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Outperformance to continue, Reiterate BUY!  

Result Synopsis

Apollo Pipes Ltd reported decent volume growth of 6.5%YoY & 7%QoQ to 15,465Te (3?year CAGR 14%). However, decline in ASP from Rs143/Rs152 in Q2FY22/Q1FY23 respectively to Rs134/Kg lead to a revenue decline of 5%QoQ & remained flattish YoY to Rs2.07Bn. H1FY23 volumes stood at 29,871Te, reporting a 20%YoY growth & revenue increased by 23%YoY to Rs4.26Bn. During the quarter continuous fall in PVC resin prices resulted into inventory loss of Rs150?200Mn which impacted the profitability of the company. Hence EBITDA/Kg stood at Rs2 Vs Rs18/Rs14 in Q2FY22/Q1FY23 respectively. H1FY23 EBITDA/Kg came in at Rs8 as compared to Rs17 in H1FY22. Channel inventory continued to remain at lower levels as dealers resorted to de?stocking on account of constant fall in PVC prices. During the quarter Building materials constituted 55% of the revenue & value?added products share stood at 60%.

Management reiterated their guidance of 25%CAGR growth over FY22?FY25 & with higher contribution from value?added products, EBITDA/kg is also expected to improve to Rs18 over similar period. We reckon, demand to regain traction in H2FY23 & though inventory losses are expected to continue in Q3FY23, the quantum of the same is likely to be lower Vs Q2FY23. Hence, we expect company’s Volume & Revenue growth to come in at 20% & 22% respectively over FY22?FY24E. EBITDA/kg should come in at Rs17 by FY24E, wherein we reckon PVC prices to remain fairly stable & share of value?added products to expand. We continue to value the company at P/E(x) of 28x on FY24E EPS of Rs21.4 (Vs earlier expectation of Rs23.8), arriving at a target price of Rs600 (Vs previous target of Rs667). Hence, we reiterate our BUY rating on the stock.  

Result Highlights

* Volumes stood at 15,465Te (Vs est 15,000Te), reporting a growth of 6.5%YoY & 7.4%QoQ (3?year CAGR: 14%),

* ASP came in at Rs134/Kg as compared to Rs143/Rs152 in Q2FY22/Q1FY23 respectively.

* Revenue stood at Rs2.07Bn (Vs est Rs2.17Bn), flattish are compared to Q2FY22 & a decline of 5%QoQ.  

* EBITDA/Kg stood at Rs2 Vs Rs18/Rs14 in Q2FY22/Q1FY23 respectively. Sharp contraction in PVC prices lead to inventory correction resulting into massive fall in profitability. Absolute EBITDA stood at Rs25Mn Vs Rs260Mn/Rs201Mn in Q2FY22/Q1FY23.

* Net loss came in at Rs48Mn, as compared to profit of Rs141Mn/Rs89Mn in Q2FY22/Q1FY23 respectively.

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