Apcotex expects 10% annual volume growth in core regions

In its second-quarter earnings call, Apcotex Industries Limited said it expects average volume growth of about 10% a year over the next three to five years, after reporting 7% overall volume growth in the quarter. Management cited construction demand, expansion in the Middle East and North Africa and Southeast Asia, and market-share gains from European suppliers.

What volume growth does Apcotex expect over the next three to five years?

Apcotex expects average annual volume growth of about 10% over the next three to five years. Management also described its expectation as 10% to 12% a year, or 20% to 30% above gross domestic product growth, before clarifying that about 10% was its average estimate across the business.

The 10% expectation is not a forecast for every end market or product. Management said construction should grow faster, while carpets are likely to grow more slowly; it reported 7% overall volume growth in the second quarter but does not disclose volume data separately for synthetic latex, nitrile butadiene rubber or nitrile latex.

Management linked the outlook to demand in India, Southeast Asia and the Middle East and North Africa, or MENA. Its case rests on population growth, rising per-capita gross domestic product and a shift in regional supply, rather than on a disclosed numerical market-size estimate for the five industries served by synthetic latex.

Which end markets are driving Apcotex's growth outlook?

Construction is the main current driver of Apcotex's synthetic latex growth outlook, having performed extremely well over the preceding six to 12 months, according to management. The segment includes repairs, waterproofing and oil-drilling applications, providing exposure to multiple construction-related uses.

Paper also performed well in the six-to-12-month period, while textiles were described as decent and tyres as okay. Management said its paper volumes remained good despite overcapacity in the paper industry, distinguishing demand for Apcotex's input from capacity conditions at paper producers.

Carpets have been the principal laggard for the past six months. Management attributed the volume loss to United States tariffs, war-related disruption and high ocean freight rates affecting large MENA customers, as well as Indian carpet manufacturers that depend on MENA and Western markets.

The carpet position improved in the second quarter from the first quarter, according to management. Apcotex said carpet volumes were around break-even or showed no year-on-year growth in the second quarter, rather than recording the volume loss experienced earlier, after it used pricing to win some business in other regions.

How will MENA and Southeast Asia support Apcotex's plans?

MENA and Southeast Asia are Apcotex's main geographic priorities outside India. Management said European suppliers that historically served MENA have often been unable to compete with Asian suppliers, including Apcotex, creating an opportunity to gain regional market share.

India accounted for 65% to 67% of Apcotex sales, management said, making domestic demand the larger part of the business. This concentration creates a seasonal effect in the second quarter, when the monsoon can reduce demand in construction, tyres and, to some extent, carpets compared with the first quarter.

Management asked investors to focus on annual progress rather than sequential quarterly movements. It said oil-price changes can create inventory gains or losses and alter percentage margins, while it had not previously examined a shareholder's observation that third-quarter results had trailed second-quarter results over five years.

Apcotex is also pursuing products within existing industries rather than identifying a new high-volume category. Its development work includes battery binders, oil-drilling products, specialised textile and paper applications, cost-reducing formulations and products using more bio-based raw materials alongside petrochemicals; management said these would remain a lower proportion of total volume.

Can Apcotex add capacity while protecting returns?

Apcotex said its nitrile butadiene rubber, or NBR, plant has operated at full capacity for about one-and-a-half to two years and should remain full over the next six months. Other plants were operating at roughly 80% to 90% utilisation, while one or two were also at full capacity.

Management targets commissioning the NBR expansion around April 2027 and expects utilisation to reach full capacity gradually over two to three years. It said additional NBR and synthetic latex capacity should provide room for growth for the subsequent two to three years, rather than deliver full output immediately after commissioning.

The call contained two project-cost references: an analyst referred to an upcoming Rs 210 crore expansion, while the finance executive described Rs 220 crore of NBR project cash outlay. Management said about Rs 65 crore had been spent and Rs 155 crore was still due by the following year, through completion and sometime thereafter.

The NBR project addresses automotive and industrial rubber products and liquefied petroleum gas hoses. Management said it sees very good long-term Indian NBR growth over four to five years, but did not make a six-to-12-month demand prediction and said the project must generate a good return on capital with or without high freight rates or dumping protection.

How is Apcotex balancing volume growth and margins?

Apcotex is prioritising volume, earnings before interest, tax, depreciation and amortisation, or EBITDA, per tonne, and return on capital employed, or ROCE, instead of only percentage EBITDA margin. Management put quarterly EBITDA margin at around 12%, depending on the calculation, and said it would ideally prefer a level nearer 15%.

Management said high raw-material costs had lifted selling prices, and that the 12% quarterly margin was acceptable because EBITDA per tonne and ROCE were healthy in its view. Its stated approach is to remain competitive and avoid losing volume in a difficult raw-material environment, even if this results in lower gross margins.

Price increases could partly support the current quarter, but management said the benefit was uncertain after inventory losses in July and August, when prices declined. Oil and product prices rose again in October and November, but management said the quarter was only one month old and its outcome would depend on subsequent price movements.

NBR margin was probably slightly higher than synthetic latex margin in the first half, management said, without providing exact figures. It added that nitrile latex had a lower percentage margin, showing that the 10% volume-growth plan spans businesses with differing margin profiles.

Conclusion

Apcotex's three-to-five-year plan calls for about 10% average annual volume growth, supported by construction, paper demand, MENA and Southeast Asian expansion, and the opportunity to gain share from European suppliers. The outlook varies by application: construction has led recent performance, while carpets have remained under pressure for six months despite a second-quarter improvement.

The next disclosed milestone is NBR commissioning around April 2027, followed by management's expected two-to-three-year utilisation ramp. Investors will also watch whether carpet volumes remain stable, whether price increases offset the July-August inventory losses, and whether management clarifies the Rs 210 crore and Rs 220 crore project-cost references and the timing of the synthetic rubber expansion.