The domestic brokerage firm IIFL Securities, in its latest research note, has reiterated its "buy" call on the APL Apollo Tubes with a 12-month target price of ₹1,321 apiece, which reflects an upside rally of 16.50% from the stock's Friday closing price.
APL Apollo Tubes is India’s leading structural steel tubes manufacturer with a capacity of 2.6mtpa. The company's product profile includes hollow sections, pre-galvanized tubes, galvanised tubes, round pipes, and special value-added products for home decor.
IIFL Securities stated that the company is well on track to meet its FY23 guidance of 2.2mt of volume. The existing product demand in FY24 will be aided by healthy infrastructure spending in a pre-election year and a stronger steel price outlook. This will be topped by the ramp-up of the recently completed 1.5mt new Raipur facility, said the brokerage.
The brokerage noted the company has already seen enquiries for projects covering 42m sq. ft (0.22 mt of steel tube requirement), and this will expand as supplies commence.
From FY18 to FY22, the share of value-added products has grown from 42% to 63%, which has pulled up profitability from Rs. 3,500/t to Rs. 4,500/t. Further enhancement in the share of value-added (low competition) products to 75% will drive better profitability for APL Apollo to over ₹5,500/t, according to the brokerage.
Meanwhile, another brokerage firm, Motilal Oswal, has also reiterated its "buy" rating on the stock with a target price of ₹1,400 apiece, in its research report dated January 6.
The brokerage said the rapid capacity expansion, strong leadership position, and high industry growth trends will lead to robust growth in sales volume for the company.
However, Motilal laid out some of the key downside risks, including a fluctuation in steel prices to impact margins, slower industry growth to lead to a muted demand outlook, an increase in working capital days to result in liquidity pressure, and lower entry barriers.
APL Apollo Tubes over the years has created a moat with its strong execution capability, scalability, wider distributor network, diversified plant locations, and innovation of diverse applications for structural tubes, said Motilal Oswal.
The Indian structural tubes market is expected to reach 22mmt by CY30E from 4mmt in CY19, registering a 17% CAGR. The brokerage pointed out that the company is set to capture a larger share of the growing market by adding capacity and expanding applications in diverse areas.
APAT already has over 1,500 SKUs, which is the largest in the industry, helping the company in capitalizing by offering a one-stop shop for the entire structural steel tube solution, it highlighted.
In addition, the company clocked EBITDA/MT of Rs. 5,386 in FY22, up from Rs. 3,576 in FY17 and was higher by 10% than the next best margin player, JTL Industries, at Rs. 4,892, while the EBITDA/MT of Rama Steel Tube, Surya Roshni, and Hi-Tech Pipes stood at Rs. 4,839, Rs. 4,648, and Rs. 3,634 in FY22, respectively.
Meanwhile, the company has doubled its manufacturing capacity over the last seven years, from 1.3mmt in FY16 to 2.6mmt in FY22, the brokerage added.
On the financial side, the net profit of the company in FY22 rose by 55% to ₹557 crore, and it also recorded the highest-ever volume of 1.75 million tonnes. The company's revenue from the operation during the financial year 2022 increased to ₹13,103.8 crore, a growth of 53.52% compared to ₹8,535.7 crore in FY21.
During the September-ending quarter, the company logged its highest-ever quarterly net profit of ₹150.2 crore, a 14.65% YoY rise.
In the last one year, the shares of APL Apollo Tubes delivered a 20.70% return, climbing from ₹937 apiece to the current market price of ₹1,131. Over the past two years, the stock has returned 136% to its stockholders.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.