After around a 15 percent decline in APL Apollo Tubes, domestic brokerage house Motilal Oswal sees the stock surging nearly 45 percent in the next 12 months on the back of robust earnings.
The brokerage has a 'buy' call on the midcap stock with a target price of ₹1,270, indicating an upside of around 45 percent from its current market price of ₹878 (as of June 29, 2022). MOSL expects strong earnings growth in the stock in the coming years.
"The earnings momentum is likely to continue for APL Apollo with a) growing demand across product segments, b) industry-leading market share, c) first-mover advantage (installation of direct forming technology (DFT) at plant locations), d) strong brand name, and e) introduction of Apollo Mart," Motilal Oswal said in its report.
It forecasts a revenue and PAT CAGR of 25 percent and 34 percent over FY22-24E.
APL Apollo is a steel tube manufacturer. The Company is engaged in the business of production of electric resistance welded (ERW) steel tubes and pipes.
MOSL informed that the Delhi government awarded seven new hospital contracts in August 2021 and these would be built using the precast building technique, for which 10,000-11,000 tonnes of steel tubes would be required.
"Going forward, with higher adoption of heavy structural tubes in Real Estate and Infrastructure projects, the share of structural tubes is expected to improve, leading to an improvement in EBITDA/MT and operating margin for companies," noted the brokerage.
The company has around 50 percent share of structural tubes of the domestic market.
"APL Apollo being a sole supplier of 100 percent structural steel tubes will be the key beneficiary," another brokerage Motilal Oswal noted.
"With the growing acceptance of structural tubes, its share (as a percentage of overall steel consumption) is expected to rise to around 10 percent, taking overall volumes of structural tubes to 22MMT (17 percent CAGR over CY19-30)," it added.
Meanwhile, ICICI Securities believes that APL Apollo is one of the major beneficiaries of steel export duty. The sharp decline in steel prices is expected to dent EBITDA print in Q1FY23, it noted. It has a 'buy' call on the stock with a target of ₹1,042 per share.
For FY22, the firm posted a 52 percent YoY growth in its net profit at ₹619 crore while its revenue in the same period rose 54 percent YoY to ₹13,063 crore.
The company's sales grew 27 percent QoQ to 5,51,723 tonne in the fourth quarter ended March 31, 2022, versus 4,35,348 tonne of sales in the previous quarter. For the entire 2021-22 fiscal, APL Apollo registered a sales of 17,54,963 tonne compared to 16,40,353 tonne in FY2020-21.
"The value-added product portfolio contributed 63 percent in FY22 against 57 percent in FY21. We are encouraged to see strong sales growth in the heavy structural steel tubes and Apollo Z product segments, which should drive the company's margins going forward," the company said.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.