PL Stock Report - Apar Industries (APR IN) - Company Update - Premiumisation, exports to propel strong growth - BUY

Apar Industries (APR IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs2,993 | TP: Rs3,725

Company Update - Premiumisation, exports to propel strong growth

We recently interacted with the management of Apar Industries ltd (APR), where they reiterated the strong demand outlook for Conductors and Cables segments, while maintaining modest stance on Speciality oil segment. Mgnt. guided 1) exports and product premiumisation will be key growth drivers in coming years, 2) Conductors division likely to witness strong traction for its conventional conductors from export markets, while domestic market will be driven by product premiumisation, 3) Cables segment, on the other hand, will continue with its growth momentum driven by strong growth in Elastomeric/E-beam cables from renewables & defence sector and growth in B2C business and 4) Speciality oil segment, is expected to witness decent growth in Transformer oil (~33% segment contribution) while growing modestly in white oil & auto lubricants.

We believe, APR’s focus towards value added products and strong traction in exports business will drive strong topline and profitability in the long run. Hence, we expect revenue/PAT CAGR of 16.5%/5% from FY23-25E, amid high PAT base. The stock is currently trading at PE of 20.5x/16.3x FY24/25E. We maintain ‘Buy’ rating on stock with SoTP based TP of Rs3,725 (Rs3832 earlier) valuing Cables/Conductors/Speciality oil business at PE of 25x/21x/9x on FY25E EPS.

Conductors- transforming through premiumisation, exports: Conductors (~49% of FY23 revenue) has grown at ~16% CAGR over FY16-23, driven by product premiumisation and exports. Premium products contribution increased from 6% in FY16 to ~44% in FY23 and exports contribution increased from 40% to 51% during same period. Subsequently, EBITDA/MT post forex expanded to Rs44,114/MT in FY23 vs Rs17,095/MT in FY22 and Rs7,606/MT in FY16. FY23 EBITDA/MT was strong owing to favorable mix, inventory gains, normalizing freight costs. Going forward, we expect sustainable EBITDA/MT to be ~Rs25,000/MT over next 2 years with multiple tail-winds arising from strong exports of conventional conductors and increasing traction of premium products in domestic market.

Cables- Favorable mix & exports to drive robust growth: Cables (~23% of FY23 revenue) has grown at ~25% over FY16-23, mainly driven by new product launches (500+ products), innovation, capacity expansion (only Cable company with 4 e-Beam irradiation facilities) and strong growth in Elastomeric cables mainly coming from sectors such as renewables, defence and railways. We expect revenue CAGR of ~27% over FY23-25E, driven by 1) continued traction in elastomeric cables 2) strong growth from exports and 3) channel expansion in B2C segment.

Speciality Oil- Global leader in Transformer oil: Speciality oil (~33% of FY23 revenue) has grown at ~14% CAGR over FY16-23, mainly driven by strong growth in exports and higher base oil prices. Exports contribution increased from 33% in FY16 to 45% in FY23. Management expects growth to be driven by transformer oil performance (~33% of segment revenue; likely 7-8% volume CAGR), while auto lubricant and white oil growth to remain muted. Overall, we expect EBITDA/KL to be in range of ~5,600-6,000/KL in the medium term.

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