IGI Logo

Volume led growth

APL Apollo (APAT) recorded in-line EBITDA of Rs2.66bn (CentrumE: Rs2.59bn), up 31.5% QoQ on account of higher volumes. APAT came back strongly in Q4FY22 with sales volume of 552kt, up 37% QoQ/27% YoY as it pushed low-margin general structures. As a result, proportion of value added products (VAP) fell to 60% v/s 65% in Q3FY22. This reflects the strength of APAT that it can push volumes, if required. Despite lower sale of VAP, it recorded EBITDA/t of Rs4,823, down 4% QoQ. We observe near term weakness in demand as customers defer purchase in anticipation of lower prices. However, the full commissioning of its upcoming Raipur plant (1.5mtpa) in H1FY23 will help APAT to record 23% volume CAGR over FY22-24E at average EBITDA/t of ~Rs5,000. We rollover to FY24 earnings and value APAT at 30x FY24E EPS to arrive at a TP of Rs994 (earlier Rs906). Reiterate ADD

Volume push helps in EBITDA growth; EBITDA/t down QoQ to Rs4,823

APAT reported highest quarterly sales volume of 552kt, up by 37% QoQ/27% YoY. However, the share of VAP has gone down to 60% in Q4FY22 vs 65% in Q3FY22 due to higher push of general structures (up 60% QoQ) during the quarter. APAT was able to continuously pass on elevated steel prices. However, due to adverse product mix, APAT reported EBITDA/t of Rs4,823 (down by Rs200/t QoQ) and EBITDA of Rs2.66bn, up 32% QoQ. Management is confident of achieving EBITDA/t of Rs4,50-5,500 from existing operations and can move ahead with volumes coming in from upcoming Raipur plant

On verge of expansion of 1.5mt VAP products at Raipur; volume growth of 25% CAGR over FY21-25

APAT is on the verge of commissioning value added structural tubes capacity of 1.5mtpa at Raipur (estimated capex of ~Rs8bn, Rs3bn remaining to be spent in FY23) which will be completed in phases by 1HFY23. With this expansion, APAT will be a 4mtpa structural tubes producer. This would help it to generate 25% volume CAGR over FY21-25. These are value added products and can fetch higher margins (average Rs6,000/t EBITDA). With this, APAT targets to increase share of VAP from 60-65% to 75%+ in the next 3 years. Besides this, APAT announced further capex of Rs3.5bn for value addition (~Rs1.5bn) and for setting up new plants at Kolkata and Dubai.

Balance sheet remains strong; working capital remains lean

APAT’s net debt inched up to Rs2.04bn (Rs1.6bn at Q3FY22-end) due to ongoing capex at Raipur. The expansion project is likely to be completed by 1HFY23 end. Despite that, we expect APAT to turn into a nearly debt free company and become net cash company in FY24E (net cash of Rs4.9bn). During FY22, net WC was at 7 days (FY21:8 days).

Reiterate ADD with TP of Rs994; Success of Raipur expansion crucial for future growth

Though near term structural tubes demand is weak, we expect APAT to record 23% volume CAGR over FY22-24E to 2.64mt in FY24E. The success of Raipur expansion of value added products is crucial for APAT’s next leg of growth. This not only can provide volume growth but can increase overall margins too. We reiterate ADD with target price of Rs994.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer