PL Stock Report: Apar Industries (APR IN) - Q1FY24 Result Update - Long term outlook intact - Downgrade to 'Accumulate'

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

Rating: ACCUMULATE | CMP: Rs3,782 | TP: Rs4,100

Q1FY24 Result Update - Long term outlook intact

Quick Pointers:

♦ Strong exports growth (up ~53% YoY), product premiumization and volume growth across segment drives revenue growth of ~22% YoY.

♦ Conductors EBITDA/ton continues to remain strong at Rs38,740/ton, driven by product mix and higher exports contribution.

Apar Industries (APR) reported strong quarterly performance with revenue growth of ~22% YoY and EBITDA margin expansion of 150bps YoY. Conductors demand from domestic market is likely to remain robust with several TBCB project under tendering and adoption of high efficiency AL-59 conductor vs conventional ACSR conductors earlier. Near term slowdown is expected in select export markets such as USA and Europe due to excess inventory and normalizing supply chain, however medium to long term outlook continues to remain strong for overall exports. Cables business likely to continue with its growth momentum and report 25-30% revenue CAGR over next couple of years, driven by growth in elastomeric cables (renewables, defence etc) and focus on expanding B2C segment with enhancing distribution and geographical reach.

We believe, APR’s focus towards value added products and strong traction in domestic market and long term positive view on exports will drive strong topline and profitability in the long run. The stock is currently trading at PE of 24.7x/19.9x FY24/25E. We revise our estimates by 4.7%/3.7% for FY24/25, factoring in better margins in cables segment and healthy conductor’s outlook with revised SoTP to Rs4,100 (Rs3,725 earlier). However, given the recent sharp run up in stock price, we change rating to ‘Accumulate’ from Buy, maintaining long term positive view.

Strong exports and volumes drives growth: Consolidated sales grew 22% YoY to Rs37.7bn (PLe ~Rs34.7bn), comprising of Conductors/ Speciality Oil/ Cables ~47%/~32%/~26% of total sales. EBITDA grew 45.8% YoY to Rs3.5bn (PLe Rs3.3bn), with EBITDA margins expanding by 150bps YoY to 9.2% (PLe ~9.4%), owing to lower other expenses as % of sales (13.6% vs 15.2% in Q1FY23). PAT grew ~61% YoY to ~Rs2bn (PLe ~Rs1.7bn), led by strong operational performance and higher other income (3x to Rs139mn).

Growth witnessed across segments: Conductors reported a growth of 14.6% YoY to Rs17.7bn, owing to strong volume growth (up 27% YoY) and strong growth in exports (up ~58% YoY). Cables reported a ~51.6% YoY revenue growth to Rs9.7bn owing to strong growth in exports and elastomeric products. Speciality oil segment revenue grew ~12.2% YoY to ~Rs12bn, driven by volume growth. Management maintained its guidance: 1) conductor volume growth to be ~10% with sustainable EBITDA/ton of ~Rs25,000/ton with multiple tailwinds 2) Cables growth of 25-30% with EBITDA margins of 10-12% and 3) Speciality Oil volume growth of ~5% with EBITDA/KL of ~Rs5,500/KL.

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