Buy APL Apollo Tubes Ltd for the Target Rs 2,240 by Motilal Oswal Financial Services Ltd
Decent profitability amid weak demand
* APL Apollo Tubes (APAT) reported muted volumes (down 6% YoY), hit by the UAE disruptions, weak SG Premium volumes amid higher primarysecondary steel price gaps, energy-related supply issues, and subdued construction demand due to elevated input costs and channel destocking.
* However, despite the negative operating leverage, APAT maintained its EBITDA/MT at INR5,522 owing to a better pricing strategy and higher focus on profitability. Hence, its EBITDA grew 11% YoY to INR4.1b.
* Further, management reiterated its annual volume growth guidance of 15-20% YoY and EBITDA growth of 20% YoY for FY27, with EBITDA/MT to remain at similar 1QFY27 levels (~INR5,000-5,500). Moreover, the company is on track to expand its annual capacity to 8MMT from the existing capacity of 5MMT by FY28.
* We largely retain our FY27/FY28 earnings estimates and value the stock at 35x FY28E EPS to arrive at our TP of INR2,240. Reiterate BUY.
Volume growth hit by weak demand; EBITDA/MT remains steady
* APAT’s consolidated revenue grew 4% YoY but it dipped 11% QoQ to INR56b (est. INR50.4b).
* Total volumes were 744,823MT, declining 6% YoY. The dip in volumes was owing to lower volumes from the Dubai plant (loss of ~25,000MT in volumes), led by geopolitical issues. SG premium brand’s volumes were hit by a wider gap vs. secondary steel prices and an energy shortage that dented the production of the rust-proof segment (~25,000MT volume loss). These factors, coupled with high inflation, weighed on weak construction demand.
* In terms of product category, the APL Apollo brand constituted 76% of total volumes vs. 81% in 1QFY26, the SG premium brand formed 8% vs. 2% in 1QFY26, the UAE plant contributed 3% vs. 6%, and the Roofing products constituted 12%, similar to 1QFY26 levels.
* EBITDA grew 11% YoY/-20% QoQ to INR4.1b (in line), with EBITDA/MT of INR5,522 (vs. INR4,683/INR5,525 in Q1FY26/4QFY26). The company was able to maintain EBITDA/MT despite negative operating leverage owing to the company’s focus more on profitability amidst a volatile demand environment and a better pricing strategy.
* Adj. PAT grew 11% YoY/-26% QoQ to INR2.6b (est. INR2.6b).
* Net cash balance stood at INR14.1b vs. INR15.3b as of Mar’26, and the company maintained its NWC days at NIL, the same as the FY26 level.
Valuation and view
* APAT’s 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 17%/18%/21% over FY26-28. At CMP, the stock trades at 30.7x FY28E EPS of INR63. We reiterate our BUY rating and value APAT at 35x FY28E EPS to arrive at our TP of INR2,240
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
