The quarter's results revealed a troubling deterioration in profitability, with operating margins excluding other income contracting sharply to 5.03% from 10.08% in the previous quarter. Whilst the company demonstrated strong year-on-year revenue growth of 37.86% compared to Q2 FY16, the sequential decline and margin compression raise concerns about operational efficiency and competitive pressures in the industrial products sector.
| Metric | Sep'16 | Jun'16 | Mar'16 | Sep'15 |
|---|---|---|---|---|
| Net Sales (₹ Cr) | 91.91 | 106.08 | 95.55 | 67.53 |
| QoQ Change | -13.36% | +11.02% | +41.49% | — |
| YoY Change | +37.86% | — | — | — |
| Net Profit (₹ Cr) | 3.56 | 6.85 | 22.42 | 5.33 |
| QoQ Change | -48.03% | -69.45% | +320.64% | — |
| Operating Margin % | 5.03% | 10.08% | 11.31% | 14.04% |
| PAT Margin % | 3.87% | 6.46% | 23.34% | 7.85% |
Financial Performance: Margin Compression Overshadows Revenue Growth
The second quarter of FY17 presented a stark contrast between top-line and bottom-line performance for Apcotex Industries. Net sales declined 13.36% sequentially to ₹91.91 crores from ₹106.08 crores in Q1 FY17, marking the lowest quarterly revenue in the recent period. However, on a year-on-year basis, the company demonstrated robust growth of 37.86% compared to ₹67.53 crores in Q2 FY16, suggesting strong underlying demand for its emulsion polymer and synthetic rubber products.
The most concerning aspect of the quarter was the dramatic erosion in profitability metrics. Operating profit excluding other income collapsed to ₹4.07 crores from ₹10.33 crores in the previous quarter, translating to an operating margin of just 5.03% compared to 10.08% in Q1 FY17. This 505 basis point sequential margin compression indicates significant cost pressures, potentially driven by raw material price inflation or operational inefficiencies.
Net profit for Q2 FY17 stood at ₹3.56 crores, down 48.03% quarter-on-quarter and 41.64% year-on-year. The PAT margin contracted to 3.87% from 6.46% in the previous quarter, reflecting both the operating margin pressure and higher depreciation charges. Notably, the company's tax rate remained exceptionally low at 3.27% for the quarter, suggesting potential tax benefits or adjustments that partially cushioned the profit decline.
Operational Challenges: Cost Pressures Weigh on Profitability
The company's operational performance reveals several areas of concern that merit close monitoring. Employee costs for Q2 FY17 rose to ₹7.68 crores from ₹7.61 crores in the previous quarter, representing 8.36% of revenues compared to 7.18% in Q1 FY17. This increase in employee cost intensity suggests either higher headcount additions or wage inflation without commensurate revenue growth.
From a balance sheet perspective, Apcotex Industries maintains a relatively healthy financial position with shareholder funds of ₹187.22 crores as of March 2016 and zero long-term debt. The company successfully eliminated its long-term debt burden of ₹8.37 crores from the previous year, strengthening its capital structure. However, current liabilities increased to ₹97.47 crores from ₹63.85 crores, primarily driven by higher trade payables of ₹34.13 crores.
The company's return on equity averaged 16.43% over the long term, whilst return on capital employed stood at 17.50%, both indicating reasonable capital efficiency. However, the latest quarterly results suggest these metrics may come under pressure if the margin deterioration persists. The company's ability to service debt remains strong, with EBIT to interest coverage at 17.62 times on average, though this metric has limited relevance given the current debt-free status.
Key Concern: Margin Sustainability
The sharp 505 basis point sequential decline in operating margins from 10.08% to 5.03% raises questions about the sustainability of the company's profitability. If this trend continues, it could significantly impact return ratios and cash generation capabilities. Management commentary on cost control measures and pricing power will be critical to assess the forward outlook.
Industry Context: Navigating Cyclical Headwinds
Apcotex Industries operates in the industrial products sector, specifically manufacturing emulsion polymers, synthetic butadiene rubber, and nitrile butadiene rubber. These products serve diverse end-user industries including paints, adhesives, paper coatings, textiles, and automotive applications. The sector's performance is closely linked to broader industrial activity, construction demand, and automotive production cycles.
