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Growth momentum to continue, Assign BUY!

Result Synopsis

Apollo Pipes Ltd registered a healthy quarter wherein volumes increased by 28%YoY (2-year CAGR came in at 17%), largely driven by strong demand from plumbing segment. During the quarter, plumbing contributed 55% of total revenue & agrisegment constituted 45% of revenue. ASP improved sequentially to Rs126/kg due to better product-mix which resulted into better GP margins, though the same did not translate into higher operating margins owing to higher employee & other expenses. Company improved their working capital from 56-days in FY23 to 49-days in H1FY24 & management aims to further improve the same to 40-days in coming 2-3 quarters.

Management maintained their volume/value growth guidance of 25%/30% respectively over next 4-years. Company is planning to aggressively expand their market share & in order to achieve the same, Apollo Pipes will be doubling their capacities to 286,000Te by FY27. Incrementally by FY27, management aims to achieve a turnover of Rs30Bn with an EBITDA of Rs3-4Bn & ROCE of 25-30%.

We remain positive on the company & believe that Apollo Pipes will continue to outperform industry peers & further expand their market share. Hence, we expect Volume/Value CAGR of 28%/27% respectively over FY23-FY25E. Company is focusing more on plumbing segment & aims to have 75% contribution from the said segment, this will enable Apollo Pipes to expand the share of value-added products as well which will lead to better margins. We continue to value the company at P/E(x) of 35x on FY25E EPS of Rs23.6, arriving at a target price of Rs820, hence we assign a BUY rating on the stock.

Result Highlights

* Revenue stood at Rs2.49Bn, a growth of 20.5%YoY & decline of 4.2%QoQ.

* Volume increased by 28%YoY & declined 6.7%QoQ to 19,803Te.

* ASP improved sequentially to Rs126/kg as compared to Rs123/kg in Q1FY24 & Rs134/kg in Q2FY23.

* EBITDA margins declined to 9.7% Vs 10.1% in previous quarter & 1.2% (impacted due to inventory loss) in Q2FY23. GP margins improved sequentially from 26.9% to 28.6%, however higher employee cost & other expenses weighed on the operating margins. Absolute EBITDA stood at Rs242Mn, a degrowth of 8%QoQ.

* Sequentially EBITDA/Kg remained stable at Rs12 as compared to Rs2 in Q2FY23.

* Net profit stood at Rs129Mn, a decline of 7%QoQ and as compared to loss of Rs48Mn in Q2FY23

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