The key drivers of APL Apollo Tubes’ (APAT’s) performance include: growing demand across product segments; increased product penetration with a robust distribution network; an increase in the share of VAP driving margins; the introduction of Apollo Mart; and its market leadership position.
Globally, consumption of heavy structural tubes is higher (30-40 per cent of overall steel tubes consumption), whereas for APAT, the number is pegged about 6 per cent.
Going forward, with higher adoption of heavy structural tubes in real estate and infrastructure projects, the share of structural tubes is expected to improve, leading to an improvement in EBITDA/MT and operating margin for companies. India’s structural steel tube industry is pegged at about 4 per cent of overall steel consumption as compared to the global average of about 9 per cent.
Kicking-in of operating leverage and growing share of VAP is expected to lead to an improvement in margin and higher cash generation. APLL is expected to turn net cash positive by FY24.
Key risks to our call: Fluctuations in steel prices to impact margin; Slower industry growth may lead to muted growth for the company; and Maintaining of lower WC can be at risk (around four days in FY22).