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.
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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