>APAR INDUSTRIES LIMITED (GEPL)

“To get powered from growth in power sector"

INVESTMENT RATIONALE
Largest Manufacturer of transformer oil with around 55% market share: Apar is the market leader in transformer oils with over 55% market share in India under the brand POWEROIL. The company's focus is more on the power transformer side (132 Kv – 800 Kv), where it has more than 60% market share. Apar's domestic customers include BHEL, Emco, Crompton Greaves, Bharat Bijlee and Alstom among others.

One of the largest player of conductors in domestic market with around 25% market share: Apar has a strong presence in conductors and is the second largest manufacturer in India with around 25% market share after Sterlite Technologies. Apar is the largest exporter of conductors from India. The export markets span Middle East, Japan, Europe, USA, South America and Africa.

Huge capex expected in power transmission sector, which will boost ancillary industries: For the 11th Plan Rs1,400 billion is planned to be spent on transmission schemes, against Rs744 billion in the 10 plan. Power transformers account for around 70% of the transformers market where as the distribution transformers constitute around 30%.

Export market: A lucrative advantage: Apar is the largest conductors exporting company in India. Its product goes in more than 43 countries with significant presence in Africa. It is expected that demand for transmission conductors is expected to grow by a CAGR of 8-9% till
CY 2011

KEY CONCERNS
Highly volatile raw material prices: Aluminum and base oils are the two major raw materials of the company and both of them are highly volatile.

Foreign exchange variation: As more than 35% of business of the company comes from international markets, it is inhered exposed to foreign currency.

VALUATION AND RECOMMENDATION
Since all the losses are already accounted and looking at the inelastic nature of demand for the company's products, we believe that thing will start moving up soon.

At CMP of Rs148, the stock is trading at 6.63x its FY2010 estimates and 5.50x its FY2011 estimates and an EV/EBITDA of 0.87x and 0.84x its FY2010 and FY2011 estimates respectively.

We INITIATE coverage on the company with a rating with of , implying a P/E multiple of 9.00x FY 2011 earnings, which is an upside of 36% from CMP. We value the company at EV/EBITDA
of 1.89x on FY2011(E) EBITDA of Rs1,598 million.

To see full report: APAR INDUSTRIES