APM INDUSTRIES LTD – Cash Rich Yarn Company

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Company Profile

APM Industries Ltd (BSE Code 523537) was incorporated in 1973, belonging to the Rajgarhia group. Other listed companies under common control are Orient Abrasives Limited and Orient Refractories Limited.

The company is engaged in the manufacturing of synthetic blended yarn. State-of-the-art technologically advanced factory of the company is located in 30 Acres land at Bhiwadi (Rajasthan), about 80 Kilometers from Delhi.

The company is a techno-savvy and quality conscious. Complying with stringent quality test at all levels; be testing of Raw Materials to the Finished goods products, is done cautiously an in-house Quality Control Laboratory. The company has state of the art R & D Department wherein various new products developed.

In 1993 the company had 20000 spindles which are now increased to 50336 spindles that produces 18000 Metric tonnes of Yarn annually. The Company has installed a power plant of 2.5 MW capacity during the year 1999-2000 to reduce dependence on grid supply.

Financial performance:

Particulars	Comparative Figures (Rs. In crores)
FY	2010-11	2011-12	2012-13	2013-14	2014-15	9 month Dec, 16	2015-16 Estimated
Sales	242.94	258.85	291.09	307.47	313.36	213.35	290
Net Profit	13.82	12.61	22.06	21.42	18.85	15.32	21
Borrowing	62.42	34.55	26.52	12.72	10.79	10.89	10
Finance Cost	5.93	5.14	3.20	2.62	1.87	1.11	1
Investment in Tax free Bonds/ Mutual Funds	1.76	1.90	8.08	12.58	32.57	36.57	45
Income on Investments	0.69	0.97	1.42	2.98	2.64	3.41	5
Capital	4.32	4.32	4.32	4.32	4.32	4.32	4.32
Reserves and Surplus	121.31	131.41	148.45	163.79	174.51	185.94	196.57
Dividend	30%	30%	80%	100%	135%	75% (Interim)	200% (Total)
Promoter Holding	62.62%	62.81%	62.61%	61.61%	61.64%	63.65%	63.65%

Reasons for chose APM Industries Ltd.

1.     Raw material prices of APM depend on crude prices. We have seen drastic fall in crude prices resulted lower prices of raw material. Now crude price is stabilize and various experts are saying that it will be stable around same level for next two years, due to supply of Iran crude will come in the world market. This will be beneficial for the company.

2.     Due to lower raw material cost selling prices of finished goods (yarns) also decreased. Despite of lower selling prices company is able to maintain sales around Rs.300 Crores. There is no fall in demand and company is running its full capacity. Good Quality Yarns produced by the company are in demand of various leading textile manufactures.

3.     Due to erosion in value of stock, the company has written off Rs.10 Crores stock value in first nine months of FY 2015-16. Now crude prices are bottomed out and company will not face such situation in coming quarters.

4.     Till December 2015, profit was Rs.15.32 crores and in view of previous two quarter results total Net Profit for FY 2015-16 will be around Rs.21 Crores. Despite fall in selling prices and write off of Rs.10 Crores stock value company is able to maintain profit levels. In FY 2016-17 Net Profit may be 50% higher than FY 2015-16.

5.     These days, we are hearing much noise about loan defaults by the various companies resulted sharp jump of NPA and mess in Banking Sector. It has also resulted more than 90% fall in share prices of the some defaulter companies, a big loss to small investors who have not timely exited from these companies.

APM management is extremely reliable, efficient with low overheads. Company is reducing the debt every year and it has reduced debts from Rs.62.42 crores in March 2011 to Rs.10.89 crores in December 2015.

6.     From FY 2010-11, company is generating surplus cash and invested it in Tax free Bonds and various Debt mutual funds. In March 2011 such investment was Rs.1.76 crores which increased to Rs.36.57 crores in December 2015. Income on Investment is also increased from Rs.0.69 crores to Rs.3.41 crores. From FY 2015-16, Income on Investment will cross the amount of equity capital Rs.4.32 crores.

7.     In December 2015, against investment of Rs.36.57 Crores, total debts were Rs.10.89 crores only. Therefore, the company is virtually debt free.

8.     Promoters are investors friendly and long track record of dividend payment. The company has increased dividend from 30% in FY 2010-11 to (50+85) 135% in FY 2014-15. In FY 2015-16 has already declared interim dividend 75% against previous year’s 50%. Now company’s board meeting is scheduled on 11^th March 2016 for second interim dividend. Looking in view of 50% increase in first interim dividend company may also increase second interim dividend 50%. Therefore, second interim dividend would be around 125%, and total dividend 200% in FY 2015-16.

9.     Dividend yield comes 7% tax free, based on expected 200% dividend in FY 2015-16 and current share price Rs.57. It is more than one year Fixed Deposit taxable interest. Looking EPS of Rs.10, it is trading at PE ratio 5.7X. In view of such strong fundamental company it should trade around 12X- 14X. During recent market fall it has shown strong resistance around Rs.50.

10.  Recently, company has announced to enter in NBFC business through incorporating a subsidiary company. Company would realise better returns on surplus cash invested in Tax free bonds and mutual funds. Promoters are already having experience of running another NBFC company under common control - Rajgarhia Leasing & Financial Services (P) Limited.

11.  Senior blogger http://value-picks.blogspot.in/2010/08/apm-industries-buy.html (who had advised various multi baggers) advised APM Industries Ltd on 22^nd August 2010. Another person http://www.arunthestocksguru.com/2013/01/apm-industries-ltdbuysellgrowth.html has also advised APM Industries Ltd on 8^th January 2013.

From then, there are various quality improvement in the company’s financials, dividend payout etc already discussed above.