Buy APL Apollo Tubes; target of Rs 2000: Sharekhan

Sharekhan's research report on APL Apollo Tubes

India’s structural steel tubes market is expected to grow two-fold to 16 mt by FY30 as its rising application in government projects, infra, hospitals to expand its share in India’s steel consumption to 8% versus 6% currently. APL’s focus on increasing scale with capacity expansion plan to 5 mt/ 10 mt by FY25/FY30 makes it biggest beneficiary of exponential growth in structured steel tubes market given its leadership position (market share of 55%) and first-mover advantage (innovative products). We expect APL’s volumes to clock a 27% CAGR over FY23-26E. VAP mix is expected to improve considerably to 70% in FY25 versus 57% currently. VAP fetch higher margin of Rs. 6,000-8,000/tonnne versus APL’s current margin of Rs4,500/tonne. Thus, we expect 34% expansion in EBITDA margin to Rs. 6,017/tonne by FY26.

Outlook

Strong earnings growth outlook (expect 45% PAT CAGR over FY23-26E), high RoE/RoCE of 34%/44% would narrow the valuation gap with listed peers and makes the risk-reward scenario favourable. Hence, we maintain a Buy rating on APL with a revised PT of Rs. 2,000. At CMP, APL trades at 32x/24x its FY2025E/FY2026E EPS.