Buy APL Apollo Tubes; target of Rs 2000: Sharekhan

Sharekhan is bullish on APL Apollo Tubes has recommended buy rating on the stock with a target price of Rs 2000 in its research report dated October 30, 2023.

Broker Research

November 03, 2023 / 11:29 IST

Buy

Sharekhan's research report on APL Apollo Tubes

Q2 consolidated PAT of Rs. 203 crore (up 35% y-o-y) was in-line with our estimate and the strong growth reflects volume growth of 12% y-o-y to 675 kt and sustained good margin performance at Rs. 4,817/tonne (up 25% y-o-y). Raipur plant operated at 27% utilization with volume of 100 kt and a healthy EBITDA margin of Rs. 5000/tonne. More importantly, EBITDA margin for coated products was very strong at Rs. 7,472/tonne (up 85% q-o-q) and are sustainable going forward. Management now expects to achieve volume at lower end of guidance of 2.8-3mt for FY24 due to pressure on commodity segment given destocking. Having said that, long-term volume/margin outlook remains robust and APL reiterated its FY26 volume guidance of 4.6-5mt by FY26 and expects margins of Rs. 6000/tonne on full ramp-up of the Raipur plant.

Outlook

Recent fall in stock price from 52-week highs of Rs. 1,806 provides a good entry opportunity for investors. Moreover, a 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 make the risk-reward scenario favourable. Hence, we maintain a Buy on APL with an unchanged PT of Rs. 2,000.

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