite such niche business acquisition the overall balance
sheet looks stable with further decline in the debt level. In our view, OMNOVA
businessreachingtothesteadystatemarginlevelofApcotexwillcreatesignificant
shareholdervalue.WemaintainBUYwithTPofRs.444onthestock.

OMNOVAdemonstratedEBITDAlevelturnaround
TheeffectofnewmanagementisvisibleintwomonthsOMNOVAdelivered5.4%
ofEBITDAmargin(v/s~4.1%ofEBITDAlevellosssamequarterlastyear).Thekey
reason for such fast recovery was internal workout (reduction in operating
expenditure) and favourable demand environment. The efficient development of
manufacturingprocessesandenhancementofproductivityshouldleadtoApcotex
levelmargingoingahead.WeexpectconsolidatedEBITDAmarginat11.3%/13.8%
inFY17E/FY18E(v/s13.3%inFY16A)withrevenueCAGRof44.1%overnexttwo
years(FY16AFY18E).

Interim Result (Rs Mn)

FY16

FY15
Q4

Q3

Q4

Revenue
Standalone
OMNOVA
Consolidated

767
767

652
652

680
276
956

EBITDA
Standalone
OMNOVA
Consolidated

105
105

90
90

89
15
104

13.8%
NA
13.8%

13.1%
5.4%
10.8%

Standalone V/S Consolidated

EBITDA Margin %
Standalone
OMNOVA
Consolidated
Source:Companyfilings,IndiaNiveshResearch

13.7%
NA
13.7%

IndiaNiveshSecuritiesLimited|ResearchAnalystSEBIRegistrationNo.INH000000511
601&602,SukhSagar,N.S.PatkarMarg,GirgaumChowpatty,Mumbai400007.Tel:(022)66188800
IndiaNiveshResearchisalsoavailableonBloombergINNS,ThomsonFirstCall,ReutersandFactivaINDNIV.

Q4FY16ResultUpdate(contd...)

Inventory/DebtorDaysContractionAdditionalTrigger
Post OMNOVA consolidations debtors and inventory days expanded to 102/53 days from
49/15daysinFY15.Thiswaspartiallyoffsetbyincreaseinpayabledaysto80daysinFY16
from32daysinFY15.Inourview,Apcotexalreadypossesssupplierandbuyerpowerandhas
abilitytooperateathigherutilizationlevel(Current65%|High85%).Theconsolidationwill
further enhance the buyer and supplier power. The combined company will emerge as
monopolyplayerinSyntheticRubbersegment.GiventhelargestbuyerofStyrene(360tons)
andoneofthelargestbuyerofButadiene(360tons)inthecountry,Apcotexshouldfurther
strengthenitssupplierpower,asinputmaterialissameforNitrileLatex.

WorkingCapitalCycle(Days)
120
100
80
60
40
20
0
FY14

FY15

FY16

FY17e

FY18e

Debtors(Days)

Inventory(Days)

Creditors(Days)

CashConversionCycle(Days)

Source:Companyfilings,IndiaNiveshResearch

Valuations
AtCMPofRs.299,thestockistradingat19.8xFY17Eand13.4xFY18EEV/EBITDAestimates.
The companys technology, experience and clientele remain the significant entry barrier.
TheseadvantagesleadtolionsmarketshareinPerformanceEmulsionPolymerssegmentin
India.Themanagementsnewfiveyearvisionandtrackrecordofexecutingaspertheplan
shouldleadtonextlevelofrevenuegrowthandmarginexpansiongoingahead.Wemaintain
BUYwithtargetpriceofRs.444(20.0xFY18E)onthestock.

(contd...)

May17,2016|2

Q4FY16ResultUpdate(contd...)

