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Expanding footprints across Natio

* Apollo Pipes Ltd (APL) is one of the leading plastic pipe manufacturers in India, having an installed manufacturing capacity of 125,000TPA across 4-manufacturing facilities located at Bangalore, Ahmedabad, Dadri & Raipur. APL offers wide range of product portfolio which includes PVC, CPVC, HDPE pipes, Fittings & water tanks.

* Formerly company’s 80% revenue was constituted from Northen region. However, APL is strategically expanding their footprints across nation by establishing capacities in Ahmedabad, Raipur & Bangalore to cater the west, east & south demand. Hence in FY21 north contributed 70% of total revenue & going ahead with company gaining marketshare in ex-north regions, contribution from north is likely to contract to 50%.

* Industry tailwinds: Plastic pipe industry is largely driven by irrigation (50%demand) followed by Plumbing &WSS (35%) demand. On the back of GoI’s initiatives like (i) Jal Jeevan Mission which is likely to witness sharp increase in budgetary spends, (ii) Higher spends for urban development, (iii) Swachh Bharat mission (Capital outlay of 1.2Lakh Cr over 2021-2026) coupled with higher agri spends should enable the Plastic Pipe industry to grow by 15% over FY20-FY25E

* Formalization of industry: Plastic pipe industry is witnessing material shift in demand from unorganized (35%) to organized segment (65%). This should result into outperformance by organized players in coming years. Apollo Pipes is expected to gain market share from regional unorganized players in newer geographies with deepening their presence in north, hence we reckon Apollo pipes will not only outperform industry growth but will be one of the fastest growing pipe company by reporting 28% volume growth over FY21-FY24E.

* Currently PVC pipes contribute 60% of company’s total revenue while CPVC & fittings together constitute 25% of revenue. With APL’s aim to expand their presence in non-agri segment from 45% to 60% in coming years, contribution of CPVC & Fittings is likely to grow to over 35%. This should enable the company to expand their operating margins.

* APL has historically traded at a steep discount as compared to its peers as the company was regarded as a “Regional player”. However with APL gaining ground across nation coupled with higher margin products viz CPVC, Fittings contribution likely to expand- we reckon APL should fetch similar valuations as other peers. Hence we have valued the stock at 28x (Vs industry average of 35x) on FY24E EPS of Rs38. Therefore we reiterate our “BUY” rating on the stock.

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