Sharekhan's research report on APL Apollo Tubes
Q3FY21 was stellar, with a sharp 28% beat in operating profit at Rs. 232 crore (up 45% y-o-y) on account of best-ever EBITDA margin of Rs. 4,780/tonne (up 16% y-o-y) and in-line volumes of 486kt (up 1% y-o-y). Upbeat volume growth guidance of 16/20% y-o-y for FY2021E/FY2022E and high EBITDA of Rs. 4,000-4,500/tonne (vs. historical average of Rs. 3,000-3,500/tonne) to sustain led by improvement in share of VAP (at 60% Q3FY21). Target to take capacity to 4mtpa by FY2025 and capex plan of Rs. 200 crore pa to expand VAP portfolio. Consistent volume growth of 15-20% per annum, potential margin expansion (rising share of VAP) and scalability given low share of structured steel in India’s steel consumption would further aid re-rating of APL.
Outlook
We maintain a Buy rating on APL with a revised PT of Rs. 1,180 given sustainable high double-digit earnings growth (expect 37% PAT CAGR over FY21E-FY23E) and high RoE of 28%. At CMP, the stock trades at 18.4x FY23E EPS.
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