1
Jun 02, 2018
Apar Industries Ltd
India Research - Stock Broking
BUY
Recommendation (Rs.)
CMP (as on Jun 01, 2018) 715
Target Price 860
Previous Target Price 924
Upside (%) 20
Stock Information
Mkt Cap (Rs.mn/US$ mn) 26742 / 398
52-wk High/Low (Rs.) 898 / 675
3M Avg. daily volume (no.)
25564
Beta (x) 0.8
Sensex/Nifty 35202 / 10696
O/S Shares(mn) 38.3
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 58.0
FIIs 7.4
DIIs 24.4
Others 10.3
Stock Performance (%)
1M 3M 6M 12M
Absolute (11) (9) (8) (16)
Relative to Sensex (12) (12) (14) (25)
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Ankit Soni
040 - 3321 6274
soni.ankit@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 50785 48320 58185 60692 65930
EBITDA 3620 4037 4045 4248 4879
EBITDA Margin (%) 7.1 8.4 7.0 7.0 7.4
Net Prot 1202 1763 1447 1866 2311
EPS (Rs.) 31.2 45.8 38.0 49.0 60.7
RoE (%) 14.1 17.0 13.1 13.3 14.7
PE (x) 14.9 16.4 19.1 14.6 11.8
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
Higher Commodity Prices Impact Bottom-line, New Initiatives
to be in Focus
Apar’s revenue grew by 24.5% YoY driven by a strong growth across segments.
Conductors (40.5%), Oils and Lubricants (30.1%) and Cables (4.7%). The
company is facing pressure on the bottom-line due to higher commodity prices and
aggressive bidding in domestic market. For Q4FY18 EBITDA increased by 28.3%
YoY with margins of 7.1% growing 21bps, but for full-year margins have fallen by
77 bps. The PAT margins were down by 58bps YoY due to lower other income and
higher tax incidence. The interest cost is higher due to increase in LIBOR rate and
higher blockage of working capital due to GST export business.
Conductors Segment: Conductors’ revenue segment has shown a growth of
40.5% YoY with highest ever volume growth of 38%. EBIT margins have been
lower by 227bps due to higher commodity prices and xed price Tari Based
Competitive Bidding (TBCB) projects with intense competition in the industry. The
HEC conductors’ revenue was 13% of overall conductors’ revenue. Molten metal
procuring has started but the benet could be seen by the end of the year. The H2
for the conductors was brighter for the conductors segment than H1. Exports share
was 45% of total conductor sales when compared to 30% in FY17. The initiatives
on the conductor side like Molten metal sourcing, logistic benets from shifting
plant to Jharsuguda, HEC revenue growth and copper conductors from railways a
new segment to derive the growth in revenue as well as margins. The company is
expecting volumes of 185000MT for FY19. The company is already a lowest bidder
in copper conductors for railways and expecting an order of Rs. 4000 mn. The
current order book of Rs.12090 mn turns out to be 74000MT in volumes.
Valuation and Risks
We maintain our projection for FY19E and FY20E. The new initiatives Molten
metal, Logistics benets, Copper conductors for railways, Harnessing business
of railways, Medium voltage covered conductors and HEC conductors to be the
growth drivers for both top line and bottom line. The company trades at P/E of 10.8
FY20EPS. We recommend a “BUY” rating for the stock valuing at 14x(6 years vag
PE) for a target price of Rs. 860 on FY20E EPS representing an upside potential
of 20%.
Earnings Revision (%)
YE Mar FY19E FY20E
Sales (%) 0.0 0.0
EBITDA (%) (10.3) (5.1)
PAT (%) (15.6) (8.0)
Source: Karvy Research
L
L
L
L
Company Update
Materials-Basic & Diversified Chemicals
Apar Industries Ltd
Bloomberg Code: APR IN
L
L
L
L
80
90
100
110
120
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec
-17
Jan-18
Feb-18
Mar -18
Apr-18
May
-
18
Apar Industries Ltd
Sensex
2
Jun 02, 2018
Apar Industries Ltd
Oils and Lubricants: Revenue growth of 30.1% YoY driven by the growth of Automotive
oil (49%), Industrial process oil (39%), Industrial lubricants (20%) and Transformer oil
(7%). The better product mix and increase in prices has increased the EBIT margins
by 58 bps but the margins were lower by 183 bps for the full year due to aggressive
pricing in domestic and export markets with an initial cost of setting up the Sharjah
plant. The Hamriyah plant was running at its full capacity and had cash break even in
the rst year of operations. The segment could be facing a pressure on the bottom-line
due to tremendous increase in crude prices as passing on the increase in prices could
be in phases in the coming quarters. The company has won a new business to supply
transformer oil for all the major HVDC projects in FY19 & FY20. The company expects
the volumes to be in the range of 380000-415000 KL in FY19.
