APL Apollo Tubes is on track to achieve its guidance of 20 percent sales volume growth for FY20, Emkay said
APL Apollo Tubes shares gained 2 percent intraday on July 3 after Emkay Global reiterated its buy call on the stock with a price target at Rs 2,312, implying 42 percent potential upside from current levels.
"The stock is trading at 15.3x FY20E price-to-earnings (PER) which, in our view, is attractive given FY19-21E EPS CAGR of 50 percent and FY20E return on equity of 22.6 percent. We value the stock at 16x FY21E PER," the brokerage said.
APL Apollo Tubes' Q1 sales volume was up 29 percent year-on-year to 3,88,000 tonne, supported by strong demand and production ramp-up at all four plants.
"Q1 volume forms 24 percent of our FY20E sales volume. The steel pipes manufacturer is on track to achieve its guidance of 20 percent sales volume growth for FY20," Emkay said.
This high volume growth can be attributed to: 1) focus on building material steel pipes where the company has a dominant market share; 2) benefits from Direct Forming Technology (DFT); 3) expansion of the distribution network; and 4) innovation in product offerings, it added.
Emkay expects the momentum to continue for the full year with the acquisition of a 2,00,000 tonne plant from Shankara. "The production at company's subsidiary Apollo Tricoat has also started, with Q1 sales volume of 10.3k tonne. We forecast FY20/21 volume growth of 31 /21 percent."
The stock has rallied 35 percent in the last six months. It was quoting at Rs 1,630, up Rs 13.45, or 0.83 percent on the BSE at 1116 hours IST.Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .