Published on 17/02/2017 3:22:09 PM | Source: Emkay Global Financial Services Ltd

Buy Apar Industries Ltd For Target Rs.762.00 - Emkay

Posted in Broking Firm Views - Long Term Report | #Power Sector #Broking Firm Views Report #Emkay Global Financial Services Ltd. #Apar Industries Ltd


* Apar reported a strong Q3FY17 earning growth which were above our estimate. While revenues declined 4.6% YoY to Rs 11.3bn; EBITDA went up 26.4% YoY to Rs 1.06bn and APAT increased 54.4% YoY to Rs 433mn

*Revenue declined across the conductors on account of processing of conductors for some parties (-12.5% YoY to Rs5.1 bn) and Speciality oil business due to lower realization (-11.7% YoY to Rs4.2bn), while it increased across cable segment (2.9% YoY to Rs2.1bn)

* Profitability improved across the Conductor and Cable segment (driven by higher share of value added products like HEC and Elastomeric cables) while it declined across the Specialty oil segment. Overall EBITDA margin improved 230 bps YoY to 9.4% in Q3FY17

* Revised estimates upward for FY17E/FY18E to factor in better than anticipated earnings during YTDFY17 and GST benefit. Also we have rolled over our valuation multiple on FY19E and revised TP to Rs 762/share (14xFY19E EPS of Rs54.5). Upgrade to BUY

 

Revenue impacted; however operating performance continue to impress

Apar Industries’ (Apar) reported revenue decline of 4.6% YoY to Rs11.3 bn which was below our estimates due to lower raw material prices in Speciality oil segment and processing of conductors for specific parties. EBITDA, however, increased 26.4% YoY to Rs1.06bn driven by 6.8% YoY decline in cost of raw material and 10.3% decline in other expenses in Q3FY17. Margin improved across Conductor’s and Power/Telecom segment by 507 bps and 202 bps YoY to 9.9% and 8.6% respectively. Profitability was driven by higher share of value added products like HEC and Elastomeric cables. However margin across Specialty Oil segment declined marginally by 32 bps to 8.4% (EBITDA/KL declined 20.9% YoY to Rs 3851). Overall EBITDA margin improved 230 bps during the quarter to 9.4%.

Interest expenses declined 11.5% YoY to Rs310mn due to repayment of debt while tax expenses increased 53.8% YoY to Rs228mn on higher profitability. Consequently, PAT increased 54.4% YoY to Rs433mn which was above our estimate of Rs404mn for the quarter

 

Estimates revised upward; Target Prices upgraded to Rs762

We have revised our earnings estimates upward for FY17E and FY18E to factor in better than anticipated YTDFY17E performances and improved profitability across its Conductors and Cable business driven by improved sales of high margin products like HEC, Elastomeric cables and better sales mix. Also, the management has guided to take a price hike across its oil segment during the Q4FY17 which would curtail the impact of recent rise in crude prices. Furthermore, Apar would also benefit from the roll out of GST (input credit in Orissa and payment of CST by competitors). Accordingly, we have revised our earnings estimates upward by 22.4% and 10.8% for FY17E and FY18E respectively. We have rolled over our valuation multiple on FY19E and revised TP to Rs 762/share (14xFY19E EPS of Rs54.5). Upgrade to BUY

 

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