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The synthetic rubber manufacturer Apcotex Industries Ltd reported a 16.4% rise in its revenue from operations in Q2FY23 as its revenue stood at Rs.2,832 Mn vs Rs.2,434 Mn in Q2FY22 during a seasonally weak quarter on the back of decent value growth of 11% and volume growth of 5-6%. On a QoQ basis revenue was down 8%. During H1FY23 the company reported robust 38% revenue growth to Rs.5,897 Mn.

The company’s EBITDA rose to Rs.452 Mn vs Rs.314 Mn showing an increase of 44% YoY despite a 13% rise in its total expenses owing to high raw material prices. Its EBITDA Margin came in at 16% (up 306 bps YoY & 11bps QoQ) on account of declining key raw material prices, cost efficiency measures etc. Major raw materials like Acrylonitrile, Butadiene & Styrene witnessed steep decline in prices sequentially during the quarter. During H1FY23 the company reported an impressive growth of 54% YoY in EBITDA to Rs.937 Mn.

On profitability front the company’s PAT stood at Rs.308 Mn vs Rs.223 Mn in Q2FY22 an increase of 38% YoY. On a sequential basis PAT declined 8%. The company’s PAT margin remained almost flat on a YoY basis at 10.9% in the current quarter vs 9.1% in the previous year’s same quarter. During H1FY23 the company reported a robust growth of 46% YoY in PAT to Rs.644 Mn, EBITDA & PAT margin stood at 15.9% vs 10.9% respectively vs 14.2% & 10.3% in H1FY22.

Despite reporting robust growth, resilient margins on a YoY basis the management is expecting a demand slowdown for its key products Nitrile latex which is majorly used as a key raw material in manufacturing gloves. The global gloves market is currently facing high inventory and low demand issue as major glove companies are facing production cuts and delays in expansion plans. A slump in gloves market coupled with volatile crude oil prices are some of the near-term concerns for the company. However while the market for nitrile latex is projected to slow down over the next years, other latex segments including the NBR segment are performing relatively well.

Apcotex's strong product mix & management, ongoing new capacity additions, growing export demand for NBR related products and robust domestic demand in underlying industries like paper, carpets, construction etc. will continue to drive further growth however, due to peak capacity utilization levels coupled with slowdown in medical gloves segment volume growth is expected to taper down in the nearterm. We maintain our BUY rating on the stock with a target price of ?703 per share.

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