Buy APL Apollo Tubes; target of Rs 1100: Sharekhan

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Sharekhan's research report on APL Apollo Tubes

Q1 operating profit of Rs. 194 crore (down 27.1% q-o-q) was 4% above our estimate led by a beat in gross margins amid better realisations and a slight improvement in mix of value-added products. In-line sales volume of 423 kt, down 23% q-o-q. Sales volumes across product categories declined by 17-43% q-o-q due to channel de-stocking amid a steep steel price fall. Apollo Tricoat’s margin/tonne rose sharply by 29% q-o-q but that of Apollo Structural/Apollo Z/Apollo Galv declined by 11%/10%/20% q-o-q in Q1FY23 due to higher fixed costs and discounts to customers. Management maintained its strong 37% volume growth guidance for FY23 as inventory restocking to start given narrowing gap between primary and secondary steel price and would support volume recovery. Company reiterated FY22-25E volume guidance of a 32% CAGR and better margin of Rs. 6000-8000/tonne for new products at Raipur plant.

Outlook

We maintain a Buy on APL with an unchanged PT of Rs. 1,100 as strong earnings growth outlook and valuation gap with listed peers makes risk-reward scenario favourable. APL trades at 23.9x FY24E EPS versus 52x for Astral.

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APL Apollo Tubes - 280722 - khan