Purchase APL Apollo Tubes with a Rs. 2000 goal. Sharekhan

 Purchase APL Apollo Tubes with a Rs. 2000 goal. Sharekhan

In its research report dated October 30, 2023, Sharekhan, who is positive on APL Apollo Tubes, suggested a buy recommendation on the company with a target price of Rs 2000.

Sharekhan's APL Apollo Tubes study report

The consolidated profit after tax for the second quarter came in at Rs. 203 crore, up 35% year over year. This robust growth was driven by a 12% year over year increase in volume to 675 kt and continued high margin performance at Rs. 4,817/tonne, up 25% year over year. With a capacity of 100 kt and a high EBITDA margin of Rs. 5000/tonne, the Raipur facility ran at 27% utilization. More significantly, the EBITDA margin for coated goods increased by 85% on a quarterly basis to Rs. 7,472/tonne, indicating that they are sustainable moving ahead. As a result of destocking in the commodities area, management now projects volume for FY24 to be at the lower end of the forecast range of 2.8–3 MT. Nevertheless, the long-term volume and profit prognosis is still favorable. APL restated its volume projection for FY26, which is 4.6–5 million tonnes, and it projects margins of Rs. 6000 per tonne upon the Raipur plant's complete ramp-up.

Prospects

The stock price's recent decline from its 52-week high of Rs. 1,806 offers investors a favorable entry opportunity. In addition, a robust forecast for profits growth (45% PAT CAGR over FY23–26E) and high RoE/RoCE of 34%/44% will help to close the valuation gap with listed competitors and improve the risk-reward situation. As a result, we maintain our Buy rating on APL with an unchanged PT of Rs. 2,000.