* price as on January 01, 0001

India

Previous target:	755
Up/downside:	143.8%
Reuters
Bloomberg:	APEX IN
Market cap:	US$138m
	Rs9,989m
Average daily turnover:	US$0.4m
Current shares o/s:	31.3m
Free float:	27.4%

Key changes in this note

PAT estimates adjusted by 4.6% / 3.2% for FY23F/FY24F.

Revise target price to Rs780 (Rs755 earlier).

Price performance	1M	3M	12M
Absolute (%)	4.4	14.0	26.4
Relative (%)	(1.9)	3.8	17.3

Major shareholders	% held
Promoter & Promoter Group	72.6
Nippon Mutual Fund	5.3
Invesco Mutual Fund	1.5

Analyst(s)

The worst phase is finally over

Apex Frozen Foods reported a strong set of 1QFY23 numbers, in line with our expectations, because of logistics problems easing.

The transportation problem, which worsened in 4QFY22, eased to some extent in 1QFY23 and seems to be getting better.

Retain Add rating on the stock with a higher TP of Rs780 or 18x FY24F P/E.

Strong performance

Apex Frozen Foods Ltd (AFFL) came out with a strong set of numbers for 1QFY23, in line with our expectations. The tailwinds for the shrimp processing sector are strong. Demand from USA remained steady while in case of China it went through the roof. Production gained pace with demand after a long time. Logistics cost played spoilsport but has now eased and is expected to decline further. We expect AFFL to keep the movement going and post still better results in coming quarters. However, as demand still outpaces supply (shrimp supply), some raw material inflation is likely for shrimp processing going ahead. We expect AFFL to top 15,000mtpa in sales, in volume terms, in FY23F and 20,000mtpa sales in FY24F, even as recessionary fears loom large because of the shift in meat pricing dynamics. Shrimp was out of reach for most consumers a decade ago but has now become more affordable when compared with other protein foods.

Export-incentive math

Net duty drawback and the proportion of ROTDEP (Remission of Duties and Taxes on Export Products) received were the export incentives booked by AFFL in 1QFY23. ROTDEP incentive was not fully booked since the past six quarters. AFFL intends to book these incentives on a receipt basis, as per management, because of which we foresee the export incentive booking to turn lumpy in coming quarters.

Reiterate Add rating on the stock with higher target price of Rs780

We adjust our PAT estimates by 4.6% & 3.2% for FY23F & FY24F, respectively, based on 1QFY23 numbers. We retain Add rating on AFFL with a higher target price of Rs780 (Rs755 earlier) or 18x FY24F P/E. AFFL is likely to have an expanded capacity of 35,000mtpa by 4QFY23F. The undercurrent in terms of shrimp demand is strong, pricing power has returned for the company’s products, transportation problems seem to be stabilizing, and there should be a positive momentum in the stock price going ahead, in our view. Downside risks: Any drop in demand for shrimp and shrimp products, hindrance in supply of shrimp in domestic market, and any trade barriers imposed on India or the company’s products.

Financial Summary	Mar-20A	Mar-21A	Mar-22A	Mar-23F	Mar-24F
Revenue (Rsm)	8,271	8,185	9,142	11,568	14,709
Operating EBITDA (Rsm)	870	909	793	1,095	1,983
Net Profit (Rsm)	607	394	411	749	1,354
Core EPS (Rs)	19.4	12.6	13.1	24.0	43.3
Core EPS Growth	(0.2%)	(35.1%)	4.4%	82.3%	80.8%
FD Core P/E (x)	16.47	25.38	24.31	13.33	7.38
DPS (Rs)	2.0	1.8	2.6	2.4	4.3
Dividend Yield	0.63%	0.55%	0.82%	0.75%	1.36%
EV/EBITDA (x)	13.10	12.70	14.58	9.90	5.21
P/FCFE (x)	42.56	27.30	50.70	20.87	40.28
Net Gearing	35.5%	35.5%	33.2%	15.6%	5.2%
P/BV (x)	2.52	2.27	2.10	1.84	1.50
ROE	16.2%	9.4%	9.0%	14.7%	22.4%
% Change In Core EPS Estimates
InCred Research/Consensus EPS (x)