The company's five-year sales growth of 28.47% and EBIT growth of 98.41% demonstrate strong historical performance, suggesting successful market share gains or capacity expansions. However, the recent quarterly volatility indicates the business is not immune to cyclical pressures or raw material cost fluctuations, which are inherent characteristics of the chemicals and industrial products sector.
The debt-to-EBITDA ratio averaged just 1.02 times, indicating conservative leverage, whilst the net debt-to-equity ratio of 0.23 suggests a strong balance sheet capable of weathering industry downturns. The company's sales-to-capital-employed ratio of 1.78 times indicates moderate asset turnover efficiency, typical for capital-intensive manufacturing businesses in this sector.
Peer Comparison: Valuation and Performance Metrics
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Apcotex Industries | 31.59 | 3.34 | 16.43% | 0.23 | 0.56% |
| Carborundum Universal | 58.65 | 4.83 | 13.11% | -0.05 | 0.45% |
| SKF India | 19.98 | 4.04 | 21.42% | -0.27 | 0.71% |
| Borosil Renewables | NA (Loss Making) | 9.33 | 5.26% | 0.16 | NA |
| Precision Wires | 43.64 | 7.19 | 14.59% | -0.06 | 0.50% |
| Pix Transmission | 17.47 | 3.32 | 18.36% | -0.27 | 0.62% |
Apcotex Industries trades at a P/E ratio of 31.59 times trailing twelve-month earnings, positioning it in the middle range compared to industrial products peers. The company's price-to-book value of 3.34 times is lower than most peers except Pix Transmission (3.32x), suggesting relatively modest valuation multiples despite the recent profit decline.
The company's return on equity of 16.43% compares favourably against peers such as Carborundum Universal (13.11%) and Precision Wires (14.59%), though it trails SKF India's impressive 21.42%. This higher ROE, combined with a debt-free balance sheet (debt-to-equity of 0.23), positions Apcotex as a financially stable player within its peer group, though the recent margin pressures could erode this advantage if sustained.
Valuation Analysis: Fair Value Amidst Operational Uncertainty
At the current market price of ₹374.85, Apcotex Industries trades at a P/E ratio of 31.59 times, which appears reasonable given the company's historical growth trajectory and return profile. The stock's price-to-book value of 3.34 times reflects a modest premium to book value, particularly considering the company's average ROE of 16.43% and debt-free status.
The company's valuation grade has fluctuated between "Fair" and "Expensive" throughout September 2025, currently settling at "Fair" as of the latest assessment. The EV-to-EBITDA multiple of 14.99 times and EV-to-sales ratio of 1.38 times suggest the market is pricing in expectations of margin recovery and continued top-line growth, though recent quarterly performance raises questions about the sustainability of these assumptions.
The stock's dividend yield of 0.56% with a payout ratio of 62.33% indicates management's commitment to returning cash to shareholders, though the yield remains modest compared to some peers. The latest dividend of ₹2.00 per share demonstrates consistency, supported by the company's healthy cash position of ₹8.00 crores as of March 2016.
Shareholding Pattern: Stable Promoter Base with Rising Mutual Fund Interest
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 58.23% | 58.23% | 58.23% | 0.00% |
| FII | 0.59% | 0.49% | 0.52% | +0.10% |
| Mutual Funds | 1.58% | 0.32% | 0.01% | +1.26% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.61% | 0.68% | 0.68% | -0.07% |
| Non-Institutional | 38.99% | 40.28% | 40.56% | -1.29% |
The shareholding pattern reveals a stable promoter base holding 58.23% stake with zero pledging, demonstrating strong promoter commitment and financial stability. The promoter group includes members of the Choksey family, with Parul Atul Choksey (14.27%), Atul Choksey (13.27%), and Abhiraj Choksey (13.21%) holding the largest individual stakes.
