Legacy Cable Business Will Falter Amid Industry Shifts

Key Takeaways

• Shifting technologies and materials, along with overreliance on legacy products, threaten APAR's long-term relevance, growth, and profitability.
  
• Global trade disruptions and volatile input costs risk compressing margins, amplifying revenue instability, and weakening earnings regardless of sales volumes.
  
• Expansion into premium products, automation, and global markets is boosting margins, operational efficiency, and resilience while unlocking sustained long-term growth opportunities.

Catalysts

Engages in the electrical and metallurgical engineering business in India and internationally.

• The global shift towards alternative, greener, and more technologically advanced power transmission solutions may reduce long-term demand for APAR's traditional cables, conductors, and oil-based products, eroding future revenues and undermining the relevance of its legacy business lines.
  
• Increasing trade protectionism and localization in key export geographies, combined with evolving and uncertain tariffs in critical markets such as the United States, threaten to disrupt international supply chains, slow export growth, and increase both revenue volatility and margin pressures.
  
• A long-term migration away from copper and aluminum towards new advanced materials or wireless power transmission technologies could structurally undermine APAR's core product lines and make existing investments in capacity and automation obsolete, severely impacting top-line growth and return on invested capital.
  
• Persistent overdependence on a narrow product portfolio in wires, cables, and specialty oils exposes APAR to cyclical price wars and commoditization, while a failure to secure proprietary technologies or meaningful differentiators may compress margins, erode pricing power, and diminish net earnings despite current volumes.
  
• Volatility and increases in raw material costs, particularly in a regulatory environment that limits APAR's ability to consistently pass on these costs to customers, could squeeze industry-wide and company-wide operating margins and lead to lower earnings even if overall volumes remain stable in the near term.

APAR Industries Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on APAR Industries compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming APAR Industries's revenue will grow by 13.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.5% today to 4.8% in 3 years time.
• The bearish analysts expect earnings to reach ₹13.8 billion (and earnings per share of ₹342.78) by about August 2028, up from ₹8.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 28.5x on those 2028 earnings, down from 38.1x today. This future PE is greater than the current PE for the IN Industrials industry at 14.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.75%, as per the Simply Wall St company report.

APAR Industries Future Earnings Per Share Growth

Risks

• Sustained and rapid expansion of India's renewable energy sector, grid modernization, and large infrastructure initiatives are driving strong and resilient demand for APAR's core products, such as cables, conductors, and specialty oils, which bodes positively for revenue and earnings growth over the long term.
  
• The strategic shift to higher-margin premium products, such as high-temperature low-sag conductors, elastomeric and solar cables, and specialty oils, is consistently improving APAR's product mix, supporting higher EBITDA margins and enhancing net profitability.
  
• Ongoing and ambitious capacity expansions, automation projects, and capital expenditure plans are positioning APAR to harness economies of scale and operational efficiencies, which can further bolster operating margins and free cash flows in future years.
  
• Strengthening of global presence, including substantial growth in US exports, expansion into new geographies, and a robust export order book, is diversifying revenue streams and increasing resilience to domestic economic cycles, further supporting top-line growth.
  
• The increasing pace of reconductoring, emerging demand for grid and battery storage solutions, data center buildouts, and mandates for ESG-compliant products are creating new multi-year growth drivers in APAR's addressable markets, which can support continued revenue and earnings expansion.

Valuation

• The assumed bearish price target for APAR Industries is ₹6672.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of APAR Industries's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹12100.0, and the most bearish reporting a price target of just ₹6672.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹285.2 billion, earnings will come to ₹13.8 billion, and it would be trading on a PE ratio of 28.5x, assuming you use a discount rate of 13.8%.
• Given the current share price of ₹8353.5, the bearish analyst price target of ₹6672.0 is 25.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.