Figure 1: Quarterly summary

Rs m	1QFY23	4QFY22	*%QoQ*	1QFY22	*%YoY*
Revenue From Operations	3,058	2,068	*47.9%*	2,228	*37.3%*
Cost of Goods Sold	2,072	1,415	46.4%	1,550	33.7%
Employee Expenses	119	108	9.8%	119	-0.2%
Other Expenses	713	382	86.6%	469	52.0%
EBITDA	155	163	*-4.6%*	91	*71.4%*
Depreciation	51	46	12.6%	46	11.8%
EBIT	104	117	*-11.2%*	45	*132.5%*
Other Income	192	25	661.6%	47	309.7%
Interest Expenses	48	39	24.2%	45	8.3%
Profit Before Tax	248	104	*139.4%*	47	*426.8%*
Tax Expenses	62	30	105.0%	14	341.6%
Profit After Tax	185	73	*153.8%*	33	*463.4%*

Key Ratios	1QFY23	4QFY22	%QoQ	1QFY22	%YoY
EBITDA Margin	5.1%	7.9%	-279bp	4.1%	101bp
EBIT Margin	3.4%	5.7%	-227bp	2.0%	139bp
PBT Margin	8.1%	5.0%	310bp	2.1%	599bp
PAT Margin	6.1%	3.5%	253bp	1.5%	459bp
Tax Rate	25.2%	29.4%	-422bp	30.0%	-486bp

Figure 2: Our revised earnings estimates

Rs m	Old estimates		New estimates		Change (%)
	FY23F	FY24F	FY23F	FY24F	FY23F	FY24F
Revenue	11,006	14,317	11,568	14,709	5.1%	2.7%
EBITDA	1,205	1,929	1,095	1,983	-9.2%	2.8%
EBITDA Margin (%)	10.9%	13.5%	9.5%	13.5%	-149bp	1bp
PAT	716	1,312	749	1,354	4.6%	3.2%
EPS (Rs)	23	42	24	43	4.6%	3.2%

Figure 3: One-year forward P/E

BY THE NUMBERS

Profit & Loss

(Rs mn)	Mar-20A	Mar-21A	Mar-22A	Mar-23F	Mar-24F
Total Net Revenues	8,271	8,185	9,142	11,568	14,709
Gross Profit	2,535	2,654	2,992	3,625	4,707
Operating EBITDA	870	909	793	1,095	1,983
Depreciation And Amortisation	(146)	(220)	(185)	(219)	(192)
Operating EBIT	724	690	608	876	1,791
Financial Income/(Expense)	84	(133)	(46)	134	39
Pretax Income/(Loss) from Assoc.
Non-Operating Income/(Expense)
Profit Before Tax (pre-EI)	808	557	562	1,010	1,830
Exceptional Items
Pre-tax Profit	808	557	562	1,010	1,830
Taxation	(201)	(163)	(151)	(260)	(476)
Exceptional Income - post-tax
Profit After Tax	607	394	411	749	1,354
Minority Interests
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit	607	394	411	749	1,354
Recurring Net Profit	607	394	411	749	1,354
Fully Diluted Recurring Net Profit	607	394	411	749	1,354

