Buy Apollo Pipes Ltd For Target Rs.620 by Choice Institutional Equities Ltd
High double-digit volume growth forecast for the rest of FY27
APOLP started FY27 with marginal volume de-growth, due to weak government infrastructure demand. Also, PVC resin price volatility weighed on performance. EBITDA margin was impacted by inventory losses, aggressive pricing and investments in new business verticals a despite healthy growth in CPVC and water tanks. The management expects a strong recovery over the remainder of FY27E, supported by the Varanasi plant ramp-up, post-monsoon demand recovery and stabilisation in PVC resin price.
We maintain our ‘BUY’ rating on Apollo Pipes (APOLP) with a target price of INR 620/share, considering an ambitious 5-year plan targeting INR 50 Bn revenue by FY31E at 35% CAGR, backed by 3 operational plants, a new South India plant and allied product expansion. We continue to be positive on APOLP owing to:
1) We project a robust 15% volume CAGR over FY26–29E, driven by a strong industry demand, higher infrastructure spending by state and central governments, healthy real estate project completions and continued market share gains from unorganised players in the pipes business.
2) EBITDA margin improvement of 464 bps over FY26–29E is forecast to be facilitated by a) Operating leverage benefit owing to potentially strong volume growth, b) Anticipated margin improvement in Kisan Mouldings asset as a result of APOLP initiatives c) Likely improvement in contribution from highermargin products, such as CPVC.
On the basis of our assumption of 15% volume CAGR, 3% growth in realisation and EBITDA margin improvement of 464 bps over FY26–29E, we forecast APOLP EPS to expand at a CAGR of 149.5%. ROCE is anticipated to reach 13.1% by the end of FY29E as compared to 1.1% in FY26.
We assign a PE multiple of 35.0x on FY28E Core EPS, which we believe is conservative and arrive at a TP of INR 620/share for APOLP. Possibly higher volatility in PVC resin prices and probable slowdown in infra spending by the government are risks to our 'BUY' rating.
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