Robust Growth in Cables segment: Revenue growth was seen at 12.7% YoY due
to strong growth of 68% in power cable business. EBIT margins have shown a strong
growth of 292bps to reach 9.4% in Q4Fy18. The new business of Medium voltage
Covered Conductor (Higher safety conductor), railways harness business to be the
growth drivers for the coming years. The business was little subdued in windmill
segment due to an industry shift from FIT based bidding to reverse auction scheme.
Key takeaways from quarterly earnings
UDAY update: UDAY scheme successfully added 32 states and UTs, aims at a
permanent resolution of DISCOMs issues, which are the weakest link in providing
‘24 x 7 Power for All’.
Government plans to overhaul the railway’s electric infrastructure (over 67,000 ckm)
over a ve-year period, as it plans to reduce the dependence on diesel locomotives
Major Capex programs completed to reposition company favorably post GST
implementation; Conductor plant transition to Jharsuguda, molten metal rod plant in
Lapanga, HT expansion in Umbergaon, LT consolidation in progress at Khatalwad,
Oil plant in Hamriyah successfully operational, Copper conductors for railways and
OPGW approved.
The interest cost was higher as the LIBOR is increased from 1.4% to 2.35% and
also a 13 cr. amount related to open period forex has been added to nance cost.
The working capital is stretched as there is a blockage of Rs. 700 mn in GST.
The Hamriyah oil plant had the highest volume across the quarters and had sold
50000KL in its rst year of operations, attaining cash breakeven level.
Heavy capex plans to be
fore-playing the growth of
Apar industries
Margins in oil segment
is higher QoQ but lower
for full year. The segment
could see some
bottom-line pressure due
to an increase in crude oil
prices.
3
Jun 02, 2018
Apar Industries Ltd
Exhibit 2: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover (net) 17675 14989 17.9 14193 24.5
Op. Expenditure 16417 14013 17.1 13212 24.3
EBITDA 1259 975 29.0 981 28.3
Depreciation 148 140 5.7 133 11.7
Interest 536 256 109.4 238 125.0
Other Income 27 34 (20.0) 56 (52.3)
PBT 601 613 (1.9) 666 (9.8)
Tax (net) 200 217 (7.8) 263 (23.8)
PAT 401 395 1.3 403 (0.7)
EBITDA Margin (%) 7.1 6.5 61 bps 6.9 21 bps
EBIT Margin (%) 6.4 5.8 64 bps 6.4 6 bps
Net Prot Margin (%) 2.3 2.6 (37) bps 2.8 (58) bps
Source: Company, Karvy Research
Exhibit 3: Segmental Financials
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Segment-wise revenues
Conductors 8942 6386 40.0 6365 40.5
Oils & Lubricants 6232 5684 9.7 4789 30.1
Cables 3359 2856 17.6 2980 12.7
Segment-wise EBIT
Conductors 386 242 59.3 419 (7.9)
Oils & Lubricants 510 434 17.5 364 40.1
Cables 316 259 22.3 194 63.4
Segment-wise EBIT Margin (%)
Conductors 4.3 3.8 52 bps 6.6 (227) bps
Oils & Lubricants 8.2 7.6 55 bps 7.6 58 bps
Cables 9.4 9.0 36 bps 6.5 292 bps
Source: Company, Karvy Research
The company is facing
pressure on the
bottom-line due to higher
commodity prices and
aggressive pricing in the
domestic projects.
Volumes and revenue
growth across segments
drove the revenue growth
of 24.5% YoY. The net prot
margins were lower due
to lower other income and
higher interest cost
Exhibit 4: Revenue - Q4FY18
Source: Company, Karvy Research
Exhibit 5: Revenue - Q4FY17
Source: Company, Karvy Research
Conductors
48.2%
Oils &
Lubricants
33.6%
Cables
18.1%
Conductors
45.0%
Cables
21.1%
4
Jun 02, 2018
Apar Industries Ltd
Exhibit 9: 6yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 10: BSE Capital Goods Index - 5yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 8: Change in Earnings Estimates
YE Mar - Standalone (Rs.
Mn)
FY19E FY20E
Comments
Old New % Change Old New % Change
Net Sales 60692 60692 (0.0) 65930 65930 0.0
We have reduced down margins
on the back of conductors
segment’s pricing pressure and
increasing competition.
