Sharekhan has given Buy recommendation for APL Apollo Tubes with a target price of Rs. 1330 in its research report issued on Mar 01, 2021
Sharekhan’s research report on APL Apollo Tubes
APL Apollo Tubes Limited (APL) announced the merger of Apollo Tricoat with itself, wherein minority shareholders of Apollo Tricoat will receive one equity share of APL for one share of Apollo Tricoat. The deal is expected to be completed by December 2021 post regulatory approvals. Management has guided that the merger would be EPS/RoE accretive, as equity dilution of 10.8% would get offset by nil minority interest as Apollo Tricoat will get fully merged with APL. The deal values Apollo Tricoat at 16% premium to CMP on February 26, 2021. Management expects synergies across cost, products, and branding and expects minimum improvement of Rs. 150/tonne in EBITDA margin although the exact quantum of synergies is to be provided latter. The merger would also facilitate faster capacity expansion and facilitate penetration of Tricoat products in West and East.
Improved earnings quality post the merger (higher margin/RoE), focus on home décor, and brand building are likely to further re-rate APL and reduce valuation gap with building material players. We retain Buy on APL with a revised PT of Rs. 1,330.