Apcotex Q3FY17 Concall Summary

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Labour Issues 

  • The company has facing some labor issues at Taloja Plant.
  • The workman union at plant, have called for a strike, since 9th January 2017 for the wage increment.
  • The estimated gross sale loss due to strike is around Rs. 10 crores to Rs. 12 crores for period of about 22 days that is up to 31st January 2017.
  • The company is making all the possible efforts to settle the issue and restart the production.
  • The strike at Taloja plant is still on & it is difficult to predict when it wI'll stop
  • The company has moved some small quantities of Latex it makes to Valia due to the strike.
  • High styrene rubber which use to be made in Taloja was already moved to Valia earlier
  • There are 240 full time employees  in Taloja and entire company has an employee strength of 450

Volumes

  • The export volume during the nine months ended 31st December 2016 went up by 25% compared to nine months ended 31st December 2015.
  • The volume of VP latex which is used in the tyre industry is up by 52% for 9MFY17 compared to 9MFY16.
  • Further the price one of its key raw material has increased resulting in the shift of customer preference from SBR latex to Styrene Acrylics. This has affected the volume to some extent and thereby suppressed the margins

Amalganation with subsidiary 

  • The High court has approved the scheme of amalgamation which has to come into effect from 01/12/2016 & hence the subsidiary is now merged with Apcotex industries and it will be posting only single result from this quarter onward.

Inventory And Cost Optimisation

  • The company is constantly working on optimizing the inventory level by implementing the flexi Inventory policy and freeing the working capital limit.
  • With better working capital management, it has been able to lower the inventory level of finished goods by about 45% as on 31st December 2016, compared to March 16 and about 51% since acquisition.
  • It has been able to successfully bring down  debtor’s days from 84 days in February 2016 to about 65 days as on December 2016.
  • Apcotex has started utilizing the CAPEX of about 30 crores majority of which is for reducing the current power cost and for improving the efficiency and margin improvement
  • The company has been able to reduce the expenses at Valia unit from Rs. 27 crores to Rs. 16 crores since the date of acquisition.
  • It has already implemented ERP systems from this quarter and simultaneously working on material balancing system and improving the product yield
  • It has also created a New Corporate logo for company to give it a new identity

Financial Higlights

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  • In Q3 FY17 turnover was Rs. 104.19 crores as against Rs. 65 crores in Q3FY16 a growth of 58% 
  • EBITDA in Q3FY17 stood at Rs. 6.18 crores as compared to Rs. 9.52 crores in Q3 FY16 with the margin of 5.93%
  • PAT for Q3FY17 is Rs. 5.15 crores as against Rs. 4.68 Crores in Q3FY16 with the margin of 4.94% an increase of 10.16% on year on year basis
  • For 9M2016 the revenue stood at Rs. 303 crores as against Rs. 200 crores in previous year, a growth of 51%
  • The EBITDA for the 9 month period stood at Rs. 21.49 crores as compared to Rs. 28.56 crores with the margin of 7.09%
  • PAT for the 9M2016 is Rs. 15.56 crores against Rs. 16.11 crores, with the margin of 5.13%
  • The breakup of revenues on Q-o-Q basis is 50% of synthetic rubber & 50% from latex
  • Certain expenses related to merger have been debited. There is one of expenses of about Rs 80 to 90 lakhs during 9 month period. Accordingly, normalized PAT would have been about Rs. 16.35 crores.
  • During the earlier calls the company said it had margins of 13-14% but after acquisition of loss making company its margins immediately dropped below 10%, over the next 2 to 3 years, it will improve slowly as it turn around the company
  • The company got tax incentive basically in first 2 Quarters for which it provided standalone tax for the standalone company. And since in Q3 the amalgamation is completed, it could take this benefits and therefore it has to reverse the first two quarter’s tax provision
  • There is balance of 10 to 12 crores remaining outstanding in Omnova that will continue but not to the extent that in Q3, because in Q3, Q1 and Q2 are reversed
  • Other income is up 220 lakhs which was 30 lakhs last year. This is the investment portfolio for treasury and there has been some profits whichhas been booked this quarter
  • The exports have been contributing 10 to 15% of revenue
  • The employee cost has come down from 76.8 to 61.9 million, which is due to regrouping & other expenses gone up by 21%. It had done some mathadi, & some contract labour that cost may be regrouped to employees to other expenditure. 

