Equirus Securities
Apex Frozen Foods (Long)
CMP: ₹370.45
Target: ₹620
Apex Frozen Foods Ltd is an India-based integrated producer and exporter of shelf stable aquaculture products. The company produces two kinds of shrimps namely the black tiger shrimp (Penaeus mondon) and whiteleg shrimp (Litopenaeus vannamei).
Apex Frozen Foods reported 2QFY19 revenues of ₹255 crore (-10 per cent y-o-y, 7 per cent below EE).
Volumes declined 6 per cent y-o-y (flat q-o-q) off a high base even as capacity utilization was optimum at about 97 per cent. Average realisations slid 14 per cent in dollar terms but were partly offset by rupee depreciation. EBITDA margins contracted 106 bps y-o-y to 9.7 per cent per cent (-76 bps vs EE) on higher employee costs as Apex Frozen moved a few contract workers to its own payroll. Construction of the new plant (earlier delayed due to bad weather) remains on track for operations to commence by March 2019.
We update our FY19/FY20 EPS by +1 per cent/-10 per cent to factor in management’s conservative FY20 sales guidance, but maintain our ‘long’ rating on expectations of strong earnings growth in FY20 as the new capacity (20,000 MTPA) comes on-stream. Our December 2019 target price of ₹620 (rolled over from a Sep’19 TP of ₹630) is set at 18x TTM P/E (reduced from 20x previously to factor in near term headwinds).