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APL Apollo Tubes shares jump 5.5% as Motilal Oswal sees 45% upside

Motilal Oswal has a 'buy' call on APL Apollo Tubes, with a target price of Rs 1,270, implying a 45 percent potential upside from the closing price of June 29

June 29, 2022 / 04:20 PM IST
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APL Apollo Tubes shares rallied 5 percent on June 29 to close at Rs 878 after brokerage firm Motilal Oswal said it expects strong earnings growth in the coming years.

The brokerage has a “buy” call on the stock with a target price of Rs 1,270, implying a 45 percent potential upside from the day’s closing price.

"The earnings momentum is likely to continue for APL Apollo with a) growing demand across product segments, b) industry-leading market share, c) first-mover advantage (installation of direct forming technology (DFT) at plant locations), d) strong brand name, and e) introduction of Apollo Mart," said Motilal Oswal.

The brokerage expects a revenue and PAT CAGR of 25 percent and 34 percent over FY22-24.

APL Apollo Tubes clocked nearly 52 percent growth in profit at Rs 619 crore for the year ended March 2022, compared to the previous year and revenue in the same period grew by 54 percent to Rs 13,063 crore.


It also clocked strong quarterly numbers. Profit in Q4FY22 grew by percent to Rs 176.6 crore and revenue increased by 30.5 percent to Rs 4,215 crore compared to the corresponding period of the last fiscal.

The Delhi government awarded seven new hospital contracts in August 2021 and these would be built using the precast building technique, for which 10,000-11,000 tonnes of steel tubes would be required.

"APL Apollo being a sole supplier of 100 percent structural steel tubes will be the key beneficiary," said Motilal Oswal.

The company has around 50 percent share of the domestic market and with the next five domestic players together accounting for 38 percent.

With higher adoption of heavy structural tubes in real estate and infrastructure projects, the share of structural tubes is expected to improve, leading to an improvement in EBITDA/MT and operating margin for companies, said the brokerage.

EBITDA/MT is earnings before interest, tax, depreciation and amortisation per metric tonne.

India’s structural steel tube industry is pegged at 4 million metric tonnes (MMT), or around 4 percent of overall steel consumption as compared to the global average of around 9 percent.

As per an IBEF report, overall steel consumption in India is expected to clock an 8 percent CAGR to 230MMT over CY19-30.

"With the growing acceptance of structural tubes, its share (as a percentage of overall steel consumption) is expected to rise to around 10 percent, taking overall volumes of structural tubes to 22MMT (17 percent CAGR over CY19-30)," said Motilal Oswal.

APL Apollo has planned a capex of Rs 650 crore, which will be funded through internal cash flows in FY23-24, including residual capex in Apollo Raipur, value addition and backward integration in Hyderabad and Hosur plants, and investment into value addition lines at other plants.

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first published: Jun 29, 2022 04:20 pm
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