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Result Synopsis

Apollo Pipes Ltd (APOLP) reported a lackluster performance in Q2FY25. Volumes (82% of total) for Apollo Pipes (standalone), declined by 17%YoY to 16,430Te (2-year CAGR stands at mere 3%) due to lower agri & infra demand which constituted ~30% of volumes Vs 40-45% previously. Though ASP improved sequentially by Rs7.3/kg to Rs122.1, EBITDA/Kg declined to Rs11 as compared to Rs12.2/Rs11.6 in Q2FY24/Q1FY25 respectively, owing to low volume off-take and minor inventory loss of

Management guidance

Company stated that H2FY25 should grow by 35% Vs H1FY25. Similar to stated targets growth in FY25 will also be 35% higher Vs FY24. Kisan will continue to contribute 25% of sales going ahead. On EBITDA level margins will be 8-9% wherein APL standalone should deliver 10% & Kisan is expected to operate at 5-6% margins. Post all expansions and desired product-mix, margins should expand to 11-12% by FY27 end. Moreover, with improvement in sales, working capital days should improve to 40-days. Company incurred capex of Rs650Mn in H1FY25 and for H2FY25 capex will be Rs1.8-2Bn.

Our View

Though demand is expected to improve H2FY25 onwards, owing to weak performance in H1FY25 we have revised our earnings estimates downwards by 34.5%/22% for FY25E/FY26E respectively largely due to lower volume growth. We expect Apollo Pipes standalone volumes to grow by 15%CAGR with improvement in demand and new up-coming capacities over FY24-FY27E and KISAN’s performance should improve gradually. With the company’s aggressive volume growth strategy and up-coming capex, we reckon EBITDA/Kg will be capped at Rs10 for the coming 2- years. At CMP, the stock trades at P/E(x) 23x on FY27E EPS of Rs21.3. We have revalued the company at P/E(x) of 30x on FY27E EPS, arriving at a target price of Rs640. Hence, we upgrade the stock to a BUY rating.

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