Buy Apar Industries; target of Rs 543: Prabhudas Lilladher

Prabhudas Lilladher's research report on Apar Industries

Apar Industries (APR) reported strong set of numbers led by strong recovery in transformer oil segment. De-growth in consolidated revenue by 6.7% YoY impacted due to supply chain challenges amidst pandemic in the domestic market (down, 6% YoY) while exports market (up, 7% YoY) is gradually returning to normalcy. Lower RM cost and cost rationalisation measures led to boost in profitability. Conductors segment declined by 28% YoY owing to supply side constraint, subdued demand for conventional conductors and HEC. Specialty Oil revenue grew by 17.7% YoY driven by 30% growth in exports across all its product range. High competitive pricing and subdued demand led to 18% decline in revenue of cables business. Going ahead, management expects margins to remain under pressure led by steep rise in raw materials and freight expenses. We believe the company’s focus towards value added product would help derisk itself from low margin traditional business and help them gain market share given its superior product quality, first mover advantage and strong brand positioning both internationality and domestically. We expect revenue/PAT CAGR of 4%/15% over FY20-23E given its global leadership position, robust prospects of value-added products, strong positioning across product categories and consistent dividend pay-out.

Outlook

The stock is currently trading at 8x/7.7x/6.9x FY21E/22E/23E. Given strong 9M performance and moving towards value added products we have revised our estimates upwards by 6.8%/10.9% for FY22E/23E. We roll our estimates to FY23 and maintain BUY rating on the stock with a TP of Rs543.