APL Apollo Tubes Ltd. share price target

APL Apollo Tubes (APAT) is the largest producer of Electric Resistance Welded (ERW) Steel Pipes and Sections in India with a manufacturing capacity of 2.55 mn MTPA. With pan India manufacturing capacities and extensive distribution network, they are able to cater to customers effectively and efficiently (95% of the revenues come from the dealer-distributor network). APAT has always been a pioneer in new technologies & innovative products which has helped it grow faster than its peers. They also invest continuously in enhancing brand awareness and develop the brand which in turn is creating entry barriers for new entrants....

APL Apollo Tubes (APAT) is the largest producer of Electric Resistance Welded (ERW) Steel Pipes and Sections in India with a manufacturing capacity of 2.55 mn MTPA. With pan India manufacturing capacities and extensive distribution network, they are able to cater to customers effectively and efficiently (95% of the revenues come from the dealer-distributor network). APAT has always been a pioneer in new technologies & innovative products which has helped it grow faster than its peers. They also invest continuously in enhancing brand awareness and develop the brand which in turn is creating entry barriers for new entrants....

We initiate coverage on APL Apollo Tubes (APL) with a BUY rating and a target price of Rs1,920. APL is India's largest manufacturer of Electric Resistance Welded (ERW) pipes. It is also one of the lowest cost producers of ERW pipes with wide range of products and a large distribution network. In the past decade, APL has outperformed industry growth by gaining market share from small and unorganized players. These factors have resulted in strong return ratios for APL (Average ROE of 19% over FY10-19). With expanded capacity in place, we expect its volumes to grow at a CAGR of 20% over FY19-21E. Also, its EBITDA/net profit are expected to grow at CAGR of 24%/45% over...

APAT reported a strong volume growth of 29% YoY on consolidated basis for Q1FY20 at 3.8lakh ton. We note that Hollow sections its core product (including DFT) offering reported 31% YoY growth at 219kt indicating growing acceptance of DFT, technologically superior product.

APL Apollo is India's largest producer of electric resistance welded (ERW) steel pipes. Over the years, through organic and inorganic initiatives, the company enhanced its ERW capacity, which is currently ~2.5x its nearest peer. APL Apollo has an ERW capacity of 2.3 million tonne (MT) (inclusive of recently acquired 200000 tonnes capacity from Shankara Building Products), which has increased more than 8x in the last nine years. In the current decade itself, APL Apollo has witnessed notable growth in its capacity/volume thereby increasing its market share. APL Apollo's installed...

APAT reported a strong volume growth of 29% YoY on consolidated basis for Q1FY20. This is the second consecutive quarter of healthy volume growth as was reported in Q4FY19 (39% YoY growth).

Refer to important disclosures at the end of this report A rejuvenated 2019; reiterate Buy APAT has announced the acquisition of a 200k ton plant in Hyderabad from Shankara Building Products for Rs700mn after a solid 4Q sales volume growth (+39% yoy). APAT's total capacity is now 2.3mn tons, which is 28% of the Indian steel pipe industry. Key benefits from this plant are: high-margin products of 155k tons, reduction in logistics costs for Andhra Pradesh market and 29acres of land area (viable for future expansion). To add, Shankara will buy 250k tons of pipes from APAT annually....

EBITDA margin expanded 20bps qoq to 11.2% (Emkay est: 11.4%; consensus est: 11.3%). EBIT margin expansion was constrained to 50bps qoq, despite a 600bps improvement in Europe margin, due to a 50bps contraction in APMEA margin. We expect...

Consolidated Revenues of Rs. 1,690 Cr. (26%/1% YoY/QoQ) where reported volumes growth came in at 7.4% YoY at 304kTPA. Reported volumes of 304kt (excluding trading & scrap) in Q2FY19 were impacted by heavy monsoon, Kerala floods and transporters strike.