Apar Industries - a play on electrical and metallurgical engineering

Apar Industries : Operating in the diverse fields of electrical and metallurgical engineering.

A.   CONDUCTORS

Ø Biggest manufacturer in India. 23% Market share.

Ø 3^rd biggest manufacturer globally. One of the lowest cost producer.

Ø Pioneer in manufacturing High Efficiency Conductors (HEC) which are capable of carrying up to 100% additional load compared to normal conductors. HEC reduces T&D loss by 30-40%. Only other listed company to manufacture HECs is Sterlite Power.

Ø HEC’s contribution in revenue up 18% FY17 vs 9% in FY16 which resulted in 59% increased contribution in profitability. Management has earlier projected to reach 20% by FY20 but are confident to reach that by FY19. Could clock 33% in next 3 years, which will lead to rapid margin expansion. HEC is 3x EBIDTA/MT vs the normal conductor.

Ø New plant in Odisha already commissioned. Approved by key customers like Power Grid. Capacity utilization 56%. No operating loss. To be geographically more competitive. Backward integration into manufacturing of rods (part of conductor) from Jan 2018. This will expand margin by 1000/MT. Capacity of this plant will be 45,000 MT. Therefore 45 cr. Of EBIDTA contribution.

Ø Conducted independent type tests successfully at all major internationally approved testing laboratories.

Ø Apar’s HEC conductors approved by PG in 2011.

Ø India is going to adopt a reciprocity policy in power sector, which means, Chinese companies won't be able to invest in power transmission in India as China does not approve of overseas investments in its electricity grid for security reasons.

Opportunity:

Ø UDAY: More here LINK & LINK

Ø Under UDAY, losses of state discoms have reduced 22%. Out of the 27 states and UTs that joined the scheme, 23 are showing improvement.

Ø For this, Power Grid (PG) will drive Rs. 1.2 trillion capex for T&D lines in 12^th five year plan from 2012-2017 which will substantially increase in to 2.6 trillion 13^th  five year plan.

Ø Apar was awarded the best company award for high efficiency conductors by PGCIL for the year 2016-17.

Ø PG’s contribution in Apar’s revenue decreased from 31% FY10 to 17% FY17. Shows management’s de-risking strategy.

Ø Q1FY17 T&D orders increased 34% which will translate to orders for all the private players.

Ø Power Finance Company (PFC) announced raising 70,000 cr. To recast all the Transmission and Renewable projects. Private players who are awarded the projects will be eligible for PFC loans and therefore smooth financing & faster execution of transmission lines.

Ø Gujarat State Electricity Boards (SEBs) have started using HECs. Others to follow.

 Some excerpts from conference call transcript:

------------ 

.

Below is from Power Grid AR:

B.   OILS

Properties and Uses:

Cooler: During voltage up/down the temperature of the windings of transformer increases oil is used to cool down the temperature.
Insulator: It act like an insulator between the windings. Increases the resistance between them and avoids short circuit.
Security: Temperature indicator of oil describes the internal condition of transformer, to show any short circuit status. This way oil avoids severe losses and damage to transformer.

Ø 4th largest transformer oil manufacturer globally.

Ø Largest in India with more than 40% market share.

Ø One of Apar’s oil – 765KV transformer oil’s demand growing: 16% sub station using it from 11^th five year plan to 55% sub station using it in the 12^th five year plan. 765kV and all above oils are 2x EBIDTA/KL.

Ø Apar is the 1^st to produce this 765kv oil in India and approved by PG. Only other competitor now is Savita Oils.

Ø Apar is the only company testing 1200kv oil in India.

Ø The products are also approved by all reputed international independent test laboratories

Ø Its client profile comprises global power generation and transmission majors and OEMs like ABB, Alstom T & D ( erstwhile Areva T & D ) , BHEL, Bharat Bijlee, Brush Transformers, Crompton Greaves, Chevron, Daihen Electric , Emco Transformers, Hundai Heavy Industries , Hyosung Corporation , IMP Transformers, Power Grid Corporation of India Ltd, National Electricity Boards & Companies, NHPC, NPCIL, NTPC, Pauwels , SASO (Thailand & Japan), SEC (Saudi Arabia), Siemens AG, Transformer and Rectifiers, Schnieder Electric, Tata Power, Voltamp Transformer, Wilson Transformers (Australia), Maiden (Singapore) and others.

Ø New Port based Hamriyah (Sharjah) plant became operational in Jan’17. Proximity to customers in Middle East and East Africa. Awarded ISO 9001, 14001 and 18001. Management went for an integrated certification of ISO and this forms actually a precursor for them to be able to bid on a lot of business with some of the utilities overseas. Only manufacturer in that region. Capacity utilization at 56% now. Management has a target of mid 60s this year.

Ø Apar will be much more competitive in Q2 FY18 with the GST implementation, because some of the key competitors that we had in the specialty oil segment as well as in the automotive segment now no longer have CST benefit. Apar way paying Local Body Tax (LBT) at Rabale plant and 2% CST at Silavassa plant before GST. Management expects 25-30 cr. Benefit from GST.

C.   CABLES

Ø Catering to Solar, Telecom, Railway, Defense sector.

Ø 100cr. Revenue in FY08 to 865cr. In FY17

Ø Targeting 1000cr. In FY19 (may even cross 1100 cr.), which was earlier projected for FY20. Management has guided this segment will be the fastest growing.

Ø Investing to expand Power Cable capacity to cater to increasing demand & improve profitability.

Ø Setup green field Khatalwad plant for E-beam Elastomeric Cables, OFC Cables & other products.

Ø Doubled Optical fiber and Elastomeric cables capacity in FY14. This elastomeric cables are high margin products and will compete with only imports as no other domestic player.

Ø Expansion & de-bottlenecking of HT/LT Cables capacity at Uberagon plant.

Ø Apar expects 2% benefit in cable segment due to GST which bee be around 5-6 cr.

KEY RISKS:

- Policy announcements and its actual execution

- Raw material fluctuations

- Chinese players

Apar Industries AR:

Market Cap : 2800 cr

Annual Sale FY17: 4800 cr, CMP 745

PE: 16

Disclaimer: No personal holding at this time of post, all information shared is available in public domain. It is a guest post on IndianStockss.com

Share on Google Plus

About IndianStockss.com

A Sub Broker with SMC India. No charges for stock reco to clients. In stock markets from 2001. Have seen bull and bear markets. Surviving bad times is the key.