EBITDA 4734 4248 (10.3) 5143 4879 (5.1)
EBITDA Margin (%) 7.8 7.0 (80) bps 7.8 7.4 (40) bps
Adj. PAT 2212 1866 (15.6) 2512 2311 (8.0)
EPS (Rs.) 58.1 49.0 (15.6) 66.0 60.7 (8.0)
Source: Karvy Research
0
10
20
30
40
May-12
Oct-12
Mar-13
Aug-13
Jan-14
Jun-14
Nov-14
Apr-15
Sep
-15
Feb
-16
Jul-16
Dec-16
May-17
Oct-17
Mar-18
Avg P/E
1 SD
-1 SD
0
10
20
30
40
50
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Avg PE
1 SD
-1 SD
Exhibit 6: Quarterly
Source: Company, Karvy Research
Exhibit 7: Quarterly
Source: Company, Karvy Research
5420
4930
6380
8940
37899
29898
41463
56423
0
10000
20000
30000
40000
50000
60000
0
2000
4000
6000
8000
10000
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Revenue (Rs. Mn)
Volume (Mt ton)
4990
5050
5670
5910
95165
95659
105119
91029
78000
84000
90000
96000
102000
108000
4500
5000
5500
6000
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Revenue (Rs. Mn)
Volume (KL)
5
Jun 02, 2018
Apar Industries Ltd
Financials
Exhibit 11: Income Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Revenues 50785 48320 58185 60692 65930
Growth (%) (0.0) (4.9) 20.4 4.3 8.6
Operating Expenses 47165 44283 54140 56443 61051
EBITDA 3620 4037 4045 4248 4879
Growth (%) 43.6 11.3 0.2 5.0 14.8
Depreciation & Amortization 378 450 559 675 735
Other Income 101 160 111 139 167
EBIT 3242 3588 3487 3573 4144
Interest Expenses 1573 1144 1400 927 862
PBT 1775 2734 2168 2785 3449
Tax 573 972 780 919 1138
Adjusted PAT 1202 1763 1447 1866 2311
Growth (%) 0.9 47.9 (17.9) 28.9 23.8
Source: Company, Karvy Research
Exhibit 12: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Cash & Equivalents 1339 1230 2744 4432 5136
Sundry Debtors 10904 12543 17279 14965 16257
Inventory 7698 9935 12123 10199 10872
Loans & Advances 2179 2147 3119 3172 3246
Investments 1125 1186 0 0 0
Net Block 3878 5665 6438 6885 7150
CWIP 561 278 195 195 195
Miscellaneous 158 506 807 802 797
Total Assets 27841 33488 42703 40649 43652
Current Liabilities & Provisions 15446 19899 27873 23200 24796
Debt 3473 2770 3316 2981 2687
Other Liabilities 376 530 421 434 442
Total Liabilities 19294 23199 31610 26615 27926
Shareholders Equity 385 383 383 383 383
Reserves & Surplus 8154 9978 10700 13652 15344
Total Networth 8539 10361 11082 14034 15727
Total Networth & Liabilities 27841 33488 42692 40649 43651
Source: Company, Karvy Research
We expect the margins to
be at due to volatility of
commodity prices.
The new initiatives like
copper conductor, harness
business for railways,
and transformer oil for
HVDC projects to drive the
revenue growth.
6
Jun 02, 2018
Apar Industries Ltd
Exhibit 13: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
PBT 1775 2734 2198 2785 3449
Depreciation 378 450 559 675 735
Interest 831 779 1400 927 862
Inc/dec in Net WC 1587 400 864 (752) (611)
Other non cash items (385) (1139) (891) (1058) (1305)
Cash ow from operating activities 4186 3225 4129 2578 3130
Inc/dec in capital expenditure (1236) (1710) (1000) (1000) (1000)
Inc/dec in investments 718 35 0 0 0
Others (1004) 19 1297 139 167
Cash ow from investing activities (1522) (1656) 297 (861) (833)
Inc/dec in borrowings (977) (714) (1931) (1546) (1442)
Issuance of equity 0 (151) 0 0 0
Dividend paid (65) 0 (74) (74) (74)
Interest paid (1197) (716) 713 (81) (77)
Cash ow from nancing activities (2239) (1581) (1292) (1701) (1593)
Net change in cash 425 (13) 3134 16 704
Source: Company, Karvy Research
Exhibit 14: Key Ratios
YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 7.1 8.4 7.0 7.0 7.4
EBIT Margin (%) 6.4 7.4 6.0 5.9 6.3
Net Prot Margin (%) 2.4 3.6 2.5 3.1 3.5
Dividend Payout Ratio (%) 17.6 14.2 17.1 13.3 10.7
Net Debt/Equity (x) 0.2 0.1 0.1 (0.1) (0.2)
RoE (%) 14.1 17.0 13.1 13.3 14.7
RoCE (%) 10.0 13.4 10.1 11.0 12.5
Source: Company, Karvy Research
Exhibit 15: Valuation Parameters
YE Mar FY16 FY17 FY18 FY19E FY20E
EPS (Rs.) 31.2 45.8 38.0 49.0 60.7
DPS (Rs.) 5.5 6.5 6.5 9.5 9.5
BVPS (Rs.) 222.5 246.1 281.8 330.0 391.1
PE (x) 14.9 16.4 19.1 14.6 11.8
P/BV (x) 2.1 3.0 2.6 2.2 1.8
EV/EBITDA (x) 5.5 7.5 7.0 6.1 5.1
EV/Sales (x) 0.4 0.6 0.5 0.4 0.4
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
Margins to be merely
at due to volatility in
commodity prices like
Crude, Copper and
Aluminium.