Update On Plants 

  • The Valia Plant is running at very high capacities utilization levels, almost upwards of 90%. Part of the reason is raw material prices are going up, so there was a lot of demand in Q3 and it continues into Q4, for those products we make in our Valia plant.
  • Taloja Plant has major impact this year where one of the largest customers volumes have fallen, so clearly the capacity utilization also to some extent fallen because of that

Omnova Acquisition

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  • The company acquired Omnova in FY 16 which was loss-making company to the extent of Rs. 8 -Rs. 10 crores. Now it is in profit
  • Between Q3 and Q2 in new acquired company, there also it has made several changes again. It introduced new products and established new products, so all that has resulted in volumes improving in Q3 over Q2
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Industry Update  

  • As per the company, competitive intensity has not changed. The structure of industry still remains the same. One of the largest customer has gone but also for the competitor as well.
  • As far as synthetic rubber is concerned it is the only manufacturer of the two or three types of synthetic rubber, it manufactures Nitrile rubber, high styrene rubber, most of it is imported there also there is no major change in the competitive intensity
  • The company sees lot of opportunities in export market. It has done reasonably well this year on export growth & have invested a lot of efforts, time and resources into developing the export market. It has done a lot of  ground work and are continuing to do so, it expects good results from the future as well
  • The company says that demand is better than last quarter. Like in Q2 that customer had problems in Q3 also, but other areas have grown right. 
  • Demand from Automobile components is good, where it supply NBR, our nitrile rubber. It has good demand for one of the product that goes into tyre cord industry. Exports have seen growth of 25% for the first 9 months
  • The company is vey bullish on synthetic rubber business.

CAPEX

  • The Company has CAPEX of Rs 25-30 crores which is not for increasing capacity that was more from the point of improving efficiency and reducing cost.
  • Overall it is looking at about 100 crore in the next 2 to 3 years 
  • The first phase of Rs. 30 crores, that project has already been started.
  • It has already started implementation it will take about 12 to 18 months given most of the constraints are around permission
  • Most of the investments happening in the Valia plant.
  • Some repair work was going on in the Taloj plant, for which it moved high styrene rubber production to Valia. That plant is ready, but given the strike situation it has continued high styrene rubber production in the Valia plant for now. 
  • The company has been working on Phase 2 & Phase 3 & plans to invest about 30 crores which has already started. Phase-2 is likely to be in a similar range of Rs. 30 to Rs. 40 crores, Phase-3 is not even yet worked out. 

 Contribution from largest customer

  • In comparison to last year it is difficult to say about contribution from largest customer. The company revenues were lower, so at that time of course the percentage to the total company revenues of this particular customer was much higher. Now if things had been normal with them, overall revenues would have been in the region of 10 to 15% over nine months or over the year. But having said that 10% to 15%, had the volume being completely normal there has been some sales of course so it is not like company has lost the entire 10% to 15%. They have been working at much lower capacities but the volumes are still on for the first 9 months.

Product Updates

  • Nitrile rubber is used in multiple industries , largest being automotive components as rubber goods, there is rice roll manufacturing
  • Sonitrile rubber which would be now currently in the consolidated results about 35% of our sales,35% to 40% of sales. That caters itself to four or five different industries.
  • High styrenerubber caterers to 2-3 different industries.
  • Latex caterS to 7 or 8 differen industries
  • It is the overall broad breakup of product range, which 50% is synthetic rubber and 50% is Synthetic latex approxinately
  • In Q3FY17, latex has been more affected, so it may be a little less

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