Strong quarter in challenging environment Apar Industries (Apar) reported strong set of numbers for 1QFY20 with revenue/PAT up 33%/42% YoY to Rs20bn/Rs412 mn (PLe Rs17bn/Rs334 mn). The top-line growth was led by growth across segments that is Conductors/Transformers Specialty Oils/Power Telecom Cables which grew by 61%/8%/24% YoY respectively. EBITDA margin of 6.9% was higher than PLe of 6.6% due to improvement in Cable segment (+370bps YoY). PAT for the quarter grew 42% YoY to Rs0.4 bn (PLe Rs0.3 bn). Going ahead, management indicated of weak demand, mainly in the power sector related segments (Conductor and Transformer Oil) due to delay in payments by state utilities. However, strong capex in Railways and Defence augers well for Cable segment. Improving revenue mix by increasing share of high-margin products in all the three segments in FY20 to improve overall profitability. We have maintained our earnings estimates for FY20/21E. The stock is currently trading at 11.4/9.1x FY20/21E. We maintain our Accumulate rating on the stock with TP of Rs 795.
While Apar’s 1QFY20 results are good, it believes the market conditions are challenging owing to tepid demand and credit crunch (led by delay in receipt of payments even from government entities). Currently, Power and Telecom sectors are negatively impacted, but Railway and Defence sectors continue to see healthy government spending and timely payment. We have marginally tweaked our estimates and retain Buy rating on Apar with a revised target price of Rs785 (Rs800 earlier) based on 13x FY21E EPS.
We revise our estimates taking into consideration the higher copper conductor sales and tone down our margins due to volatility in oil prices. Apar currently trades at 11.2x to FY21E EPS. We reiterate our “BUY” rating for a target price of Rs. 775 valuing the company at 13x to FY21E EPS representing an upside potential of 16%.
Cable segment posted highest-ever quarterly sales (at Rs5.1bn, up 51% YoY) and EBITDA margin (at 13.7%, up 330bps YoY) led by improved product mix. Consolidated EBITDA grew 8% YoY at Rs1.4bn, while PAT grew 9% YoY at Rs437mn, in line with our estimate. Apar aims to improve its revenue mix (increase share of high-margin products) in all the three segments in FY20, which would lead to much higher profitability. We have cut our earnings estimates for FY20/FY21 by 6%/7%, respectively. We retain Buy rating on the stock with a revised target price of Rs800 (from Rs865 earlier) based on 13x FY21E EPS.
The company expects to improve its revenue mix by increasing share of high-margin products in all the three segments in FY20, thus leading to higher profitability. We have raised EPS estimates by 3%/4% for FY20/21E to capture higher revenue growth in FY19. The stock is currently trading at 14/11x FY20/21E. We maintain our Accumulate rating on the stock with revised TP of Rs 795.