7
Jun 02, 2018
Apar Industries Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
Connect & Discuss More at
1800 419 8283 (Toll Free) research@karvy.com Live Chat
f
in
You
Tube
Disclaimer
Analyst certication: The following analyst(s), Ankit Soni, who is (are) primarily responsible for this report and whose name(s) is/are mentioned therein,
certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his
(their) compensation was, is or will be directly or indirectly related to the specic recommendation(s) or views contained in this research report.
Disclaimer: Karvy Stock Broking Limited [KSBL] is registered as a research analyst with SEBI (Registration No INH200003265). KSBL is also a SEBI
registered Stock Broker, Depository Participant, Portfolio Manager and also distributes nancial products. The subsidiaries and group companies including
associates of KSBL provide services as Registrars and Share Transfer Agents, Commodity Broker, Currency and forex broker, merchant banker and
underwriter, Investment Advisory services, insurance repository services, nancial consultancy and advisory services, realty services, data management,
data analytics, market research, solar power, lm distribution and production, proling and related services. Therefore associates of KSBL are likely to have
business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are
prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources , the
respective corporate under coverage and sources believed to be reliable, but no independent verication has been made nor is its accuracy or completeness
guaranteed. The report and information contained herein is strictly condential and meant solely for the selected recipient and may not be altered in any
way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information
current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary
because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and
shall not be used or considered as an oer document or solicitation of oer to buy or sell or subscribe for securities or other nancial instruments. Though
disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat recipients as customers by
virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or
strategy is suitable or appropriate to your specic circumstances. This material is for personal information and we are not responsible for any loss incurred
based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment
decisions based on their specic investment objectives and nancial position and using such independent advice, as they believe necessary. While acting
upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any
liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements
are not predictions and may be subject to change without notice. Actual results may dier materially from those set forth in projections.
Associates of KSBL might have managed or co-managed public oering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from
the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services
rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory
services, insurance repository services, consultancy and advisory services, realty services, data processing, proling and related services or in any other
capacity.
KSBL encourages independence in research report preparation and strives to minimize conict in preparation of research report.
Compensation of KSBL’s Research Analyst(s) is not based on any specic merchant banking, investment banking or brokerage service transactions.
KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a nancial interest in the securities or derivatives of
any companies that the analysts cover.
KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the
last day of the month preceding the publication of the research report.
KSBL or its analysts did not receive any compensation or other benets from the companies mentioned in the report or third party in connection with
preparation of the research report and have no nancial interest in the subject company mentioned in this report.
Accordingly, neither KSBL nor Research Analysts have any material conict of interest at the time of publication of this report.
It is conrmed that KSBL and Research Analysts, primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not
received any compensation from the subject company mentioned in the report in the preceding twelve months.
It is conrmed that Ankit Soni, Research Analyst did not serve as an ocer, director or employee of the companies mentioned in the report.
KSBL may have issued other reports that are inconsistent with and reach dierent conclusion from the information presented in this report.
Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on KSBL by any Regulatory Authority impacting Equity Research Analyst activities.
Karvy Stock Broking Limited
Plot No.31, 6th Floor, Karvy Millennium Towers, Financial District, Nanakramguda, Hyderabad, 500 032, India
Tel: 91-40-2331 2454; Fax: 91-40-2331 1968
For More updates & Stock Research, visit www.karvyonline.com