Sharekhan has given Buy recommendation for APL Apollo Tubes with a target price of Rs. 1100 in its research report issued on Mar 22, 2022

Sharekhan’s research report on APL Apollo Tubes

APL Apollo Tubes (APL) announced investment of Rs. 181 crore in its key distributor Shankara Building Products, through its wholly-owned subsidiary APL Apollo Mart. The investment would be made through a combination of secondary market purchase (10 lakh shares at Rs. 755/share) and proposed preferential warrants (14 lakh warrants at Rs. 750/share). Investment rationale – Through this investment, APL aims to improve sales/volumes by leveraging Shankara’s store network and further strengthening its long relationship with the distributor. The deal is valued at 0.9x EV/Sales (FY22 annualised). APL’s management expects the investment to be EPS/RoCE accretive in first year but we await more clarity on plans to achieve the same. Investment to provide sales consistency from Shankara and could aid volume/utilisation at its Hyderabad plant (we estimate current EBITDA contribution of Rs. 50 crore).

Outlook

We maintain a Buy rating on APL with an unchanged PT to Rs. 1,100 as structural earnings growth drivers and likely improvement in earnings quality would narrow valuation gap with building material players like Astral.

More Info

At 17:30 APL Apollo Tubes was quoting at Rs 909.75, down Rs 27.75, or 2.96 percent.

It has touched an intraday high of Rs 950.65 and an intraday low of Rs 906.10.

It was trading with volumes of 19,059 shares, compared to its thirty day average of 26,231 shares, a decrease of -27.34 percent.

In the previous trading session, the share closed down 2.69 percent or Rs 25.90 at Rs 937.50.

The share touched its 52-week high Rs 1,113.65 and 52-week low Rs 585.08 on 16 December, 2021 and 19 April, 2021, respectively.

Currently, it is trading 18.31 percent below its 52-week high and 55.49 percent above its 52-week low.

Market capitalisation stands at Rs 22,769.27 crore.

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