Cash Flow

(Rs mn)	Mar-20A	Mar-21A	Mar-22A	Mar-23F	Mar-24F
EBITDA	870	909	793	1,095	1,983
Cash Flow from Invt. & Assoc.
Change In Working Capital	(455)	(546)	(471)	560	(856)
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow
Net Interest (Paid)/Received	190	26	128	308	147
Tax Paid	(163)	(81)	(116)	(260)	(476)
Cashflow From Operations	441	309	334	1,702	798
Capex	(385)	(125)	(106)	(724)	(50)
Disposals Of FAs/subsidiaries
Acq. Of Subsidiaries/investments
Other Investing Cashflow
Cash Flow From Investing	(385)	(125)	(106)	(724)	(50)
Debt Raised/(repaid)	178	182	(31)	(500)	(500)
Proceeds From Issue Of Shares
Shares Repurchased
Dividends Paid	(75)			(75)	(135)
Preferred Dividends
Other Financing Cashflow	(94)	(146)	(174)	(174)	(108)
Cash Flow From Financing	9	36	(205)	(749)	(744)
Total Cash Generated	66	220	23	229	4
Free Cashflow To Equity	235	366	197	479	248
Free Cashflow To Firm	56	184	228	979	748

BY THE NUMBERS…cont’d

Balance Sheet

(Rs mn)	Mar-20A	Mar-21A	Mar-22A	Mar-23F	Mar-24F
Total Cash And Equivalents	72	99	74	304	308
Total Debtors	791	1,546	1,372	1,585	2,015
Inventories	1,840	1,612	2,028	1,268	1,612
Total Other Current Assets	698	603	700	885	1,126
Total Current Assets	3,402	3,860	4,175	4,042	5,061
Fixed Assets	2,802	2,504	2,360	3,110	2,969
Total Investments
Intangible Assets
Total Other Non-Current Assets	62	204	258	13	13
Total Non-current Assets	2,864	2,708	2,619	3,124	2,982
Short-term Debt	1,197	1,380	1,361	861	361
Current Portion of Long-Term Debt	40
Total Creditors	603	374	251	412	524
Other Current Liabilities
Total Current Liabilities	1,841	1,754	1,611	1,273	885
Total Long-term Debt	241	281	291	291	291
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities
Total Non-current Liabilities	241	281	291	291	291
Total Provisions	225	135	137	173	220
Total Liabilities	2,307	2,170	2,039	1,737	1,396
Shareholders Equity	3,959	4,398	4,754	5,429	6,647
Minority Interests
Total Equity	3,959	4,398	4,754	5,429	6,647

Key Ratios

(Rs mn)	Mar-20A	Mar-21A	Mar-22A	Mar-23F	Mar-24F
Revenue Growth	(5.4%)	(1.0%)	11.7%	26.5%	27.2%
Operating EBITDA Growth	(2.9%)	4.6%	(12.8%)	38.0%	81.1%
Operating EBITDA Margin	10.5%	11.1%	8.7%	9.5%	13.5%
Net Cash Per Share (Rs)	(45.01)	(49.98)	(50.48)	(27.14)	(11.00)
BVPS (Rs)	126.69	140.74	152.14	173.71	212.71
Gross Interest Cover	6.83	4.33	3.50	5.02	16.55
Effective Tax Rate	24.9%	29.3%	26.9%	25.8%	26.0%
Net Dividend Payout Ratio	7.8%	9.9%	14.6%	7.4%	7.4%
Accounts Receivables Days	38.10	52.11	58.25	46.65	44.66
Inventory Days	92.38	113.92	108.03	75.73	52.54
Accounts Payables Days	29.22	32.25	18.54	15.22	17.08
ROIC (%)	15.4%	12.3%	10.0%	13.5%	27.8%
ROCE (%)	14.4%	12.0%	9.8%	13.5%	25.8%
Return On Average Assets	12.8%	10.7%	9.1%	12.6%	23.6%

Key Drivers

(Rs mn)	Mar-20A	Mar-21A	Mar-22A	Mar-23F	Mar-24F
Outstanding Orderbook	N/A	N/A	N/A	N/A	N/A
Order Book Depletion	N/A	N/A	N/A	N/A	N/A

(Please link your key drivers and assumptions from EFA Sheet here) - Delete this line once done	N/A	N/A	N/A	N/A	N/A

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