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Wednesday, September 9, 2009

Apar Industries Ltd:Good bet for the longer term

Scripsccan:Apar Industries Ltd

Story:Apar is the market leader in transformer oils with over 55% market share in India under the brand POWEROIL. The company’s focus is more on the power transformer side (132 Kv – 800 Kv), where it has more than 60% market share. Apar’s domestic customers include BHEL, Emco, Crompton Greaves, Bharat Bijlee and Alstom among others.One of the largest player of conductors in domestic market with around 25% market share.Apar has a strong presence in conductors and is the second largest manufacturer in India with around 25% market share after Sterlite Technologies. Apar is the largest exporter of conductors from India. The export markets span Middle East, Japan, Europe, USA, South America and Africa. Apar has manufacturing facilities at Silvassa and Nalagarh (Himachal Pradesh) with a total capacity of 97,097MT.Huge capex expected in power transmission sector, which will boost ancillary industries.For the 11th Plan Rs1,400 billion is planned to be spent on transmission schemes, against Rs744 billion in the 10th plan. Power transformers account for around 70% of the transformers market where as the distribution transformers constitute around 30%. With increased focus on power related infrastructure, the transformers industry has seen high growth rate in volume as well as value terms.Export market: A lucrative advantage-Apar is the largest conductors exporting company in India. Its product goes in more than 43 countries with significant presence in Africa. It is expected that demand for transmission conductors is expected to grow by a CAGR of 8-9% till CY 2011.At CMP of Rs146, the stock is trading at 6.7x its FY2010 estimates and 5.5x its FY2011 estimates and an EV/EBITDA of 0.91x and 0.88x its FY2010 and FY2011 estimates respectively. We INITIATE coverage on the company with a BUY rating with 12 month price objective of Rs 201, implying a P/E multiple of 9.00x FY 2011 earnings, which is an upside of 34% from CMP. We value the company at EV/EBITDA of 1.89x on FY2011(E).

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