Sell Apar Industries Ltd For Target Rs. 1172 - Yes Securities
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Robust quarter; growth levers intact
Our view
Apar Industries Ltd (APR) reported highest?ever quarterly revenue, led by growth across Conductors segment (up 33% YoY), Transformers & Specialty Oils (up 31% YoY) and Cables (up 79% YoY). Conductors revenue growth was largely driven by improved share of higher value products and exports (46% vs 32% in Q2FY22). Margins expanded by 140bps YoY owing to higher gross margins. Going forward management expects strong traction in India on the back of a capex?oriented budget, focus on railways, defence outlay, etc. On the international front, markets such as North America, Europe, Australia, GCC, etc. are expected to witness robust demand as well.
We like the company given its global leadership position, robust prospects of value? added products, strong positioning across product categories and consistent dividend pay?out. At CMP, the stock is trading at a P/E of 16.2x/15.0x/13.0x and EV/EBITDA of 7.5x/6.5x/5.6x for FY23E/24E/25E. Owing to the recent run?up in the stock price we downgrade it to SELL (previously NEUTRAL) with an unchanged TP of Rs1,172 based on 12x FY24E EPS
Result Highlights
* Sales came in at Rs32.3bn (up 43% YoY) above YSLe of ~Rs30.8bn led by strong growth in Conductors segment (up 33% YoY), Transformer & Speciality oil segment (up 31% YoY) and Cable segment (up 79% YoY)
* As RM inflation has softened, gross margin expanded by ~230bps YoY to 24.2% in 2QFY23
* EBITDA came in at Rs2.3bn (YSLe Rs2.7bn), with EBITDA margin coming in at 7.0% (~140bps YoY expansion) primarily led by gross margin expansion
* PBT grew by 83% YoY to Rs1.4bn mainly due to robust operating performance despite a 130% YoY growth in Interest cost at Rs711mn.
* PAT came in at Rs1.03bn (vs YSLe of Rs1.5bn) largely due to a higher?than? expected effective tax rate
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