BSE ID : 533758 NSE ID : APLAPOLLO
RECOMMENDED PRICE 1527.45
PEAK FROM RECO 2587.00 69.37%
CURRENT PRICE 1233.05 19.27%
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.
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