QuarterlyPerformance

FY16

FY15

Interim Result
Sales
Change (%) Y-o-Y

Q1
1023
36.9%

Q2
898
28.2%

Q3
846
19.3%

Q4
Q1
Q2
Q3
767
667
675
652
-4.5% -34.8% -24.8% -22.9%

Q4
956
24.6%

COGS
As a % of sales

(794)
77.6%

(697)
77.7%

(634)
74.9%

(518)
67.5%

(479)
71.8%

(495)
73.3%

(460)
70.6%

(698)
73.1%

SG&A
As a % of sales

(131)
12.8%

(102)
11.4%

(116)
13.7%

(144)
18.8%

(95)
14.2%

(89)
13.1%

(101)
15.6%

(154)
16.1%

R&D expenditure
As a % of sales

0
0.0%

0
0.0%

0
0.0%

0
0.0%

0
0.0%

0
0.0%

0
0.0%

0
0.0%

EBITDA
EBITDA margin

98
9.6%

99
11.0%

96
11.4%

105
13.7%

93
14.0%

92
13.6%

90
13.8%

104
10.8%

Depreciation
As a % of sales

(24)
2.3%

(23)
2.5%

(21)
2.5%

(22)
2.9%

(21)
3.1%

(25)
3.7%

(22)
3.4%

(27)
2.8%

EBIT
EBIT Margin

74
7.2%

76
8.5%

75
8.9%

83
10.8%

73
10.9%

67
10.0%

68
10.4%

77
8.1%

18

10

10

59

82

94
10.4%

85
10.1%

88
11.5%

83
12.4%

71
10.6%

68
10.5%

136
14.2%

(24)
29.4%

(22)
24.0%

(25)
29.1%

(30)
34.4%

(22)
26.5%

(18)
25.5%

(22)
31.7%

88
-65.0%

Net Incom e
Net Margin

58
5.6%

71
7.9%

60
7.1%

58
7.5%

61
9.1%

53
7.9%

47
7.2%

224
23.5%

EPS - Basic
EPS - Diluted
Shares outstanding - Basic
Shares outstanding - Diluted

2.79
2.79
20.70
20.70

3.43
3.43
20.70
20.70

2.92
2.92
20.70
20.70

2.79
2.79
20.70
20.70

2.95
2.95
20.70
20.70

2.57
2.57
20.70
20.70

2.26
2.26
20.70
20.70

10.83
10.83
20.70
20.70

Consolidated

Net financials & Other incom e

Earnings before Tax
PBT Margin
Taxes
% of Profits
Minority Interest
Post tax exceptionals

(contd...)

May17,2016|3

Q4FY16ResultUpdate(contd...)

FinancialStatements:

IncomeStatement(Consolidated)

YEMarch(Rsm)
Netsales
Growth(%)
Operatingexpenses
Operatingprofit
Otheroperatingincome
EBITDA
Growth(%)
Interest
Depreciation
Otherincome
AssociateIncome
EBIT
Financecost
Exceptionalitem
Profitbeforetax
Tax(current+deferred)
Profit/(Loss)fortheperiod
Associates,MinInt
Reportednetprofit
Extraordinaryitem
Adjustednetprofit
Growth(%)
Source:Company,IndiaNiveshResearch

BalanceSheet(Consolidated)

FY14

FY15

FY16

FY17E

FY18E

2,970
8.6
2,713
257
0
257
8.4
47.1
68
24
0
166
0
0
166
35
131
0
131
0
131
2.5

3,551
19.5
3,128
422
0
422
64.4
40.1
90
56
0
348
0
0
348
102
247
0
247
0
247
88.0

2,965
16.5
2,570
394
0
394
6.7
24.3
98
83
0
355
0
0
355
27
381
0
381
0
381
54.5

5,129
73.0
4,549
580
0
580
47.0
14.2
169
22
0
418
0
0
418
105
314
0
314
0
314
17.8

6,154
20.0
5,305
849
0
849
46.5
14.2
203
22
0
654
0
0
654
191
463
0
463
0
463
47.8

YEMarch(Rsm)

FY15

FY16

FY17E

FY18E

52
801
853
0
853
506
480
0
27
0
475
0
339
136
0

52
945
998
0
998
342
311
0
31
0
467
0
318
149
0

104
1,768
1,872
0
1,872
204
171
0
34
0
737
0
660
76
1

104
1,978
2,082
0
2,082
204
171
0
34
0
861
0
562
299
0

104
2,328
2,432
0
2,432
204
171
0
34
0
840
0
641
199
0

TotalLiabilitiesandEquity

1,834

1,807

2,813

3,147

3,475

NonCurrentAssets
NetBlock
Goodwill
NoncurrentInvestments
Longtermloansandadvances
DeferredtaxAssets
OthernoncurrentAssets
CurrentAssets
Inventories
SundryDebtors
Cash&BankBalances
OthercurrentAssets
Loans&Advances
CurrentInvestments

