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APL Apollo Tubes’ (APL) Q1FY24 EBITDA missed consensus estimates by 10% though it was broadly in line with ours. Key points: 1) destocking in Q1FY24 impacted margins with EBITDA/te declining 6.5% QoQ to INR4,645; 2) sales volume was up 56.8% YoY (1.8% QoQ) at 662kte; and 3) volume from Raipur plant was at 75kte, slightly up QoQ. Going ahead, management expects growth to be largely volume-driven with capacity rising to 5.0mtpa by end-FY25. Besides, EBITDA/te is also likely to be boosted from capacity ramp-up at Raipur plant. Taking cognisance of the firm growth plans, we now value APL at 36x (earlier: 30x) FY25E EPS, corresponding to 2 deviations above mean, resulting in a revised target price of INR 1,740/share (earlier: INR 1,415). Maintain BUY.

Performance misses estimates, but bigger picture intact

APL’s Q1FY24 EBITDA missed consensus estimates by 10%. Key points: 1) sales volume rose 56.5% YoY (1.8% QoQ) at 662kte; 2) EBITDA/te was down 6.5% QoQ (up 1.3% YoY) mainly due to destocking, particularly in galvanised steel in Q1FY24; 3) sans inventory write-down, Q1FY24 EBITDA would have been INR3.75bn-3.8bn; 4) Raipur volumes were stable QoQ with EBITDA/te (Raipur plant) at INR4,000/te as capacity utilisation still remains low; 5) capex spend on Raipur plant thus far has been INR1.8bn. Over the next few quarters, management intends to spend another INR3bn-3.2bn to achieve capacity of 5mtpa. Going ahead, management expects Raipur volumes to pick up, reaching 175kte-200kte in Q4FY24 at a sustainable EBITDA/te of INR6,000- 7,000/t over next two years.

FY26 target: Revenue 2x and EBITDA 2.5x higher vs FY23

APL remains firmly on the growth path with its three-pronged focus – on capacity expansion, geographical dispersion and product mix enrichment. Management, during the earnings concall, mentioned the objective of reaching 4mtpa capacity by end-FY24 and 5mtpa by end-FY25. In the medium term, the plan is to reach 10mtpa capacity by FY30. Furthermore, plans are afoot to set up 0.2mtpa and 0.3mtpa plants in eastern India and Middle East respectively. This will enable the company to diversify its earnings base. Additionally, management mentioned it intends to increase value-added sales proportion to 70% by end-FY25 vs 57% in Q1FY24.

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