Hold Apcotex Industries; target of Rs 480: ICICI Direct

ICICI Direct's research report on Apcotex Industries

Apcotex Industries (AIL) reported strong Q2FY18 results. Revenues came in at Rs 129 crore for Q2FY18, up 39.5% YoY. Higher revenues were on account of good growth witnessed across all industries (auto, industrials, consumer, construction, paper, etc) in domestic markets. Exports also witnessed strong traction due to the sales efforts of the management over the last few quarters EBITDA came in at Rs 15.1 crore, up 227% YoY. This was due to a 200 bps increase in gross margins and sharp decline in ‘other expenses’ during the quarter. Gross margins improved due to efficient buying of raw materials for the quarter. Other expenses as percentage of sales declined from 16.1% in Q2FY17 to 11.8% in Q2FY18. Accordingly, EBITDA margins came in at 11.7% for the quarter vs. 5% in Q2FY17 PAT was at Rs 8.5 crore, up 138% YoY (against EBITDA growth of 227% YoY) as the company paid higher taxes during quarter (Rs 4.7 crore in Q2FY18 vs. Rs 0.1 crore in Q2FY17).

Outlook
We expect AIL to deliver accelerated performance over FY17-20E. We estimate sales, EBITDA and PAT to grow at a CAGR of 16.6%, 42.1% and 16.8% over FY17-20E. Strong performance coupled with healthy balance sheet (net debt-free status) augurs well for the company. Accordingly, we value the company at 21x FY20E earnings to arrive at a fair value of Rs 480 per share. We have a HOLD recommendation on the company.

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