1,010
689
0
321
0
0
0
824
171
517
61
74
0
0

1,025
651
0
373
0
0
0
782
152
487
44
99
0
0

1,186
947
0
239
0
0
0
1,627
433
838
98
257
0
0

1,267
1,028
0
239
0
0
0
1,881
211
885
289
496
0
0

1,281
1,042
0
239
0
0
0
2,195
253
927
509
506
0
0

Total(Assets)

1,834

1,807

2,813

3,148

3,476

Sharecapital
Reserves&surplus
NetWorth
MinorityInterest
TotalLiabilities
Noncurrentliabilities
Longtermborrowings
Deferredtaxliabilities
OtherLongtermliabilities
Longtermprovisions
CurrentLiabilities
Shorttermborrowings
Tradepayables
OthercurrentLiabilities
Shorttermprovisions

Source:Company,IndiaNiveshResearch

FY14

(contd...)

May17,2016|4

Q4FY16ResultUpdate(contd...)

CashFlowStatement(Consolidated)

FY14

FY15

FY16

FY17E

FY18E

Profitbeforetax
Depreciation
Changeinworkingcapital
Totaltaxpaid
Others
Cashflowfromoperations(a)
Capitalexpenditure
Changeininvestments
Others
Cashflowfrominvesting(b)
Freecashflow(a+capex)
Equityraised/(repaid)
Debtraised/(repaid)
Dividend(incl.tax)
Others
Cashflowfromfinancing(c)
Netchangeincash(a+b+c)
Cashatthebegning
Cashattheendoftheyear

189
68
122
35
23
77
124
0
0
124
47
0
7
52
0
45
92
154
62

333
90
13
102
16
324
104
0
0
104
220
0
164
73
0
237
17
62
44

296
98
14
27
58
493
259
0
0
259
234
52
138
93
0
179
54
44
99

410
169
62
105
8
545
250
0
0
250
295
0
0
104
0
104
191
99
289

646
203
116
191
8
551
217
0
0
217
334
0
0
114
0
114
220
289
509

Source:Company,IndiaNiveshResearch

YEMarch(Rsm)

KeyRatios(Consolidated)

YEMarch

FY14

FY15

FY16

FY17E

FY18E

AdjustedEPS(Rs)
Growth
Dividend/share(Rs)
Dividendpayoutratio

6.3
2.5
2.5
39.5

11.9
88.0
7.0
58.7

18.4
54.5
4.5
24.4

15.1
17.8
5.0
33.0

22.4
47.8
5.5
24.6

EBITDAmargin
EBITmargin
NetMargin
Taxrate(%)
Debt/Equity(x)

8.6
5.6
4.4
21.1
0.6

11.9
9.8
7.0
29.1
0.3

13.3
12.0
12.9
7.5
0.1

11.3
8.2
6.1
25.0
0.1

13.8
10.6
7.5
29.1
0.1

23
64
46

18
50
37

62
103
94

17
63
45

17
55
44

4.4
1.7
0.6
15.4
12.5

7.0
2.0
0.3
24.7
26.6

12.9
1.3
0.1
20.4
17.4

6.1
1.7
0.1
15.1
18.6

7.5
1.9
0.1
19.1
25.1

47.3
222.4
51.9
25.4

25.2
131.5
44.4
15.4

16.3
92.3
23.6
16.5

19.8
91.7
21.3
11.3

13.4
66.4
18.2
7.7

InventoryDays
SundryDebtorDays
TradePayableDays
DuPontAnalysisROE
Netmargin
Assetturnover(x)
Leveragefactor(x)
ROE(%)
RoCE(%)
Valuation(x)
PER
PCE
Price/Book
EV/EBITDA
Source:Company,IndiaNiveshResearch

(contd...)

May17,2016|5