Reliance Securities

APL Apollo Tubes (Buy)

CMP: ₹1,213.45

Target: ₹1,520

Key triggers: a) Investment to the tune of ₹102-lakh croreRs102 trillion in the infrastructure sector, as outlined in the National Infrastructure Pipeline; b) Market leader in ERW pipe segment with well spread out capacities; c) Market leadership to sustain on robust pan-India distribution network and variety of SKUs; d)Higher utilisation, efficient fiscal management and improved operating efficiency to boost profit.

Outlook & valuation: APL Apollo Tubes’ revenue and earnings are likely to remain subdued in FY21E, which we believe to pick-up pace after 2HFY21E. Hence, we expect its revenue, EBITDA and net profit to clock 1 per cent/4 per cent/2.6 per cent CAGR over FY20-FY23E, as the company focusses to improve its operating efficiency. Further, we believe APL Apollo Tubes deserves premium valuation compared to peers on the back of lean working capital, low debt, and ready capacity. As per our analysis change in HRC prices has a very low correlation with APL Apollo’s EBITDA. Hence, we have valued the stock on PE basis by assigning a multiple of 14x on FY23E EPS of ₹108.6, arriving at a target price of ₹1,520 and assign a ‘buy’ rating on the stock.

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