Buy Apollo Pipes Ltd Ltd For Target Rs. 475- Choice Broking Ltd
Demand Recovery Awaited
We maintain BUY rating on Apollo Pipes (APOLP) with a target price of INR 475/share. We continue to be positive on APOLP due to: 1) Robust volume CAGR of 22% vs (24% earlier) expectation over FY25-28E driven by demand growth and market share gains from unorganized players in the pipes business. Higher infra spends by state and central govts coupled with demand boost from construction completion of Real Estate projects launched between FY22 to FY25, would drive volume growth for pipes during FY26-28E.
2) EBITDA margin improvement of 210bps over FY26-28E driven by a) operating leverage benefit due to strong volume growth, b) margin improvement in the Kisan Mouldings asset due to initiatives by APOLP and c) improving contribution from higher margin products like CPVC.
Basis our assumptions of 22%/2% volume/realisation CAGR, and EBITDA margin improvement of 210bps over FY25-28E, we forecast APOLP EPS to grow at a CAGR of 61%. Consol ROCE is expected to reach 17.2% in FY28E vs 6.7% in FY25
We incorporate a PEG ratio based valuation framework that allows us a rational basis to assign a valuation multiple that better captures earnings growth. We arrive at a 1-year forward TP of INR 475/share for APOLP. We assign a PEG ratio of 1x on FY25-28E core EPS CAGR of 61%, which we believe is a conservative multiple.
We do a sanity check of our PEG ratio based TP using implied EV/EBITDA, P/BV, and P/E multiples. On our TP of INR 475, FY27E implied EVEBITDA/PB/PE multiples are 12.3x/2.3x/22.9x all of which are reasonable in our view. Higher volatility in PVC resin prices, slowdown in infra spends by government are risks to our BUY rating.
Q1FY26 Review: Volume Miss is Disappointing, while margin remained flat QoQ
Volumes came in at 25.3KT (-2.6% QoQ, -4.7% YoY). YoY decline in volumes is disappointing. ASP came in at INR 1,08,632 per ton (-10.3% QoQ, -6.4% YoY) due to decline in PVC resin prices by 7% on QoQ basis. Overall, consolidated Revenue/EBITDA/PAT came in at INR 2,750Mn (-12.6% QoQ, -10.9% YoY) / INR 207Mn (-14.0% QoQ, -28.6% YoY) / INR 82Mn (-17.3% QoQ, -41.2% YoY). EBITDA is clearly lower than market estimates in the range of INR 240Mn. Consolidated EBITDA per ton came in at INR 8,167 below CIE estimates of INR 9,500 per ton. This is expected to pick up with an uptick in demand in rest of CY25.
For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131
