Buy Apollo Pipes; target of Rs 350: Choice Institutional Equities

Buy

Choice Institutional Equities's report on Apollo Pipes

We maintain our BUY rating on Apollo Pipes (APOLP) with a revised target price of INR 350/share (INR 420/sh earlier) as we lower EBITDA/PAT growth by 30.5/49.6% for FY26E and 24.5/31.7% for FY27E. We continue to be positive on APOLP due to: 1) Driven by demand in the industry, volume growth was robust at 17% CAGR over FY25-28E, while market share gains from unorganized players in the Pipes business. Higher infra spend by state and central governments coupled with demand boost from completion of real estate projects launched between FY22 and FY25 is expected to drive volume growth for pipes over FY26-28E. 2) EBITDA margin improvement of 151 bps over FY25-28E driven by a) operating leverage benefit due to strong volume growth, b) margin improvement in Kisan Mouldings asset due to initiatives by APOLP and c) improving contribution from higher-margin products, such as CPVC. On the basis of our assumption of 17% volume CAGR, 2% growth in realization and EBITDA margin improvement of 151 bps over FY25-28E, we forecast APOLP EPS to expand at a CAGR of 49.8%. ROCE is expected to reach 14.6% by end of FY28E vs 6.7% in FY25.

Outlook

We assign a PEG ratio of 0.9x on FY25-28E core EPS CAGR, which we believe is conservative, and arrive TP of INR 350/share for APOLP. Higher volatility in PVC resin prices, slowdown in infra spends by the government are risks to our BUY rating.

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Apollo Pipes- 0102026 - choice