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Tuesday, November 3, 2009

Apcotex Industries Ltd:Future growth prospects and outlook

Scripscan:Apcotex Industries Ltd

Story:Apcotex Industries Ltd (hereafter, AIL) was established in the year 1980 as a division of Asian Paints (India) Ltd., the largest paint manufacturer in India. Apcotex spun-off as a separate company in 1991 and is now part of the 'APCO' group of companies. With basic engineering and process know-how from Chemische Werke Huls (CWH) Germany, Apcotex pioneered the production of Vinyl Pyridine Latex, an important raw material for the tyre industry, in India. Subsequently, products such as Carboxylated Styrene Butadiene Latices, Nitrile Latices and Styrene Butadiene Rubbers were developed in-house.

AIL's products consists of:
Synthetic lattices and synthetic rubber - used for applications such as tyre cord dipping, paper / paper board coating, carpet backing, admixture for cement for construction,water-proofing, textile finishing etc
styrene butadiene rubber
Styrene butadiene rubber - used in industries manufacturing footwear, automotive components, V-belts, conveyer belts, hoses etc

AIL has its manufacturing facility and registered office in Taloja, near Mumbai.
From FY06 to FY09, Total Income has increased by a CAGR of 145.10%.
AIL suffered in FY07 because of record high cost of input materials particularly Styrene and Butadiene monomers (which are petrochemical based products) and inability of AIL to increase its selling prices suitably due to severe competition in the market
AIL's performance was flat in FY09 compare with FY08. It was able to sustain the double whammy of rise in input costs coupled with recession because
AIL was able to pass on the rise in prices of raw materials to the consumers
Addition of new value added products to the current range particularly the paper board coating industry
Better operational efficiency
Reduction of working capital requirement through better inventory and debtors management
For FY09, as high as 36.90% of the the total assets are current assets, indicating a strong balance sheet.
AIL has not taken any loan during FY09
During FY09, AIL has purchased investments worth Rs21.16 cr, out of which 56.09% are invested in GOI securities.

Conclusion:On 16 Oct 09, AIL approved buyback of 4,00,000 shares (7.24% of the paid up capital) at Rs 90/share. Out of all the possible rationale behind buybacks, I have observed that that only rationale for AIL's buyback plan is to reward shareholders with capital gains.With the INR strengthening vis-a-vis the USD, from 1USD=INR53.36 (30 Oct 08) to 1USD=INR47.41 (30 Oct 09), AIL's import costs have declined substantially.AIL deals with industries having perpetual demand, e.g.footwear, textiles, construction, paper. Hence, AIL's revenues are assured.Keeping all the above factors in mind, I recommend a "buy" on this stock at current levels and hold it till the company's FY10 results are declared.


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