Accumulate APL Apollo Tubes for Target Price 1,679 - Elara Capital
Destocking hurts volume
Broadly in-line performance
APL Apollo Tubes’ (APAT IN) Q3FY24 net sales fell ~4% YoY and ~10% QoQ to ~INR 40bn. Also, EBITDA grew ~2% YoY but fell ~14% QoQ to ~INR 2.8bn. Net sales and EBITDA were mostly in line with our expectations of ~INR 39.8bn and ~INR 2.9bn, respectively. PAT declined ~2% YoY and ~18% QoQ to ~INR 1.7bn.
EBITDA/tonne up ~3% YoY but down ~4% QoQ
Sales volume was flat YoY but dropped ~11% QoQ to 0.60mn tonnes, due to channel destocking led by expectations of fall in steel prices and widening price gap between primary and secondary steel pipes. Realization dipped ~3% YoY but rose ~1% QoQ to INR 67,054/tonne. Operating costs fell ~4% YoY but grew ~1% QoQ to INR 64,576/tonne. Thus, EBITDA/tonne was up ~3% YoY but down ~4% QoQ to INR 4,631.
Expanding footprint outside India
The 0.3mn-tonne greenfield expansion in Dubai was partially commissioned in December 2023, with full commissioning expected in FY25. Leveraging capacity from the plant, APAT intends to target global markets with estimated size of ~30mn tonnes. Further, APAT is in the process of completing land acquisition for the upcoming 0.2mn tonne expansion in East India and the project maybe completed in FY25. The management expects ramp-up in utilization (53% as of end-Dec’23) in the Chhattisgarh based Raipur unit to further strengthen margin. Further, potential revenue and EBITDA from this unit may be INR 70bn+ and INR 6bn+, respectively.
Valuation: Reiterate Accumulate; TP at INR 1,679
Post soft Q3, volume in the upcoming quarters may be healthy. Expected stability in steel prices may support volume. Simultaneously, APAT’s industry-leading capacity, strong brand pull, higher share of value-added products, ramp-up in utilization at the Raipur facility and phase-wise completion of announced capex bode well for margin improvement. Therefore, we reiterate Accumulate. We cut our EBITDA estimates ~5% each for FY24E and FY26E and ~6% for FY25E. However, as we roll over to December 2025E from September 2025E, our TP is unchanged at INR 1,679 on 30x (unchanged) December 2025E P/E
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SEBI Registration number is INH000000933
