The structural tubes market in India, comprising 6% of the total steel industry, is steadily aligning itself with the global average of 10% of total steel. Pioneering structural tubes in the domestic market and with a 15% volume CAGR in FY18–23, APL Apollo Tubes has tactfully become the dominant player with over 55% market share, leaving its nearest competitor far behind, said domestic brokerage firm Nuvama Institutional Equities.
Over the last ten years, the company has aggressively expanded its production capacity, achieving CAGR of 20%. Its most recent achievement is the commissioning of a state-of-the-art greenfield plant in Raipur, which has increased its capacity to 3.6 million tonnes per annum.
According to the brokerage, the Raipur plant is not only the biggest in terms of capacity and revenue potential, but the whole facility is dedicated towards futuristic products, driving EBITDA by 33% CAGR over FY23–26E, highlighted the brokerage.
In addition to the capacity expansion in Raipur, APL Apollo Tubes plans to increase its presence in East India and make its first international move in Dubai as part of its capacity expansion efforts, as highlighted by the brokerage.
The company will also engage in some de-bottlenecking that will take its total capacity to 5 mtpa by FY25E. Furthermore, beyond FY25E, the company plans to again double its capacity by FY30E to 10 mtpa. The increasing capacity, according to Nuvama, will likely drive the company’s volumes by a 27% CAGR over FY23–26E.
Focusing on value-added products to expand margins
The company's focus on value-added has yielded results in the past, with EBITDA per tonne ballooning to ₹4,500 per tonne from the levels of ₹3,500 per tonne. With its diversified network and pan-India capacities, the company also enjoys a better operating advantage than its peers
Currently, the company is on track for the next leg of margin expansion, targeting to achieve this by producing extremely value-added products such as heavy structural and colour-coated tubes and products, thereby taking the share of value-added products to as much as 70% of its overall capacity, stated the brokerage.
Growth likely to accelerate further
The company's journey from an electric resistance welding (ERW) player to a dominant force in the structural tubes market is commendable. This transformation has translated into an impressive 25% PAT CAGR over FY13–23, and the brokerage anticipates this growth rate to accelerate to approximately 40% CAGR over FY23–26E.
Key factors contributing to this growth include capacity expansion, an improved product mix, an extensive distribution network, strategic warehouses, increased retail presence, and a diversified portfolio of stock-keeping units (SKUs), all of which are set to enhance last-mile connectivity, it said.
The company has structured its working capital and improved its OCF. The better OCF has helped in reducing its debt profile and, hence, improved return ratios.
Valuation
The brokerage's optimistic outlook for APAT's robust growth prospects leads it to assign a target price-to-earnings (PE) ratio of 40x Q1FY26E, resulting in a target price of ₹2,000 apiece; initiating coverage on the stock with a 'buy' rating.
Multi-bagger returns
This year so far, the company's shares have shown exceptional growth, surging by 48%, rising from ₹1,093 per share to ₹1,615. Over the past three years, the shares have seen a remarkable increase of 472%, and in the last five years, they have surged by 963%.
Impressively, over the past decade, the shares have generated a whopping return of 10,670%.
12 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.
