Buy APL Apollo;target of Rs 710: Firstcall

Firstcall's research report on APL ApolloAPL Apollo Tubes Limited (APL) operates in the steel tubes and pipes market specifically in the Welded Segment. The Welded segment has three sub-segments namely SAW Pipes, ERW Precision pipes and ERW Structural and Commercial pipes. The company operates in the ERW Structural and Commercial segment. The pipes are made from Mild Carbon Steel and are used in transportation of water and other fluids as well as structural support system in fabrication and construction. The current capacity of APL Apollo is about 1.05 million tonnes, spread across six manufacturing plants three in Sikandrabad, UP, and one each in Murbad (Maharashtra), Hosur (Tamil Nadu), Bangalore (Karnataka) thus making APL Apollo, the market leader in the ERW pipes with a share of over 10% of the organized market. Efforts are underway to set up a plant in the Eastern region of India and also in the Middle East thus making APL Apollo the only player in the country with a pan-india manufacturing capability. The key products in the portfolio include MS-Black, Galvanized Tubes, Pre-galvanized Tubes and Hollow Sections. Hollow sections form 35% of the revenue mix while MS-Black and Pre-galvanized contribute 25% each and the rest comes from Galvanized tubes. From a margin perspective, pre-galvanized tubes have the highest margin of about 13-15% while MS-Black have more modest margins in the region of 4-6%. The company has built a pan-India distribution network with over 400 direct dealers which is almost twice the size of the nearest competitor’s distribution channels. Multi- locational plants also help reduce transportation and logistic costs and this is a key attribute of APL’s strategy. Plans are afoot to double the dealer network in the next two years. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.710.00 for Medium to Long term investment.

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