Buy APL Apollo Tubes Ltd for the Target Rs. 2,100 by Motilal Oswal Financial Services Ltd
Margin expansion drives earnings growth
Operating performance above our estimates
* APL Apollo Tubes (APAT) reported a strong operating performance in 2QFY26. Its EBITDA surged 3.2x YoY (up 20% QoQ), fueled by a 13% YoY volume growth and a 2.8x YoY jump in EBITDA/MT (up INR545/MT QoQ) to INR5,228. The Raipur and Dubai plants achieved 75% and 85% utilization, respectively, fueling margin expansion.
* With improving utilization, we expect the growth momentum to be sustained in 2HFY26. For FY26, management has maintained its guidance for volume growth at 10-15% (~3.5m MT) and EBITDA/MT at INR4,600- 5,000 (with EBITDA of over INR17b in FY26).
* We broadly retain our FY26E/FY27E/FY28E earnings and value the stock at 35x Sept’27E EPS to arrive at our TP of INR2,100. Reiterate BUY.
Healthy volume and better gross margin boost profitability
* APAT’s consolidated revenue grew 9%/1% YoY/QoQ to INR52.1b (est. INR56.5b), led by sales volume growth of 13% YoY/8% QoQ to ~855KMT. VAP mix stood at 57% in 2QFY26 vs. 55%/61% in 2QFY25/1QFY26.
* Gross profit/MT was up 44% YoY/2% QoQ at INR10,116, driven by brand premiumization. EBITDA/MT rose 2.8x/12% YoY/QoQ to INR5,228 (est. INR4,823). Margin expansion was aided by improved gross margin, better VAP mix, and operating leverage. EBITDA jumped 3.2x/20% YoY/QoQ to INR4.5b (est. INR4.0b).
* Adj. PAT surged 5.6x/27% YoY/QoQ to INR3b (est. INR2.7b) for the quarter.
* During 1HFY26, APAT’s revenue/EBITDA PAT grew 6%/86%/2.2x to INR103b/ INR8.2b/INR5.4b. EBITDA per ton was INR4,965 (+67% YoY) with sales volume growth of ~11% to 1.6m MT. For 2HFY26, our implied revenue/ EBITDA/Adj. PAT growth stands at 15%/22%/23%. Further, our implied 2H volume growth is likely to be 10% with an EBITDA/MT of INR5,445.
* Gross debt stood at INR6.9b as of Sep’25 vs. INR6.1b in Mar’25. Further, CFO stood at INR6.0b as of Sep’25 vs. INR1.3b as of Sep’24.
Key highlights from the management commentary
* Outlook: The company has also guided a quarterly volume run rate of ~0.9m MT for 3Q/4QFY26 with an EBITDA run rate of over INR4.5b, respectively. The company’s strategy to expand capacity in international and eastern Indian markets remains intact, which will drive double-digit volume growth (10-15%) CAGR over the next three to four years.
* Expansion plans: APAT plans to expand via four key levers: expansions in key markets (East India, South India, and Dubai), new product segments, exports, and sustaining its brand premium. APAT expects capex of INR15b in the next three years to raise capacity from 4.5mMT to 6.8mMT by FY28.
* Pricing scenario: Currently, HRC prices are at ~INR46000/MT. With safeguard duty, HRC prices stand at around INR52,000–53,000/MT. This is expected to restrict imports. With this 12% safeguard duty, the downside to the HRC coil prices is limited; this may lead to inventory restocking. Further, with better brand premium, the company expects the General Structure EBITDA spread to be ~INR3100/MT on a sustainable basis.
Valuation and view
* We expect APAT to continue its volume growth momentum, led by a better demand scenario and supported by capacity expansion in key markets, new product additions, and higher exports. Margin is also expected to improve further, driven by cost optimization measures, increased automation, and a rising mix of value-added products (with a better geographical mix), driving steady growth in EBITDA/MT.
* We expect a CAGR of 14%/29%/33% in revenue/EBITDA/PAT over FY25-28E. We value the stock at 35x Sept’27 EPS to arrive at a TP of INR2,100. Reiterate BUY.
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