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Ventura Securities

5.30 AM Jan 1st 1970

APL Apollo

BSE ID : 533758     NSE ID : APLAPOLLO

RECOMMENDED PRICE 1527.45

PEAK FROM RECO 1806.20 18.25%

CURRENT PRICE 1538.45 Resource id #17

APL Apollo is the fastest growing steel tube manufacturer in India and has six manufacturing facilities. The company’s product basket today boasts of over 400 products which is 2x that of the closest competitor. We initiate with a BUY for a price target of Rs 2647.6 (12x FY20 EV/EBIDTA) over the CMP of Rs 1527.45 representing an upside of 73.6% over the next 27 months.

APL Apollo Tubes

APL Apollo is the fastest growing steel tube manufacturer in India and has six manufacturing facilities that are located in Sikandrabad (3 units) (Uttar Pradesh), Bangalore (Karnataka), Hosur (Tamil Nadu) and Murbad (Maharashtra). The company’s vast distribution network is spread across 20 cities. The company’s product basket today boasts of over 400 products which is 2x that of the closest competitor.

APL Apollo's products find widespread use in structural applications in urban infrastructures, housing, irrigation, solar plants, greenhouses and engineering applications. The company is first to introduce pre-galvanized pipes in the domestic markets and also in adopting latest global technologies such as DFT and In-line Galvanizing in India.

APL Apollo is India’s largest player in the ERW structural pipes space. Despite having the largest market share and product basket which is 2x more than its near peer, we expect gains in market share to continue given that:

1. introduction of new pioneering manufacturing technology would mean faster production process.

2. introduction of GST to further improve share of organized sector and hence APL Apollo (being the largest player).

3. Pan India manufacturing facility to help maintain cost competitiveness, vis a vis the industry.

4. Strong growth prospects of the steel tubes and pipes industry.


Our optimism stems from the following:

Company has undertaken significant expansion to increase its capacity to 2MTPA by FY18. Further, company is introd ucing DFT technology and Inline galvanizing in India which will help the company to reduce production time and result in direct savings.

The company's management is actively working with a reputed marketing consultant to launch new brands under ‘APL Apollo’ to cover the company’s unique & innovative product portfolio.

APL Apollo has partnered with NEXTracker to source highest quality steel products for solar parks and power plants in India. The tie-up allows APL Apollo to rapidly penetrate the growing renewable energy market in India that seeks to have 100 GW of solar power by 2022.

Its strategically located plants enable APL Apollo to have a pan India presence and gain an unfair advantage in logistics costs vis-à-vis its competitors.

We expect revenues to grow at at CAGR of 19.2 % to Rs 7700.4 crore by FY20 resulting in a CAGR of 19.4% in EBIDTA to Rs 552.7 crore in FY20. This should help earnings grow at a CAGR of 25.9% to Rs 291.2 crore over the same period. Margins are expected to soften in the near term before rallying back up to steady state. We initiate with a BUY for a price target of Rs 2647.6 (12x FY20 EV/EBIDTA) over the CMP of Rs 1527.45 representing an upside of 73.6% over the next 27 months.

 

For full details, Click on the attachment.

Disclosures and Disclaimer: Ventura Securities Limited (VSL) is a SEBI registered intermediary offering broking, depository and portfolio management services to clients. VSL is member of BSE, NSE and MCX-SX. VSL is a depository participant of NSDL. VSL states that no disciplinary action whatsoever has been taken by SEBI against it in last five years except administrative warning issued in connection with technical and venial lapses observed while inspection of books of accounts and records. Ventura Commodities Limited, Ventura Guaranty Limited, Ventura Insurance Brokers Limited and Ventura Allied Services Private Limited are associates of VSL. Research Analyst (RA) involved in the preparation of this research report and VSL disclose that neither RA nor VSL nor its associates (i) have any financial interest in the company which is the subject matter of this research report (ii) holds ownership of one percent or more in the securities of subject company (iii) have any material conflict of interest at the time of publication of this research report (iv) have received any compensation from the subject company in the past twelve months (v) have managed or co-managed public offering of securities for the subject company in past twelve months (vi) have received any compensation for investment banking merchant banking or brokerage services from the subject company in the past twelve months (vii) have received any compensation for product or services from the subject company in the past twelve months (viii) have received any compensation or other benefits from the subject company or third party in connection with the research report. 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The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by VSL, its associates, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 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