A noteworthy development is the significant increase in mutual fund holdings, which surged from 0.32% in June 2025 to 1.58% in September 2025, marking a sequential gain of 1.26 percentage points. This substantial increase suggests growing institutional interest from domestic fund managers, potentially indicating confidence in the company's long-term prospects despite near-term operational challenges. Foreign institutional investor holdings also increased modestly by 0.10% to 0.59%.
The non-institutional shareholding declined by 1.29% sequentially to 38.99%, likely absorbed by the increased mutual fund participation. With total institutional holdings at just 2.78%, the stock remains relatively undiscovered by large institutional investors, which could present both opportunity and risk depending on the company's ability to demonstrate consistent operational performance.
Stock Performance: Volatile Returns Reflect Operational Uncertainty
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +7.56% | -0.86% | +8.42% |
| 3 Months | -8.13% | +3.89% | -12.02% |
| 6 Months | +23.31% | +3.76% | +19.55% |
| YTD | +0.17% | +7.09% | -6.92% |
| 1 Year | -5.35% | +4.10% | -9.45% |
| 2 Years | -23.31% | +28.81% | -52.12% |
| 3 Years | -27.28% | +37.29% | -64.57% |
| 5 Years | +150.74% | +99.74% | +51.00% |
Apcotex Industries' stock performance presents a tale of two timeframes. Over the long term (five years), the stock has delivered exceptional returns of 150.74%, significantly outperforming the Sensex's 99.74% gain with an alpha of 51.00 percentage points. This long-term outperformance reflects the company's strong historical growth in sales and profitability.
However, the medium-term picture is considerably more challenging. The stock has declined 5.35% over the past year, underperforming the Sensex by 9.45 percentage points. The two-year and three-year returns are particularly concerning, showing losses of 23.31% and 27.28% respectively, whilst the Sensex gained 28.81% and 37.29% during these periods. This underperformance coincides with operational challenges and margin pressures that have emerged in recent quarters.
The stock's high beta of 1.35 indicates significantly higher volatility than the broader market, with annualised volatility of 33.10% compared to the Sensex's 12.45%. The current technical trend is classified as "Sideways" following a change from "Mildly Bearish" on November 03, 2025. The stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting technical weakness despite the recent 5.64% single-day gain.
"Whilst Apcotex Industries has demonstrated exceptional long-term value creation with 150% returns over five years, recent operational challenges and margin compression have resulted in significant underperformance, with the stock declining 27% over three years against a market gain of 37%."
Investment Thesis: Quality Business Facing Near-Term Headwinds
The investment case for Apcotex Industries rests on several pillars. The company has demonstrated strong long-term growth credentials with five-year sales CAGR of 28.47% and EBIT growth of 98.41%, indicating successful market positioning and operational scaling. The debt-free balance sheet with zero long-term borrowings and healthy interest coverage provides financial flexibility to navigate cyclical downturns.
The company's average return on equity of 16.43% and return on capital employed of 17.50% suggest efficient capital allocation and value creation capabilities. The stable promoter holding of 58.23% with zero pledging demonstrates strong management commitment, whilst the recent increase in mutual fund holdings from 0.32% to 1.58% indicates growing institutional recognition.
However, the investment thesis faces significant near-term challenges. The sharp 48.03% quarter-on-quarter profit decline and 505 basis point operating margin compression in Q2 FY17 raise concerns about cost management and competitive dynamics. The stock's underperformance over one, two, and three-year periods reflects market scepticism about the sustainability of profitability. The company's proprietary score of 51/100 with a "HOLD" rating suggests a balanced risk-reward profile at current levels.
Key Strengths & Risk Factors
Key Strengths
- Exceptional Long-Term Growth: Five-year sales CAGR of 28.47% and EBIT growth of 98.41% demonstrate strong market positioning and operational scaling capabilities.
- Debt-Free Balance Sheet: Zero long-term debt with adequate liquidity provides financial flexibility to navigate industry cycles and invest in growth opportunities.
- Strong Return Profile: Average ROE of 16.43% and ROCE of 17.50% indicate efficient capital allocation and superior return generation compared to cost of capital.
