Sharekhan has given Buy recommendation for APL Apollo Tubes with a target price of Rs. 1100 in its research report issued on Nov 25, 2021
Sharekhan’s research report on APL Apollo Tubes
APL Apollo Tubes (APL) strategy of developing and creating a market for new products places it well to grab the lion’s share of massive growth opportunity in specialty steel tubes industry (expected to clock a 17% CAGR over CY21-30E). We expect APL’s volume to grow at 20% CAGR over FY21-24E. Global peers have margins of 14-19% in structural steel tubes space, while APL’s margins are at 8%. This provides scope for margin expansion, which management expects to reach Rs. 6,000-7,000/tonne (from Rs. 5,000/tonne) with rise in share of VAP to 75% from 62% currently. For every Rs. 500/tonne rise in margin our FY24E EBITDA increases by 9%. Overall, we expect APL to sustain industry leading volume growth and continued margin improvement, which would drive a strong 37% PAT CAGR over FY21-24E along with high RoE/RoCE of 30%/36%.
We maintain our Buy rating on APL Apollo Tubes and raise the PT to Rs. 1,100 (higher PE multiple of 30x FY24E EPS) as we expect its valuation gap with players like Astral to narrow down given structural earnings growth drivers and likely improvement in earnings quality after the Tricoat merger.