▫️APL is the sole producer of Oxo Alcohol in India, with a manufacturing capacity of 80,000 MTPA. The product mix includes 2EH, NBA and Isobutanol (IBA). The plant is strategically located next to HPCL Refinery since the feedstock for Oxo Alcohol (Propylene) is made available by HPCL refinery leading to cost efficiencies.
▫️The company benefits from trade protection metrics in the form of anti-dumping duty (ADD) for the import of n-Butanol (NBA) and 2-Ethyl Hexanol (2EH). ADD on 2EH has been extended by another 5 years. Domestic demand for Oxo Alcohol continues to rise disproportionately.
▫️Estimated demand of Oxo-Alcohols at 2,50,000 MTPA and growing at 10% per annum. There is a huge demand-supply gap in the country and this provides a a good opportunity for APL as both demand & Pricing remains strong given its Monopoly Status. Further ADD will help increase sales realisations significantly.
▫️The company caters to ~35–40% of the domestic demand and remaining demand is met through imports. The Prices of 2EH are at historic highs. ADD on 2EH further ensures that prices will remain firm in the foreseeable future.
▫️The major applications of Oxo Alcohols are plasticizers, paints, coatings & adhesives, lubricant additives, and chemical intermediates. Oxo-alcohol is primarily used as a raw material to manufacture PVC plasticisers. The long-term demand potential for PVC in India remains strong and expected to grow at a healthy pace.
▫️Increase in the consumption of Oxo Alcohol for air conditioning & refrigeration, chemical processing, transportation, & consumer goods industry has been observed in Asia-Pacific due to continued industrialization & rise in the manufacturing sector of the region.
▫️The co has witnessed a steady improvement in its Revenues and Profitability despite the impact of Covid-19, along with Debt reduction and some Prepayments as well. APLs liquidity profile remains strong with healthy unencumbered cash and liquid investments of ~58cr having debt free status
▫️APL has signed Natural Gas (NG) Term Sheet Agreement with GAIL last year and NG is expected to be available from Q4 of 2020-21, which will bring down the cost of production significantly leading to a sizeable margin expansion.
▫️APL is likely to benefit from the various cost-reduction measures undertaken and favourable regulatory measures. Its capital structure and coverage indicators are expected to remain healthy.
*Demand and Pricing headwinds along with Debt Free status makes APL a compelling BUY.*
*APL is trading at mouth watering valuations, trading at just 5x FY22E EPS even by conservative estimates.*
*_Given the product prices and realisation at record highs APL is conservatively set to report EPS of 20 for FY22. A modest P/E multiple of 15x should propel the stock to ₹300_*