- Stable Promoter Base: 58.23% promoter holding with zero pledging demonstrates strong management commitment and alignment with minority shareholders.
- Growing Institutional Interest: Mutual fund holdings surged from 0.32% to 1.58% in Q2 2025, indicating increasing recognition from professional investors.
- Consistent Dividend Policy: Dividend payout ratio of 62.33% with regular distributions reflects management confidence in cash generation.
- Low Leverage: Debt-to-EBITDA of 1.02 and net debt-to-equity of 0.23 provide significant financial headroom for expansion or acquisitions.
Key Concerns
- Sharp Margin Compression: Operating margin declined 505 basis points QoQ to 5.03%, raising concerns about cost management and pricing power in a competitive environment.
- Profit Volatility: Net profit plunged 48.03% QoQ to ₹3.56 crores, indicating high earnings volatility and potential cyclicality in the business model.
- Medium-Term Underperformance: Stock declined 27.28% over three years whilst Sensex gained 37.29%, reflecting sustained market scepticism about operational performance.
- High Volatility: Beta of 1.35 and annualised volatility of 33.10% indicate significantly higher risk compared to broader market indices.
- Low Institutional Holdings: Total institutional ownership of just 2.78% suggests limited institutional support and potential liquidity constraints.
- Technical Weakness: Stock trading below all key moving averages with "Sideways" trend classification indicates lack of positive momentum.
- Sector Underperformance: One-year return of -5.35% significantly trails Industrial Products sector return of 12.65%, suggesting company-specific challenges.
Outlook: What to Watch
Positive Catalysts
- Margin Recovery: Any signs of operating margin stabilisation or improvement would significantly boost investor confidence and support re-rating.
- Revenue Growth Sustainability: Continued strong YoY revenue growth (37.86% in Q2) translating into profit growth would validate the growth thesis.
- Capacity Utilisation: Higher capacity utilisation leading to operating leverage benefits and margin expansion.
- Institutional Accumulation: Further increase in mutual fund and FII holdings beyond current 2.78% would improve liquidity and valuation support.
- Industry Tailwinds: Recovery in end-user industries (automotive, construction, paints) driving demand for synthetic rubber and emulsion polymers.
Red Flags
- Continued Margin Pressure: Further deterioration in operating margins below 5% would severely impact profitability and return ratios.
- Sequential Revenue Decline: Sustained QoQ revenue declines indicating loss of market share or demand weakness in core segments.
- Working Capital Deterioration: Increase in working capital requirements straining cash flows and requiring external funding.
- Raw Material Inflation: Inability to pass through raw material cost increases to customers, further compressing margins.
- Technical Breakdown: Stock breaking below 52-week low of ₹286.65 would signal significant technical weakness and potential for further downside.
The Verdict: Quality Business at Crossroads
Score: 51/100
For Fresh Investors: Wait for margin stabilisation and clearer visibility on profitability trajectory before initiating positions. The current quarter's sharp profit decline and margin compression warrant caution despite attractive long-term growth credentials.
For Existing Holders: Continue to hold given the debt-free balance sheet, stable promoter base, and strong long-term growth track record. Monitor quarterly results closely for signs of margin recovery. Consider averaging if stock corrects to ₹320-330 levels with improving operational metrics.
Fair Value Estimate: ₹410 (9% upside from current levels), assuming gradual margin recovery to 8-9% operating margins and sustained revenue growth. Significant downside risk exists if margin pressures persist beyond two quarters.
Rationale: Whilst Apcotex Industries possesses strong long-term fundamentals including exceptional growth history, debt-free balance sheet, and healthy return ratios, the sharp deterioration in Q2 FY17 profitability raises near-term concerns. The 48% QoQ profit decline and 505 basis point margin compression require management explanation and corrective action. The stock's fair valuation at 31.59x P/E and growing mutual fund interest provide support, but operational execution must improve to justify fresh investment. A HOLD rating reflects the balanced risk-reward at current levels, with preference for existing holders to maintain positions whilst fresh investors await clearer evidence of margin recovery.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
