Buy Apollo Pipes Ltd For Target Rs.667 - Yes Securities Ltd
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Contraction in PVC prices dents overall performance!
Our view and valuation
Apollo Pipes Ltd (APL) registered a decent quarter wherein volumes grew by 38.5%YoY (low base) & declined by 12.6% sequentially due to channel de-stocking owing to sharp correction in PVC prices. Hence, EBITDA/Kg contracted to Rs14 from Rs17. However, company expanded the contribution from value-added products which enabled them to cushion the degrowth. During the quarter company incurred capex of Rs360Mn for enhancement of capacities, debottlenecking & adding equipment for CPVC, HDPE pipes & fittings biz
Going ahead, company is confident of achieving 30% CAGR over next 3-years wherein volumes should grow by 20% over similar periods. Moreover, APL will continue to enhance the contribution from value added products from 30-35% to 50% over similar period. In order to achieve the same, company will incur capex of Rs1.5Bn in coming 3- years of which 70% will be for value-added products. Therefore, management expects EBITDA/Kg to reach Rs20 by FY25E.
We continue to remain positive on the company & reckon APL’s Volume/Revenue/EBITDA/PAT to grow at CAGR of 20%/25%/25%/35% respectively over FY22-FY24E. We believe company will continue to outperform industry growth by gaining marketshare in newer geographies & largely from unorganized players. We continue to value the company at 28x on FY24E EPS of Rs24 and arrive at a target price of Rs667. Hence, we maintain our BUY rating on the stock.
Result Highlights
* Volumes for the quarter stood at 14,406 Te, reporting a growth of 38%YoY & sequential decline of 13%. (8% below our estimates)
* ASP stood at Rs152/Kg as compared to Rs132/Rs150 in Q1FY22/Q4FY22 respectively (Vs our expectation of Rs143/Kg). Improvement in realizations was driven by healthy contribution from value added products.
* Overall revenue increased by 59%YoY & declined by 12%QoQ to Rs2,189Mn. FY20-FY23 revenue CAGR stood at 23%.
* EBITDA/Kg for the quarter stood at Rs13.9 Vs Rs16.8/Rs17.2 in Q1FY22/Q4FY22 respectively. (In-line with our expectation of Rs14/kg)
* Net profit stood at Rs 88Mn, reporting a sequential decline of 43% & remained flattish as compared to Q1FY22.
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