Sharekhan's research report on APL Apollo Tubes
Q3FY23 operating profit of Rs. 273 crore (up 18% q-o-q) was 3% above our estimate led by marginal beat in EBITDA margin, while sales volumes of 605 kt (up 50% y-o-y; flat q-o-q) was in-line with estimates. PAT of Rs. 169 crore, up 13% q-o-q) slightly missed estimate due to steeply higher depreciation/interest costs. EBITDA margin grew by 17% q-o-q led by positive operating leverage at new Raipur plant (margin of Rs. 3,146/tonne and operated at 25% utilization), marginally better VAP mix at 56% (versus 54% in Q2FY23) and no channel destocking. Apollo Structural/Apollo Z/Apollo Galv EBITDA margin was also up by 25%/10%/13% q-o-q. Management maintained its FY23/FY24/FY25 volume guidance of 2.3mmt/3.2mmt/4mmt; targets to reach 5mmt by FY26 as the company plans to expand capacity to 5mtpa (capex of Rs. 400 crore). Q4FY23 volume expected at 700kt (2.5 lakh tonnes in January’23). Margin to improve to Rs. 5,000/tonne in FY24 and aim of Rs. 6,000/tonne over FY25-26.
We maintain Buy on APL with a revised PT of Rs. 1,425 as strong earnings growth outlook and improved earnings quality post Tricoat’s merger would narrow the valuation gap with listed peers and makes risk-reward scenario favourable. APL trades at 30x/21.7x its FY2024E/FY2025E EPS.
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