Buy APL Apollo Tubes: target of Rs 915: Sharekhan

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Sharekhan's research report on APL Apollo Tubes

APL Apollo Tubes Limited (APL) is well placed to further gain market share (50% in H1FY2021) led by strong volume growth outlook for its subsidiary, Apollo Tricoat, pick-up in construction activities, and new product launches (recently launched Apollo Mechanical). We do not see any material impact on margin from recent steel price hikes as APL’s business model is that of converter and the increase in steel price is a pass through to customers. Management has guided for margin expansion to Rs. 4,000/tonne (from Rs. 3,500/tonne in Q2FY21) and further to Rs. 5,000/tonne in the next 2-3 years. Consistent volume growth of 15% annually, potential margin expansion (target to increase VAP share to 50% by Q4FY21, 65% in FY22E, and 70-75% in FY23E), RoE of 23-25%, and target to become debt free in FY2021 would re-rate APL.

Outlook

We maintain our Buy rating on APL with a revised PT of Rs. 915 (rollover of valuation multiple to FY2023E EPS and factoring in the stock split). At the CMP, the stock is trading at 24.5x its FY2022E EPS and 19x its FY2023E EPS.

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