Axis Securities

APL Apollo Tubes (Buy)

Target: ₹3,565

CMP: ₹3,096.80

APL Apollo Tubes (APAT) Q2-FY21 consolidated numbers were broadly in line with our estimates on the topline and EBITDA front while it beat our estimates on the bottom line owing to lower interest and depreciation. Consolidated revenue grew at a robust 34 per cent y-o-y to ₹2,202 crore (₹2,197 crore our estimiates) led by 32 per cent volume growth.

Recurring PAT grew 72 per cent y-o-y at ₹103 crore (₹87 crore our estimates) led by significant reduction of 41 per. cent y-o-y on interest costs on the back of debt reduction. Q2-FY21 further saw strengthening of the balance sheet as the company reduced its net debt further to ₹300 crore from about ₹780 crore as of FY-20. We were positively surprised to note a further reduction in Net Working capital to 7 days from 25days reported in FY20 on the back of reduction in debtors (strategic shift to cash and carry model), lower inventory owing to consolidation of its plants and strict cost control measures.

Rural forms 55 per cent of revenues vs 40 per cent earlier and owing to resilience of rural markets. We revise our Revenue/EBITDA/PAT estimates for FY21/22 on the back of a healthy growth commentary and likely improvement in margins supported by market share gains.

Key risk to our call re-initiation of lock-down across key markets given concerns on Covid’s second wave.

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