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Apcotex Industries: A promising small-cap company

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I’ve been studying Apcotex Industries, a small cap company that originally started out as a division of Asian Paints in the 1980. The company looks very promising, the reasons of which I discuss at length below. But before that, let us discuss what the company does:

Apcotex is one of the leading manufacturers of synthetic latex and synthetic rubber in India. Specifically, it manufactures specialty grades of these materials which have comparatively higher margins. Also note that in as much as 40% of its products, the company is the only manufacturer in India.

In synthetic latex, Apcotex manufactures:

  • Styrene Butadine (or SB) Latex:

  • Vinyl Pyridine (or VP) Latex

  • Styrene Acrylic Latex

  • Nitrile (also called XNB) Latex

Uses of Synthetic Latex

One of the main uses of synthetic latex is that it is used for paper coating for products like magazines, flyers, catalogues and paperboard products like folding food cartons. Synthetic latex enhances the pigment’s binding power, it makes the paper smoother, stiffer, glossier, brighter, and it is more water resistant. It’s also much less expensive than alternative coatings. Not surprisingly, the paper industry contributes as much as 15-20% to the total revenues of Apcotex.

Another major use of synthetic latex is backcoating on textiles, including tufted carpets. This explains why the carpet industry contributes 10% to the total revenues of the company.

Furthermore, synthetic latex is tougher and less rubbery than natural rubber, making it ideal for tires. That is still the most common use of synthetic Rubber; about half of all car tires use some form of synthetic (specifically SB) rubber. This explains why the tire industry contributes 10% to the revenues of Apcotex.

In construction, synthetic latex is used in waterproofing of swimming pool floors, for instance. Construction industry contributes 10-15% to Apcotex’s revenues.

If you wish to learn more about latex uses, this website explains it well.

Within synthetic rubber category, the company manufactures:

  • Nitrile Butadiene Rubber (called NBR in short): Unlike other kinds of rubber, this material is resistant to oil, fuel, and several chemicals. It is therefore used in automobiles and other industries where hoses need to be resistant to fuel and oil. In India, 70% of NBR is imported which creates good potential for Indian manufacturers but also lends to import competition through dumping.

  • NBR Polyblend: This product is used for general purpose such as footwear, fire hoses, etc.

  • High Styrene Rubber: Used in Hawaii slippers and micro cellular sheets

  • NBR Powder: Used in brake pads, adhesives, paints, etc.

So as you may notice the major drivers for synthetic latex polymer industry is the high growth of paper, paints, adhesives, waterproofing and construction. In fact, there is no major substitute to replace synthetic latex in functional aspects.

Now, let’s come to the most important reason why this company appeared on my radar. Note that from here on, the post is only available to read under subscription: