Buy Apcotex Industries; target of Rs 540: ICICI Direct

ICICI Direct's research report on Apcotex Industries

Apcotex Industries (AIL) reported weak operating numbers in Q3FY19 despite continued growth in topline numbers (highest-ever quarterly sales). This was mostly due to higher input costs that rose 27.1% YoY EBITDA declined 3% YoY and 14.3% QoQ despite revenue growth of 19% YoY and 2.5% QoQ. This was led by gross margins declining 460 bps YoY, 130 bps QoQ. Employee expenses also increased 11.1% YoY. Absolute revenue, EBITDA came in at Rs 164.1 crore, Rs 16.8 crore, respectively. EBITDA margins came in at 10.3% vs. 12.6% YoY Other income declined 47.5% YoY to Rs 2.4 crore for the quarter. Accordingly, PAT declined 24.9% YoY to Rs 10.1 crore (weak operating performance plus lower other income).

Outlook

The company intends to partly offset this impact via efficient raw material purchase and increase the contribution of high margins exports. Accordingly, we remain positive on AIL. We value the company at 22x FY20E earnings to arrive at a target price of Rs 540/share. We maintain BUY recommendation on the stock.