Warning: Multibagger! In less than a year, Apar Industries' stock increased 177%; is there still room for growth?

 Warning: Multibagger! In less than a year, Apar Industries' stock increased 177%; is there still room for growth?

Prados Lilladher, a domestic stockbroker, has decided to hold its "accumulate" recommendation on Apar Industries in light of the company's Q2FY24 results. The firm increased its target price from ₹5,499 to ₹5,630 per share, suggesting a potential upside of 12.15% from the stock's latest closing price of ₹5,020 per share.

Apar Industries is a small-cap company that has ₹18,648 crore on its market valuation. This top-tier Indian business provides value-added services and products in the areas of power transmission conductors, telecom and power cables, and petroleum specialty oils. It works in a variety of electrical and metallurgical engineering domains.

According to the company's FY23 annual report, it is the biggest producer of aluminum and alloy conductors in the world, the largest transformer oil maker in India and the third largest globally, and the largest exporter and manufacturer of specialized and renewable cables in India.

As of now in CY23, the company's shares have produced a multi-bagger return, rising in value from ₹1,809 to ₹5,020 each, or a gain of 177.5%.

Apar Industries revealed last week that its consolidated net profit for Q2FY24 increased by 69% to ₹174 crore from ₹103 crore in the corresponding period of the previous fiscal year. Consolidated operating revenue for the quarter came to ₹3,926 crore, up 21.36% year over year. 

In Q2FY24, revenue from the conductors sector, which accounts for 50% of overall sales, increased by 35.1% YoY to ₹1,943.3 crore. Transformer and specialized oil revenue climbed by more than 1.9% year over year to ₹1,198.6 crore, while Power & Telecom Cables revenue jumped by 15.8% year over year to ₹882.3 crore in Q2FY24.

Long-term solid topline and profitability are expected to be driven by Apar Industries' strong export business and concentration on value-added goods, according to Prabhudas Lilladher. The brokerage has increased its projections for FY24, FY25, and FY26E by 15.8%, 2.7%, and 1.7%, respectively, to reflect the robust performance of H1FY24 and the favorable prognosis for cables and conductors in both the domestic and export markets.

The brokerage notes that there is still a significant local market for premium conductors, especially from TBCB and re-conducting projects. Due to inventory destocking, there may be a short-term volume slowdown in cable shipments to the US and European markets; however, the medium- to long-term forecast for total exports is still favorable, the statement said.

Furthermore, the brokerage said that Apar Industries' cables division is anticipated to maintain its growth momentum due to the robust demand for elastomeric cables (for renewable energy, defense, etc.), with an emphasis on growing the B2C sector via improved distribution and geographic reach. 

Businesses using the China Plus One strategy

By creating alternative manufacturing suppliers, businesses may diversify and lessen their reliance on China, as per the "China Plus One" program. Many businesses have actively looked for alternate conductor suppliers in the aftermath of the COVID-19 outbreak, and Apar Industries was fast to seize this market opportunity, as shown in its FY23 annual report.

"This trend has been discovered in a steep growth in demand among customers of our OPGW (Optical Ground Wire) conductors, which are a mix of optical fibers with overhead power filaments for communication and electricity transfer purposes," the business said.

taking an active role in infrastructure initiatives

Power, train, and metro infrastructure projects have seen significant expenditures from both developed and developing country governments. The business said that by actively taking part in major infrastructure projects and providing specialized solutions, it has established a reputation as a reliable partner.

According to Apar Industries, it is the first firm in India to develop, produce, and provide flexible dropper wire and copper-silver contact wire for fast trains that meet RDSO criteria.

The firm went on to say that it made a significant contribution to Indian Railways' electrification effort by providing the conductors that were required for this endeavor. Furthermore, it is the only authorized Indian producer that can satisfy Delhi Metro's unique specifications by providing 12 sq. mm of Cu-Mg catenary wire.