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Strong demand drives volume growth

* APAT reported a recovery in EBITDA/MT (up 3% YoY/10% QoQ) to INR4,970 on back of broad based improvements across the product portfolio, despite a lower VAP mix by 6pp YoY to 54% and higher costs for stabilizing the new Raipur plant. Volumes in 4QFY23 grew by 18% YoY/7% QoQ to 650KMT, ending FY23 with total sales volume of ~2.28MMT (up 30% YoY).

* We maintain our FY24/FY25 earnings estimates as APAT is expected to maintain its growth trajectory on a strong demand outlook. We value the stock at 33x FY25E EPS to arrive at a TP of INR1,490. Reiterate BUY.

Margin recovery continues across product portfolio

* Consolidated revenue grew 5% YoY to INR44.3b (est. INR49.1b) in 4QFY23, led by strong volume growth (up 18% YoY to 650KMT). Realization declined by 11% YoY to INR68,200/MT.

* Gross profit/MT grew 4% YoY to INR9,986. EBITDA/MT rose 3% YoY to INR4,970 in 4QFY23 despite a lower mix of value-added products (down 6pp YoY to 54%) and high costs of the new Raipur plant. On a sequential basis, gross profit/MT and EBITDA/MT grew 8% and 10%, respectively, as APAT stopped heavy discounts due to normalization of channel inventory.

* EBITDA rose 21% YoY/18% QoQ to INR3.2b (in line) in 4QFY23.

* Adjusted PAT grew 14% YoY and 19% QoQ to INR2b (est. INR2.1b).

* FY23 revenue/EBITDA/PAT grew 24%/8%/4% YoY to INR161.7b/INR10.2b/ INR6.4b.

* Operating cash flow for FY23 stood at INR6.9b v/s INR6.5b in FY22, with CFO/EBITDA stable at 68% v/s FY22. Net debt increased to INR5.2b in FY23 v/s INR2b in FY22.

Highlights from the management commentary

* Capex: APAT is expected to spend ~INR5-6b of capex in the next 12-18 months to reach ~5MMT of capacity by FY25. Capex will be for the upcoming Dubai and South India plants and incremental capacity from debottlenecking of the existing plants.

* Guidance: The management has guided for ~30% volume growth in FY24. It aims to achieve ~2.8-3MMT/3.8-4MMT/4.5-5MMT of sales volume in FY24/FY25/FY26. It expects EBITDA/MT of ~INR5,000 in FY24 and then to increase to INR5,500 -6,000.

* New growth driver: Management expects significant traction from Railways as the government is planning to add ~1,500 railway stations in the next five years. It is already in touch with ~20 contractors who have been allotted four to five such projects each.

Valuation and view

* The incremental capacity from upcoming plants and debottlenecking, along with the addition of high-margin products from the Raipur unit, should result in strong volume growth and margin expansion going ahead.

* We expect a revenue/EBITDA/PAT CAGR of 15%/35%/40% over FY23-25

* We maintain our FY24/FY25 earnings estimates as the company is expected to maintain its growth trajectory on a strong demand outlook. We value the stock at 33x FY25E EPS to arrive at a TP of INR1,490. We reiterate our BUY rating on the stock.

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