Apcotex Industries - Initiating Coverage - Wallfort Financial Services

Leading position in the Synthetic Latex and Rubber segment in the domestic market: Apcotex is the second largest player in manufacturing of latex for paper & paperboard, construction applications and comes next to BASF in India. In case of tyre industry, Jubilant Industries is the biggest supplier of V.P latex followed by Apcotex and OMNOVA. Apcotex is market leader in carpet backing product with more than 70% market share. In the footwear industry, where the synthetic rubber is used, Apcotex and Eliokem both enjoy market share of 50% each.

Strong Research & Development (R&D) base: One of the company's strengths has been its regular introduction of new products through innovation and R&D and continuous efforts to better understand the changing customer needs, improve product quality, productivity and process controls through technology up-gradation.

Strong promoter background with long standing experience in rubber and latex business: Apcotex spun-off as a separate company in 1991 from Asian Paints Ltd. and is headed by Mr. Atul Choksey, Chairman of Apcotex Industries Ltd. and former Managing Director of Asian Paints (from April 1984 to August 1997). Mr. Atul Choksey has more than three decades' experience in the paints and chemicals industry.

Doubling capacity in next two years: To meet growing demand for its latex product, the company has planned a CapEx of Rs.350mn to double the existing capacity of latex from 40,000MT/Annum to 80,000MT/Annum in two phases.

High entry barrier: Key reasons behind Apcotex's strong market position include:

- Its ability to handle chemically hazardous raw material, Butadiene, which requires large storage capacity

- The quality of its products where approval process from customers can take as long as three years making the gestation period high for other players to enter the market.

Esteemed Clientele: Apcotex's products find their application in the industries such as textiles, paper and paper coating, construction, carpet, tyre manufacturing, footwear etc. The company has established relations with industry giants across diverse sectors such as ITC, BILT, Apollo Tyres, MRF, SRF, Pidilite, Paragon, Relaxo etc.

Attractive Valuation: At current market price of Rs.253 the stock trades at a P/E(X) of 10.72. Going forward, we estimate the EPS to be Rs.25.75 for FY13E and Rs.34.93 for FY14E.

We have valued Apcotex on FCFF method which gives a value of Rs.408 per share. Hence, we initiate coverage on the stock with a 'BUY' recommendation and a target price of Rs.408, an upside of 61%.

Source : Equity Bulls

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