Buy APL Apollo Tubes Ltd for the Target Rs 2,150 by Motilal Oswal Financial Services Ltd
Well-positioned for a stronger comeback, driven by structural margin improvements
APL Apollo Tubes (APAT), a pioneer and market leader in India’s structural steel tubes industry with ~55-60% market share and a manufacturing capacity of 5 million metric tons (MMT) per annum across more than 11 plants, is currently facing demand headwinds. These challenges stem from subdued demand in the infrastructure segment, de-stocking at the dealer level in domestic markets, and the West Asia crisis impacting operations at its Dubai plant.
* APAT’s volume growth trajectory is currently facing challenges because of disruptions in its Dubai operations, led by the West Asia crisis. Further, domestic demand was also hit by higher construction costs, muted infra activity, and dealer destocking due to expectations of lower HRC prices.
* To protect profitability in a softer demand environment, management has intensified its focus on EBITDA/MT improvement through cost-rationalization initiatives and enhancing the share of value-added products (VAP). Currently, VAP constitutes 58% of the portfolio. As a result, we believe APAT remains on track to achieve the lower end of its FY27 EBITDA growth guidance of 20–25% YoY (~INR21.6-22.5b).
* APAT’s long-term growth story remains compelling, driven by rising adoption of structural steel tubes across infrastructure and building applications, alongside emerging opportunities in solar structures and data centers. The company continues to strengthen its leadership position and remains on track to expand capacity from 5 MMT to 8 MMT by FY28E.
* We forecast a revenue/EBITDA/PAT CAGR of 13%/18%/18% over FY26–FY28. We reiterate our BUY rating on the stock with a TP of INR2,150.
Demand trends likely to strengthen in the coming quarters
* Despite a challenging operating environment caused by lower infrastructure activities, APAT delivered a healthy 11% YoY volume growth in FY26, outperforming the listed peer average growth of ~10% YoY (refer to Exhibit 13). Market share gains due to the launch of the value-focused “SG Premium” brand and deeper penetration across newer end-user industries fueled this strong growth.
* Demand remained subdued in 1QFY27, hit by dealer-level destocking due to expectations of a correction in HRC prices, which have risen from INR48,710/MT in 3QFY25 to ~INR57,300/MT following the safeguard duty. The demand was also affected by slower purchases from the building and construction segment and muted infrastructure activity. Additionally, the Dubai facility faced operational disruptions due to geopolitical tensions in the Middle East, with utilization declining to ~50% from 80–82% pre-war levels.
* Going ahead, we expect demand conditions to improve progressively, supported by a pickup in domestic infrastructure activity. Additionally, the easing of geopolitical uncertainties in the Middle East should aid a faster ramp-up of the Dubai facility. Stability in HRC prices is also likely to curb dealer-level destocking, resulting in an improvement in primary demand. Accordingly, we forecast FY27E volume growth of 11% YoY.
Valuation & View
* We believe APAT has successfully navigated a challenging phase and is now wellpositioned for a meaningful improvement in its performance. Though the headwinds in 1QFY27 may impact volume growth, the company’s focus on enhancing EBITDA/MT should limit the impact on profitability and support earnings growth.
* APAT’s long-term growth outlook remains robust, underpinned by rising adoption of structural tubes across housing and infrastructure segments, supporting our 11% volume CAGR estimate over FY26–FY28E. Expansion into high-growth sectors such as solar infrastructure and data centers further strengthens its growth runway and addressable market.
* We forecast a revenue/EBITDA/PAT CAGR of 13%/18%/18% over FY26-28. At CMP, the stock trades at 29.5x FY28E EPS of INR61. We value APAT at 35x FY28E EPS to arrive at our TP of INR2,150. We reiterate our BUY rating on the stock.
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