Sharekhan has given Buy recommendation for APL Apollo Tubes with a target price of Rs. 1275 in its research report issued on Oct 04, 2022
Sharekhan’s research report on APL Apollo Tubes
APL Apollo Tubes reported robust sales volume growth of 41%/42% y-o-y/q-o-q to 602 kt (highest ever quarterly volume); while VAP mix declined to 54% (versus 61% in Q1FY23) but would improve with ramp-up of Raipur plant. H1 volume of 1 mt and potential ramp-up at Raipur plant to help achieve 37% y-o-y volume growth guidance for FY23. Raipur plant (innovative first-time products in India) would help APL beat industry growth rate and expand market share (from 55% in FY22). Management has guided for 32% volume CAGR over FY22-25E with high margin on new products and thus target to more than double EBITDA to Rs. 2,000 crore by FY25 (versus Rs. 945 crore in FY22). Primary structural steel tube market expected double to 6 mtpa by FY25 as volume would shift towards primary market from secondary. Moreover, steel tubular technology is gaining acceptance in construction projects. APL has capacity (to reach 4mtpa soon) and product portfolio to tap growth opportunities in structural steel tube market.
Outlook
We maintain our Buy rating on APL Apollo Tubes and increase PT to Rs. 1,275 as we rollover our PE multiple to October 2024 EPS. Strong sustainable volume/margin led earnings growth potential and likely Tricoat merger would help narrow valuation gap with players like Astral.