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Elara Capital
APL Apollo Tubes (Buy)
CMP: ₹1,613.85
Target: ₹2,267
APL Apollo Tubes is a market leader in the domestic ERW (electric resistance welding) pipe industry with a current market share of about 18 per cent. It is among the fastest-growing ERW pipe firms, with a capacity CAGR of about 24 per cent over FY09-19. During the past three years, it has grown about 3x rate of industry growth, and we believe is well placed to continue strong momentum, given its 1) industry-leading capacity of 2.3 million tonnes; 2) low cost structure; and 3) pan-India presence with a vast distribution network
Valuation: We expect a revenue CAGR of about 21 per cent and an EPS CAGR of about 49 per cent over FY19-21E, led by 1) a volume CAGR of about 19 per cent; 2) improved efficiency; 3) better product portfolio; and 4) likely reduction in the net debt-equity ratio to 0.4x in FY21E from 0.8x in FY19. Therefore, we initiate on APL Apollo Tubes with a Buy rating and a target price (TP) of ₹2,267, implying about 41 per cent upside. Our TP is based on 16.5x FY21E P/E, which is in line with the past five-year average of 16.3x.
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